Originally posted on the People’s Pledge website
Much has changed since a €78 billion Portuguese ‘bail-out’ was nodded through on 3rd May. I believe that Parliament, and through its lobbying the People’s Pledge, have played a key role in that. From Portugal to Greece there have been three big moves.
1. We put a stop to the use of the EU-wide European Financial Stability Mechanism (EFSM) for Euro bail-outs. For Portugal we were told that there was nothing the UK government could do, because the EFSM has already been agreed and it was qualified majority voting. For Greece the UK government said there could be no question of the use of the EFSM and that this was a ‘red line’ issue for us. The House of Commons debated my bail-out motion, the government changed its position and the EU backed down.
2. The IMF has rediscovered some spine. It had seemed ready to give way on its usual condition of not advancing money unless next year funding is in place. Now it is again insisting that the Euro-zone must first agree how to fund Greece next year if more IMF credit is to be extended. It is to be hoped that reassertion of IMF orthodoxy lasts. However, it is not just the self-interested Euro-zone that would prefer easier terms, but the Obama administration which remains hooked on debt and too inclined to see bail-outs as a solution. At least the UK Treasury is highlighting opposition in Parliament to increasing our IMF subscription if the debtors take over the Fund.
3. The Eurozone took a little-noticed but potentially extraordinarily important decision on 20th June. It decided that Euro-zone loans under the European Financial Stability Facility (the EFSF – and not to be confused with the EU-wide EFSM) would not after all rank above private sector loans for repayment. This means that when debt restructuring takes place the new loans made by Euro-zone taxpayers will not be repaid in full and will be written down in the same way as private sector loans. Whether German taxpayers will accept this I do not know, and for now their government is throwing chaff by telling them that private lenders are going to help Greece ‘voluntarily’.
Soon though, I imagine that they will wake up to reality, and the position has changed. Six weeks ago the Germans were getting the British taxpayer to pay heavily for bail-outs. Now we are telling them ‘the Euro is your currency, not our’s, and if you want to keep it together, you will have to pay for it’.