The EU punts Greece to the IMF

I have been closely tracking the debt crisis in Europe for almost two years now.  The financial crisis that beset the United States in 2008, and whose effects continue to this day, was much worse in certain European countries.  Frankly, the full impact of the crisis has yet to be felt in Europe.  The economies of Portugal, Italy, Greece and Spain are all heavily leveraged with debt and each of these nations is teetering on the edge of debt defaults.  In 2010 the world has been focused on Greece and its potential default leading to a cascading domino effect of doom on the European Economic Union.

In particular, Germany, the only truly economically strong nation in the EU has been pressured to bailout the Greeks.  Politically emasculated because they initiated World War II, Germany nonetheless has bankrolled the European Union for most of its existence.  In the Greek debt crisis Germany seized an opportunity to increase its political heft within the EU.  However, the Germans never wanted to bailout Greece.  Instead, they wanted to step outside of France’s long EU political shadow.  Thus, Germany dictated terms to Greece: undertake budgetary austerity and we might help.  Germany also dictated terms to the EU: put in place legal authority within the EU charter for removing a member from the union.

Why didn’t Germany want to bailout the Greeks?  Imagine being an unemployed German and your government declines on implementing domestic programs designed to take the local sting out of the global recession because it wants to bailout Greece instead.  Germany bailing out Greece was not possible because of domestic German politics.  So the Germans have punted to a broader base of lenders/bail-outers, the IMF.  The major financial backers of the IMF are the United States and China.  So, in typical EU fashion they have demonstrated that they cannot take care of an internal issue and are calling upon the U.S. to help them out.

Net, the Germans have demonstrated their willingness to transit out of the post-World War II political slumber; the Greeks have implemented very unpopular austerity measures and may see a mini-revolution; Greek debt still sits poised to default; global financial markets are still nervous; and the IMF is now being looked to as guarantor of a debt situation whose creation it did not supervise in the first place.  When will the Europeans learn to wipe themselves?  As investors, this is another reason to be nervous about plunging into the financial markets right now.

Jason