June 28th, 2011
10:30 AM ET

And if the Greek bailout fails...

By , Global Post

BRUSSELS, Belgium ― What happens if the Greek parliament rejects new budget cuts, deep-sixing its financial aid from the European Union?

“You can't let anyone believe there is a Plan B,” said Euro Group chief Jean-Claude Juncker, the prime minister of Luxembourg who heads up meetings of the 17 countries using the common currency. “And there isn’t a Plan B,” he insisted after EU heads of state gathered in Brussels last week, for a summit focused on the Greek crisis.

The EU stands ready with the next tranche of Greece’s current rescue package and a possible second bailout, pending Greek approval of about $40 billion of budget cuts and tax hikes this week. So far, the EU insists it doesn’t have contingency plans if the Greek parliament rejects the austerity measures. Meanwhile, talk about a Plan B is taboo in Brussels.

But with so much at stake ― by the most dire assessments, the existence of the common currency or even the bloc itself ― it’s inconceivable that policymakers aren’t looking ahead.

So is Brussels bluffing?

Janis Emmanouilidis, a senior analyst at the European Policy Center, says some of this is semantic. Though EU officials and European leaders have stuck admirably to the script of “no Plan B,” some going so far as to add “nor C or D,” Emmanouilidis says “in any case, you have to prepare yourself for what will happen in the markets.”

He believes the EU needs a Plan B for itself, regardless of what happens in Greece this week.

“In an ideal world,” he recommends the EU make a wish list of reforms that would include the “introduction of euro bonds, the creation of a European finance ministry, the harmonization of policies in areas such as taxation or social policy [and] a substantial increase in the EU budget.” This would lead to the “creation of an economic and political union with a state-like quality able not only to solve the euro crisis but also to achieve the strategic objective of a global Europe capable of playing a key role in determining international political and economic developments in a highly dynamic global environment.”

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Economic analyst and critic of the common currency David Gueguen says it’s time for Brussels to entertain the notion of states leaving the euro zone, which he believes it’s high time for Greece to do. “Go back to the drachma,” Gueguen recommends to Athens, and restructure the debt.

What Gueguen calls his “big fear” is that the debt crisis will continue to spread. “We see already the problem in Portugal, we have a problem in Ireland, we have now tensions in the Spanish market,” he said. “It’s a very, very dangerous situation.”

The problem with Gueguen’s plan is that, as much continues to be written about Greece leaving the euro zone, at present there is no mechanism for it to leave ― or be kicked out for that matter. The question is so sensitive that European Central Bank spokesman William Lelieveldt refused to discuss the issue. “No comment,” he said repeatedly, when asked about the technicalities of breaking up the euro zone.

Emmanouilidis said the only mechanism that exists, as yet untested, would be for Greece to leave the entire EU, a scenario provided for in the bloc’s governing treaty. But he doesn’t think that’s realistic.

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“There would be thousands of questions that would need to be answered of what needed to be done in order to get out” of the euro zone, Emmanouilidis said. “So beyond the legal, there are the practical questions which will be difficult to solve … you would need both sides to be very eager to accept thousands of compromises.”

Gueguen, whose 2004 book “The Euro: Europe’s Construction or Destruction?” argues that the euro zone’s model of sharing a currency between states with different fiscal policies is unsustainable and believes that the EU should accept its share of the burden for Greece’s financial demise.

Since the EU allowed the country to join the common currency without proving it could meet minimum standards, “we have to take our responsibility and pay a big part of the bill,” he said ― but not in the form of repeated bailouts, which he likens to tossing cash into a bottomless pit.

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Greece should leave the euro zone, he said, and out of solidarity the EU should “cut down three-quarters of the debt by loss and profit and Greece can restart with a small debt and live its life."

And that, Gueguen says, should be Plan A.

Post by:
Topics: Economy • Europe

soundoff (31 Responses)
  1. MrId

    Mmmmmmm gyros

    June 28, 2011 at 11:05 am | Reply
    • China is hell

      If the Greek bailout fails I will not Chinese goods.

      If the Greek bailout succeeds, I will still not buy Chinese goods.

      Thanks for asking Fareed!

      June 28, 2011 at 3:33 pm | Reply
  2. j. von hettlingen

    "Since the EU allowed the country to join the common currency without proving it could meet minimum standards, “we have to take our responsibility and pay a big part of the bill,” he said."
    Greece didn't qualify for the first round of the EUROZONE in 1999. The then incumbents under Simitis of the PASOK begann to reform, and could join the EURO in 2001, despite the doubts of the European Central Bank. One hoped that Greece would carry on to improving their deficits. Yet it turned out later that the Greeks had presented false balance sheets and cheated their way in.
    .

    June 28, 2011 at 11:31 am | Reply
    • keepamericaalive

      Well it looks like they are getting what they deserved then.

      June 28, 2011 at 12:34 pm | Reply
  3. 2bits

    The domino's begin falling and ends with USA.

    June 28, 2011 at 11:33 am | Reply
    • Ryan in Michigan

      Unless we can find a way to fix ourselves before it reaches us. There's always hope.

      June 28, 2011 at 12:19 pm | Reply
      • Spacial

        Don't count on it. We are in the process of Globalization and in order to acheive one world order and business the world must be equal. That means America must be reduced to the living standards of the rest of the world. Time will validate what I say.

        June 28, 2011 at 12:26 pm |
      • Netr0

        As you can see, that is what 'living beyond your means'.

        June 28, 2011 at 12:53 pm |
      • Ryan in Michigan

        @Spacial – There's also the possibility that it's not America being reduced to the standards of the rest of the world. The rest of the world may be catching up to America (and England, France, Germany, Canada, Australia, Brazil, China, India, Russia, and other top economic powers), which is no bad thing either. It's like the people who say the wealth should be distributed evenly among all the people of the world. If that were done, factoring in monetary funds and debt (in essence, excluding stocks, bonds, and nonexistent money), anyone with more than around five dollars would lose money (likely including you, Spacial). Bear that in mind when calling for the redistribution of funds.

        June 28, 2011 at 4:58 pm |
    • potaotsacker

      Libtardian.

      June 28, 2011 at 10:45 pm | Reply
  4. nik green

    The World Bank, IMF and all these global financial institutions have one common aim: screw the regular people, and enrich the elites. A similar situation in happened the 1770s, when the "colonists" were being shafted by the British banksters.... which gave rise to the American Revolution. People need to learn some history, and ACT ON IT.

    June 28, 2011 at 11:48 am | Reply
    • ex Colonist

      We are those bankers now !!

      June 28, 2011 at 12:46 pm | Reply
  5. wat

    it already did fail, did cnn miss the part where they are are getting a bailout to pay a past bailout?

    June 28, 2011 at 11:55 am | Reply
    • Ed B

      Exactly ! It will only make things worse when they have to face the reality of austerity cuts to get their situation under control .

      June 28, 2011 at 12:59 pm | Reply
  6. Ryan in Michigan

    I'm curious what the people in Greece who are rioting believe should be done about it. They're complaining about the austerity measures, but what is their plan? Do they have a way to pay back the money without the austerity? What is their idea?

    June 28, 2011 at 12:22 pm | Reply
    • Mark

      I get the impression the Greek citizenry isn't very sophisticated regarding international macroeconomics. They feel (rightly so) that they have been screwed by their government and they don't want to pay for for their governments mistakes. But beyond that I don't think they have a plan other than perhaps assuming that if Greek defaults all this debt will magically go away and they will be able to live their lives normally.

      June 28, 2011 at 12:56 pm | Reply
  7. Mark

    There's no way for Greece to win in any scenario. Refusing austerity measures (and thus no bailout leading to default on loans) would make Greece the riskiest place in the world for investment for decades stifling growth in that country. And not only that, those billions of dollars Greece owes would skyrocket due to inflation within the country. Do you think the citizens of Germany or France will allow their governments to "forgive" all this Greek debt when their own countries practiced financial austerity for many years while the Greeks lived beyond their means?

    June 28, 2011 at 12:42 pm | Reply
  8. SarahPalin

    If the greek bailout fails, then we will give more money to my rich republican friends. You peasants are soooo stupid. When you peasants elect me president, I will invite my rich republican friends to the white house to pee on you some more.

    June 28, 2011 at 8:52 pm | Reply
    • Potatosacker

      Spoken like a true closet Libtardian. Yeah, you fooled us.

      June 28, 2011 at 10:43 pm | Reply
      • SarahPalin

        Yes. You are easily fooled. You foolish person. But I hope you vote for me again.

        June 29, 2011 at 9:30 pm |
    • Wasabiwahabi

      Spoken like a true, tree–hugging, inconsistent, hypocritical, granola-crunching, self-loathing, cliche-ridden, Birkenstock-breath, mamby-pamby, Democrat, who even with a majority in both Houses, still couldn't tie his shoes but blamed it on everyone else except for fellow Democrats.

      June 28, 2011 at 11:54 pm | Reply
      • SarahPalin

        Thank you for your vote. I hope you will vote for me again.

        June 29, 2011 at 9:31 pm |
  9. Cythara

    If Greece fails and financial dominoes fall, let the banks take the hit and all the nations return to protectionism. Screw the banks and internationalism. It is just an excuse for unscrupulous people to rob all the nations equally.

    Here's a way to take care of US deficits....tax all the corporations that moved their manufacturing base over seas till their eyes bleed and not those that kept it in the US. We'd be swimming in money if the government did that.

    June 29, 2011 at 12:21 am | Reply
    • markodavid

      With you all the way

      June 29, 2011 at 6:51 pm | Reply
  10. Charles London England

    Attn: To Cnn board of directors: When will CNN do documantary about this story: The Greek Volunteer Guard (Serbian: Grčka Dobrovoljačka Garda, Greek: Ελληνική Εθελοντική Φρουρά) was a unit of Greek volunteers that fought in the Bosnian War on the side of Bosnian Serbs. Members of the unit allegedly participated in the Srebrenica Massacre and after the city fell hoisted a Greek flag over the town on Ratko Mladić's instigation.

    Some of the volunteers had links with Chrysi Avyi (Χρυσή Αυγή, "Golden Dawn"), a Greek neo-Nazi organisation,[3] and others were mercenaries. They were allegedly motivated to support their "Orthodox brothers" in battle.[4] Archbishop Seraphim of Athens had invited Bosnian Serb leader Radovan Karadžić to visit Athens in 1993.
    when will US President Barack Obama and Merkel and other western countries do something about Bosnia-Herz. These nations made and financed genocide founded in 1995 Republika srpska and gave half of Bosnia to serbs in Dytone oH and now Bosnia is only state in Balkans that is disfunctunal because serbs are blocking all reforms.USA, and UE should be ashamed because they let this happen…republika srpska should be abolished and Bosnia should only decentrelized on non-ethnic majority regions… 5 or ten regions with one capital, one police…like this situaton now milosevic’s dream came true, and Dodik is making BiH hostage ratko maladic was a serbian chetnick,and his father was too, and his grand-father was also….members 150,000 of serbian army and republica srbska army; killed,wounded,and raped over 250,000 Bosnians citizens (Bosniaks,Croats, and Serbs in Bosnia-Herzegovina) between 1992-1995…Republica Srpska is founded on genocide and most Mladic (that serbia protected till 2011) shelled citizens of Sarajevo and served in Serbian army that killed and raped……Serbia and its people, leadership protected Karadzic and Mladic and gave them army pansions while they lived in Belgrade...now president of republika srpska is planing to make genocide republica srpska independent by mid 2012 with help of russian and serbian mafia...there is papers, documents and people in balagrade and balkans that know all about this

    June 29, 2011 at 2:43 pm | Reply
  11. GreekRiots

    The Greeks should take the riots into the rich neighborhoods and start burning. Just for the fun of it. The police can be everywhere. Now go do it.

    June 29, 2011 at 9:28 pm | Reply
  12. dave

    Let's have some perspective, people.

    Greece is a notoriously corrupt society. When credit was easy, their leaders took the money and handed it out to croneys. Now the citizens would like to disavow their leaders' debts. It doesn't work that way.

    Greek unions have ensured that work isnt work and benefits are generous; a paradise under the Mediterranean sun.

    Now that their economy is failing, could it be perhaps that Greeks have been living off the fat of the lamb?

    Take a look across the Bosporus. Turkey has reported growth of over 11% in GDP, so let's not pretend Greece is the victim of a bad economy. Just cut your wages and reduce the benes. Then you too can be a productive economy and honor your obligations.

    June 30, 2011 at 4:49 am | Reply
  13. dave

    After the war, Greece's largely rural population departed its northern and western regions. The migration to Athens and to some degree Thessaloniki diminished agricultural output and created a state-dependent urban subpopulation. Once you include the unofficial population, greater Athens accounts for a third to a half of the national population, making it one of the densest conurbations in Europe. Its private sector cannot support that level.

    Send them back to the land to pick olives.

    June 30, 2011 at 6:08 am | Reply
  14. Deepwater805

    My Big Fat (2nd) Greek Bailout...

    June 30, 2011 at 7:51 am | Reply

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