As bailouts continue in Europe, so does flouting of rules
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LANDON THOMAS Jr
Bailouts beget more bailouts. That is the cautionary lesson from the latest revamping of Greece's financial rescue deal, according to some economists. And they warn that unless Europe starts enforcing its own rules against bailouts and big budget deficits, governments will never get serious about putting their financial houses in order.
Of course, none of the finance ministers who worked out the new financial terms for Greece in Brussels called it a bailout. But for critics it was precisely that. By reducing interest rates and extending the payback maturities on the 168 billion euros ($217 billion) that European governments have lent Greece so far, those loans will now become barely profitable for the countries that made them.
It is the sixth bailout since the European debt crisis exploded in 2009 — three for Greece and one each for Ireland, Portugal and Spain. And these rescues have taken place despite the fact that the treaty underpinning Europe's common currency bars bailouts by forbidding one member country from assuming the debts of another.
But if a majority of euro zone countries did not consistently flout another treaty principle — the one limiting a member government's debt to 60 percent of gross domestic product — there would not be a euro zone debt crisis in the first place. Greece might be the most glaring violator, but Germany and France are also breaking that rule.
Although it buys time for Greece, the latest debt deal has been widely criticized as being overly optimistic in expecting Greece to produce the growth and fiscal discipline needed to bring its debt down to less than 120 per cent of gross domestic product after 2020, from 175 per cent today.
EU economic mood cheers up