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Greece to receive Bailout

February 11, 2010

Leader of the 27 EU member states met in Brussels today, and the topic on everyone’s mind was Greece’s finances.  The EU is now on the brink of announcing a rescue plan for Greece, with the backing of the Eurozone’s two largest economies, Germany and France.  The euro has fallen against the dollar by nine percent since early December 2009, and there are now fears about Portugal’s finances as well.  All of this has happened despite the Greek government’s new austerity plan, which has frozen civil servants’ pay and reduced hiring (prompting strikes in Greece) in an attempt to reduce the Greek budget deficit.

Greek finances suddenly find themselves in the spotlight.  For instance, the New York Times has reported how despite the rapidly increasing budget deficit, the Greek government had been operating as normal—paying out bonuses and expanding government payrolls.  For instance,  the parliamentary administrative staff of has increased to 1,500 from 700 in the last few years, while the number of members of Parliament remained constant and 29,000 public-sector workers were hired to replace 14,000 who retired last year (now only one new government worker can be fired for every five that retire).

Now that the big euro members appear to be stepping in to bailout Greece, how will this affect the EU in the future?  Some argue that the EU should use the IMF, but that might play to domestic politics in France.  Instead, the EU could create a “European Monetary Fund,” but that could be the first step to an European fiscal union, which would reduce the power of the member states’ national governments.  So there will probably be an ad hoc response to the Greek crisis.  Thus, the short term question is what will how will the rescue package be structured, while in the long run, will this effort solve member states’ budgetary woes or open the euro up to other attacks?

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