From Brussels with Love?

It’s beginning to look like the Fates had it in for Greece. Of all the eurozone countries, it has been hit hardest by the global recession. Even as the rest of the world begins to recover from the recent financial crisis, interest rates on Greek debt have skyrocketed. While the government continues to spend liberally, investors have lost faith that the country will emerge from its economic doldrums.

As Greece and the European Union rush to stop the Greek problem from spilling over into the rest of the EU, we urge them to take heed of popular sentiment and not shore up Greek debt with taxpayer money from Germany and France—the only two eurozone economies in a position to help. Doing so would constitute forcing a stronger political union on eurozone and, more broadly, EU member-countries where such a union does not exist and is not wanted by their citizens.

What may seem like a rather isolated problem is really much more. Ever since the EU, with Germany at the helm, ushered in the Euro in 1999 (some say hastily), the fiscal collapse of any one eurozone country has had the potential to erase confidence in the common currency that underpins the economic structure of them all. A catastrophic loss of faith in the Euro, a currency second only to the United States Dollar in importance, would have grievous ramifications worldwide.

As such, the question to ask is not whether Greece ought to receive economic support, but rather from where it should be coming. Interpreting EU treaties in such a way that allows rich member-countries to bail out poorer ones is a step toward integrated eurozone fiscal policy as it necessitates the coercion of the poorer countries’ fiscal policymakers. Although austere German inflation-hawks might disagree, any interventionist French politician-turned-economist would gladly proclaim that fiscal policy is inherently, and rightly, subject to political forces. Indeed, in that country, unlike in Germany and the U.S., elected politicians dictate what federal rate-setters ought to prioritize.

It is precisely because such marked differences in sentiment would have to be overcome that even bailing out Greece (or any other eurozone member) with eurozone money would be more than just the small step toward centralized fiscal policy that it may appear to be. It would also be a very large step toward political union—a goal that the EU must not reach too far for until it attains the approval to do so from the popular ballot on which its authority rests.

The obvious source of emergency funds, then, is the International Monetary Fund. Not only is it one of the only institutions with enough money (over $750 billion in lending capacity) to sustainably prop up the Greek economy, but the fund also has unmatched experience in setting troubled economies straight—that, after all, is its purpose. While it is unprecedented for the IMF to bail out a eurozone nation, it has bailed out several EU members including the United Kingdom in 1976 and, more recently, Hungary, Latvia, and Romania in cooperation with the EU.

Undoubtedly, there is a stigma that is attendant to being bailed out by the IMF, which most often works with developing nations that are facing severe economic problems. However, Greece and the EU must not be so proud as to turn up their nose at the only realistic alternative that does not entirely sacrifice Greek sovereignty or reach beyond the limited powers granted the EU. Giving Greece this slap on the wrist for its economic mismanagement would also encourage other troubled eurozone economies that may be counting on the cushion of Franco-German bailout to finally institute meaningful fiscal and economic reforms of their own.

Currently, the IMF is largely sitting on the sidelines in an advisory role to Athens as France and Germany seek a European solution to what they think of as a European problem. But, as the pitfalls of a Greek collapse would extend far beyond EU borders, European leaders should be more open to the idea of an IMF-directed bailout than they currently are.

European voters have not authorized the EU to become an integrated political union that can determine a common fiscal policy for eurozone members. As such, it should not be in the power of European leaders to extract from EU treaties the ability to do so; rather, they should allow the IMF to lead the charge as it is an institution designed to do just that. Difficult as it may be, the EU must ensure that whatever steps it takes toward stronger economic union are not yet dependent on strengthening its political one.