Greek crisis: Q&A

Greek crisis: Q&A
As EU leaders meet in Brussels today to find a solution to Greece's debt crisis, here's an explanation of the problems facing them.


Published: 7:34AM GMT 11 Feb 2010

Q How much scope does the European Union have to help Greece?

A It's complicated. The EU is bound by its own treaty, which has no clear procedure for bailing out a eurozone economy. The EU should be able to come up with a legal justification but the process could be time-consuming and complex and none of the potential options will be popular with member states not in crisis. It may need to use a variety of available options.

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Q Can't the EU just lend Greece the money it needs?

A Things are not that easy. EU law says the union "shall not be liable for or assume the commitments of central governments" unless in the joint execution of a specific project. Attention has turned to Article 122 of the EU treaty which lets the EU help a member state threatened by "exceptional circumstances beyond its control". Greece's poor fiscal record makes it difficult to argue this case, but blaming international speculators could provide cover for such a move.

Other routes could include defining aid as coming from individual member states or for EU governments to buy Greek bonds and justify this action by telling taxpayers the purchase is an investment, not a bail-out.

Q What are the other options available to the EU?

A Greece is waiting on €18.1bn (£16bn) of structural funds earmarked under the 2007-2013 EU budget. The European Commission could decide to pay these funds early, as it did with €7bn for central and eastern European members last year.
The European Investment Bank, which is owned by EU governments, could borrow money in the market relatively cheaply to buy Greek bonds, though this option would probably need agreement from EU finance ministers. The EU might also issue common bonds with Greece taking a share of the proceeds, lowering its borrowing costs. However, the idea of EU common bonds has received little support in the past.

Q Isn't this what the International Monetary Fund is for?

A The IMF is already advising Greece on how to handle its fiscal crisis but requesting IMF financial support for Greece would be unpopular among other European states and a huge embarrassment to the EU.

IMF assistance could come in the form of precautionary funding, possibly including EU support, for Greece to tap if necessary to soothe market nerves. The IMF might also make available its Flexible Credit Line, which was set up for emerging markets to tap during the crisis. However, Greece's poor record would probably bar it from using this fund, which is intended for economies with strong fundamentals facing short-term problems.

The EU is more likely to ask the IMF to monitor and report on Greece's performance against its promises to provide reassurance for investors.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7207492/Greek-crisis-QandA.html