Greek tragedy with more grotesque features

Almost all euro countries have broken the Maastricht criteria. The Greek tragedy is taking on ever more grotesque features, is now Portugal also been the target of speculation. How could this happen, and what to do? A basic problem is that the Greek debt and low productivity in the overall economy of the European Commission was not sufficiently recognized. Because the instrument, however, the Stability and Growth Pact has become a toothless tiger. Sanction options no longer exist.

It has been watered down since the pact at the initiative of the Federal Government in 2003. The sense of sound fiscal policies and good governance can be lost. In Greece, this has been done, but also in other countries of the EMU. Despite the lack of sanctions, it would still have been possible, the Greek government and the people to realize that the other European countries cannot help financially. State support of other EMU members, the so-called bailout is banned by EU Treaty, and rightly so.

Such a bailout adds distorted incentives in the debtor countries. The absence of clear rules on penalties in conjunction with the planned support is, so to speak, the fraction of the bailout. Thus, it makes sense for some market participants to bet against Greece and now against Portugal. What could be the reason of this bet? The deterioration of the rating and refusing new loans could the governments of the EMU feel increased pressure to give state aid. These bets are obviously only safe if the Greeks will actually helped with federal funds from the EU, but it seems no doubt exist.

Nevertheless, it is worth it even now to think about the right kind of support. The alternatives are clean. First, the EMU helps, as now is announced. It could be an incentive for the Greek government, but also for the governments in Portugal, Spain, Italy, and Ireland. In the Portuguese case, it is feared that the aid will be due at the same time. The fiscal stability in the euro zone would not help.

Whether in such circumstances the EMU would inventory is open, because the differences between the countries would be very large. At the same time, all the member countries would be weakened if they had already given money.