Euro Region Should Permit Defaults, Says Greek Rescue's Top Contributor
By Radoslav Tomek and Douglas Lytle - Aug 2, 2010 4:11 PM GMT+0200 Mon Aug 02 14:11:17 UTC 2010
Euro members should be allowed to default so poorer countries like Slovakia don’t have to pay for others’ mistakes, said Slovak Finance Minister
Ivan Miklos.
The Slovak government, which took office July 9, opposes contributing to the euro area’s 110 billion-euro ($144 billion) Greek rescue fund after the country was asked to pay more than any other nation relative to the size of its economy.
Miklos’s comments ally him with German Chancellor
Angela Merkel who has proposed rules for orderly default as the European Union discusses harsher sanctions for countries that violate financial rules. The common currency will withstand a default as long as the bloc puts procedures in place to prepare for it, Miklos, 50, said in a July 30 interview.
“Just because a country defaults shouldn’t threaten the future of the euro zone,” he said at his office in Bratislava, Slovakia’s capital. “On the contrary, maybe if we don’t change the rules, if we at least indirectly support moral hazard in the future, then I’m afraid Europe can be under serious threat.”
Slovak opposition hasn’t held up payments to from the Greek rescue fund, approved after Greece agreed to implement austerity measures to tame a deficit that reached 13.6 percent of gross domestic product last year. Greece received 20 billion euros of loans from the EU and International Monetary Fund in May, with future installments to be paid after quarterly reviews of its deficit-cutting efforts.
Miklos, who also served as economy minister from 1998-2006, is credited with designing the economic policies that paved the way for Slovakia to join the euro last year. He returned to government last month after a four-party coalition committed to cutting the deficit won a majority in June elections.
‘We Don’t Agree’
While the previous government approved an 816 million-euro contribution to the euro-region loan pool for Greece, three of the new ruling parties oppose disbursing the funds, Miklos said. The new cabinet has recommended lawmakers reject the payment because former Prime Minister
Robert Fico didn’t discuss it with parliament and because Slovakia’s share is too big, Miklos said.
Slovakia, the euro region’s poorest country as measured by per-capita GDP, is being asked to contribute an amount equal to 1.3 percent of economic production, while Luxembourg, the richest, will pay 0.6 percent, according to Miklos.
“We don’t agree with the principle that people in other countries which have nothing to do with this have to pay, but banks which have been profiting from giving loans to the Greek government in the past are not paying even one euro.”
It is also unfair for Slovakia to be asked to help bail out Greece because Slovakia had to make deep structural changes in its economy without any aid, Miklos said. For example, the Slovak government bailed out its own banks in 2000 at a cost of 12 percent of gross domestic product, he said.
“The Slovakian people had to pay for this,” Miklos said. “For us, it might have been much easier to take the money, to take loans to cover old loans and so and so on. But this is not a good endeavor.”
(Bloomberg.com)
***
I soliti noti ...