Cameron: no more bailouts

It’s another of those special Cameron victories in Europe: we’re in for a second Greek bailout, but not quite as much as we might have been. Britain will contribute a sum through the IMF; however, it will not be contributing to EU funds. Cameron has succeeded in ensuring that the European bailout will be conducted under the permanent European Financial Stability Facility (EFSF), to which only eurozone members are signatories. Although it should be noted that some Brussels experts doubt that the European Financial Stabilisation Mechanism (to which Britain has subscribed) could have been used in this instance, which further devalues the government’s victory.

Anyway, attention now turns to Greece and whether it will default. The FT reports that the Holy Trinity of the IMF, the EU and the European Central Bank will impose further cuts of 5.5bn euros on Greece in addition to the 28bn already demanded of Prime Minister Papandreou’s government. There is plenty to suggest that Greece will resist that imposition, especially as rumours of revolution now circulate. Greece is on very tight timeline: it will default if the first wave of cuts is not been approved by 15 July. However, even if the Greek parliament passes cuts in the next few weeks, many commentators and politicians now agree that default is inevitable because the austerity regime is too severe and Greece’s problems too entrenched. Salvation will not be found in throwing more good money after bad. The consensus insists that Greece’s only hope is for the Holy Trinity to relax their demands, a point made well by Alistair Darling earlier in the week (£). But even that may not be enough.

Indeed, there are those (usually stern eurosceptics) who believe Greece should default, hoping perhaps that this would cause the euro’s collapse as well as finding a way out for Greece. But be careful what you wish for: Britain’s substantial liabilities in Greece (including those of our banks) will be lost in the event of default. British euroscepticism might be better served by pursuing the Darling line, however hopeful it may be.  

The Greek calamity’s most recent effect has been to spark an existential crisis in Europe itself – a complicated point examined dextrously by Martin Kettle this morning. As I wrote several weeks ago, the euro’s travails are but one area where the European Union is under immense internal strain. As the Schengen agreement and the euro quake, expansion stalls and the 27 member states jostle out of self-interest, there is a sense that the European Union is struggling under the weight of its own stupendous fabric.