What a Greek Bailout Might Look Like

In a perverse way, the European Commission’s validation of the Greek government’s deficit plan increases the likelihood that it will be bailed out if bond investors refuse to buy its debt.

That’s because the more the EU declares the Greek plan to be viable, the less excuse it would have for walking away. And if borrowing from the bond markets becomes too expensive, it would be nigh on impossible for the Greek government to meet its deficit targets.

But while everyone assumes that the euro zone’s largest members have at least thought about how a bailout might be implemented, few have any clear idea what it might look like.

One big question is whether it would take the form of a euro-zone, European Union or bilateral arrangement.

There is no way the U.K. government or any other non-euro zone member could sell a Greek bailout to their voters, so it wouldn’t be an EU response. But European governments typically seek to muster the broadest possible support for any initiative that requires political courage, so it’s more likely to be a euro zone response than a series of bilateral deals.

It’s also very likely that one condition of a bailout would be that euro zone officials sit with Greek officials in the finance ministry, the statistics agency and any other location where substantial amounts of money, and financial information are gathered.

They may even demand participation in an anti-corruption taskforce, effectively treating Greece like a post-conflict zone in the former Yugoslavia.

However, they would probably stop short of sequestering the government’s tax revenues. That would resemble the Public Debt Administration the European powers installed at the heart of the Ottoman Empire late in the nineteenth century, an organization dedicated to collecting taxes that were then used to pay European creditors.

But without control over its tax revenues, a government isn’t really a government. Euro-zone members would also be keen to keep the IMF out of the arrangement. Involving the Fund would effectively be an acknowledgment that the euro zone’s own processes for keeping members in check weren’t strong enough, and it would also suggest that the euro zone is the kind of place that has to go to the Fund for help, much like Latvia.

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    • [...] spekuliert, was denn genau passieren könnte. So überlegt etwa das Wall Street Journal, wie ein griechischer Bailout aussehen könnte. Hier eine kleine Orientierunghilfe in Form einer Grafik der Barclays Bank, die von Zero [...]

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