EU leaders aim for 'fiscal compact'

German oversight proposal irks Greece

The politics of budgetary control are slowing negotiations between Greece and its international creditors aimed at getting the next chunk of bailout cash into the beleaguered Mediterranean country’s hands. Greek Finance Minister Evangelos Venizelos “angrily rejected” a German proposal to implement European oversight of Greece’s budgetary decision-making, according to the Financial Times. The proposal would allow the EU overseer to veto Greek tax and spending decisions, effectively giving the country’s creditors budgetary control. Venizelos was offended by the implication that his country would have to choose between “national dignity” and financial aid.

The tiff over fiscal sovereignty is the latest in the seemingly never-ending effort to avoid a Greek debt default. Greek bond holders are being pressured to give up profits on their investments, while the EU and IMF are asking for deeper austerity measures in return for their bailout cash.

“If the process is not completed successfully, we will be faced with the spectre of bankruptcy that would have great consequences for society, and especially for the poor,” Lucas Papademos, the Greek prime minister said.

But as the wrangling over the Greek bailout continues, a summit of euro zone countries is kicking off in Brussels, where member nations are discussing the creation of a “fiscal compact” that will coordinate spending policies among the countries using the common currency. Worries over the downside of austerity—that too much spending cuts can derail the possibility of economic growth—are fueling a vision of “smart” budget discipline for the euro zone.

These worries are especially relevant for countries like Spain, which has an unemployment rate of 22.8 per cent, the highest in the European Union. Alarmingly, more than half of Spanish youth — aged 16 to 24 — are jobless. Cuts to social programs that support such people could foster widespread anger and instability, which would deter investment and perpetuate economic stagnation.

Financial Times

BBC News

BBC News

Looking for more?

Get the Best of Maclean's sent straight to your inbox. Sign up for news, commentary and analysis.