The worldwide financial and economic crisis which originated in the US, spread everywhere and is still in effect (Quadrio Curzio, 2008b; 2009a), has now directly hit the European Monetary Union (EMU), attacking one of its peripheral countries: Greece. Europe is now faced with decisions posed by this country’s financial situation and the fact that it may not be able to refinance its public debt: should Europe limit itself to recommendations, leave Greece to its own destiny, take direct responsibility, or turn to the IMF? Some years ago we launched the idea of Eurobonds (Quadrio Curzio, 2004; 2005) and a European Wealth Fund (EWF) (Quadrio Curzio, 2008a) which in the case of Greece would have been extremely useful in avoiding a financial crisis. We feel in fact that it is necessary for the eurozone to take direct responsibility, since the EU at this moment is basically inert for various reasons (Quadrio Curzio, 2010a; 2010b). Let us now concentrate on Greece. The facts are well known: a budget deficit which at the end of 2009 was «corrected» from one month to the next, from 7.7% of GDP to 12.7%; a debt to GDP ratio marching from 99% in 2008 towards 135% in 2011; interest rates on Greek 10-year government bonds shooting up, for an increase in the country risk, to more than 4 points over the German 10-year bonds; rating agencies declassifying the quality of Greek debt; and the Greek government’s oscillations in the face of a deep social crisis. These events emerged in January and February 2010, whereas the EU and the EMU have been trying to understand the Greek situation for months in order to get to the bottom of the spectacular «errors» in Greek statistics; they have also been putting pressure on the government to implement stricter policies. Against this background at least three tendencies have emerged which we will define as follows: the wait-and-see tendency; the Europeanist tendency; and the dismantling tendency. The wait-and-see tendency was clearly visible at the European Council of heads of state and government on February 11th, dominated by Merkel and Sarkozy. At this meeting it was reiterated that the eurozone countries have a shared responsibility requiring all countries to have orderly public finances and that to ensure the stability of the eurozone the member states may take coordinated measures. This is an intergovernmental approach emphasized at the summit’s conclusion when it was confirmed that the Greek government had not requested any financial support! So there is no trace of EU responsibility for this situation, and José Manuel Barroso, president of the European Commission, and Herman van Rompuy, president of the Council of Europe, considered two «optimal» mediators in such an intergovernmental context, were apparently not able to take this responsibility. Even the Euro Group and Ecofin, i.e., the economic ministers of the EMU and the EU, in a meeting in mid-February took a wait-and-see approach although they set Greece the goal of reducing its deficit to 8.7% of GDP in 2010 and to below 3% by 2012 (starting from its current level of 12.7%). They also asked the Greek government to present a policy schedule by mid-March and implement the most urgent measures by mid-May. Nearly all eurozone governments have taken a wait-and-see approach including the Italian one, which with regard to Europe suffers from a remarkable internal dualism (Quadrio Curzio, 2009c). The dismantling tendency groups together a variety of opinions including the proposal that Greece abandons the euro and tackle its public finances with a series of devaluations and partial repudiations of its debt. Various alternatives on this theme include hopes for IMF intervention to help Greece financially, at the same time imposing strict fiscal policies on it. All these proposals have two minimum common denominators: it is not desirable for Europe to save Greece because it would generate imitative behaviors in other European countries. The logic is that these countries would not deal with their public financing problems knowing that the EMU (or the EU) would bail them out. The EMU and the EU do not have the technical expertise to help Greece and therefore have to turn to the IMF. Some feel that these recommendations are aimed at saving the euro, which would otherwise founder if the EMU were to save Greece. This is the «amputationist» theory. This tendency has found many supporters in important countries like Germany where public opinion is worried about having to bear the burden of saving Greece. However, opponents of this solution include many important figures such as Jean Claude Trichet, president of the ECB. The Europeanist tendency has various motivations; there are those who feel Greece should be helped in order to avoid the collapse of Greek bonds with consequent contagion of other weak eurozone countries (Ireland, Portugal, and Spain), thus negatively impacting the euro; there are those who feel the eurozone should take a strong initiative not only and not so much to save Greece, if it were necessary, but to demonstrate that the eurozone exists also and especially at difficult times. We argued in favor of this latter theory in the following terms: if the eurozone wants to continue constructing its identity in line with the euro, it must overcome the Greek crisis, focusing on reinforcing cooperation and enhancing the value of the Euro Group which has now been officially recognized in the Reform Treaty. We should not forget that Greece is a small economy in the EMU with a GDP of just 2.6% of the total and a debt that is 3.7% of the eurozone’s total debt. Greece’s maximum amount of debt refinancing for 2010 is on the order of 50-60 billion euros. This is a substantial figure but reasonably small for the eurozone with a total GDP of over 9000 billion euros. The quicker the intervention, the sooner the markets would calm down. Two joint approaches must be taken: a combination of short-medium and medium-long term measures. 1) In the short-medium term the Euro Group should adopt and promote the following policies. First it should strengthen existing cooperation between EMU countries’ deposit and loan funds (Casse depositi e prestiti – CDPs) in order to grant Greece a loan guaranteed by its gold reserves, even though they consist of just 3.6 million oz. (nearly 3 billion euros), and other public income properties. The European Investment Bank (EIB) with well over 50% of its capital held by France, Germany, Italy and Spain and other financial institutions could participate in the CDP «consortium». We do not concur with the proposal that the German CDP should directly intervene, even alongside other CDPs’ financial contributions. Bilateral solutions increase the already existing tensions between countries. The second move is to put Greece under temporary financial receivership. With the euro, member states no longer have monetary sovereignty, but they have obligations that should entail not so much a commitment to financial recovery, which is often weak due to its being «politically graduated », but a commitment to act effectively. And this should be prescribed by the EMU and controlled by an oversight committee endorsed by the Euro Group which would operate beside the economic ministers of the country receiving the EMU loan. The Reform Treaty grants the eurozone the institutional authority to «develop increasingly close coordination of economic policies in the eurozone». In asking Greece to correct its public accounts, as mentioned above, the Euro Group should also propose a property tax that would mitigate the sacrifices of the weakest classes, thus preventing social upheaval. The third step, which would serve to tone down Greece’s emotional reaction but actually has much greater implications, is that the Euro Group should launch an investigation on large US investment banks to verify whether they actually made it possible for Greece to elude European financial parameters and how they are now speculating on this. 2) Over the medium-long term a European Development Fund (EDF) or a European Wealth Fund (EWF) should be launched, which would issue Eurobonds with gold guarantee to raise capital at low rates. The eurozone has the largest official reserves in the world at 347 million ounces, worth approximately 280 billion euros. An emission of 1,000 billion euros would be feasible and would attract financial capital from emerging countries such as China (Quadrio Curzio, 2008a; Quadrio Curzio - Miceli, 2009). A reminder on gold: in 1974 Italy obtained a loan from Germany with gold backing. During those tough times the gold guarantee served us well. Now it can serve the eurozone. The EDF, which would be a powerful deterrent against speculation, would invest mainly in the EMU, which, if governed effectively, would generate growth and contribute to the financial reconstruction of countries in difficulty. But the EDF could also intervene to a limited extent in emergencies by buying government bonds from member countries to then reissue onto the market gradually as the situation improves. As this article goes to press it seems that the EU institutions are thinking about a European Monetary Fund. The idea is good but it is a minor version of what we propose the EDF should be. In order to have a powerful and innovative financial institution we ought to combine in Europe the features of the IMF and the World Bank. Now the Greek government is launching a plan to address the deficit with nearly 5 billion euros (about 2% of Greece’s GDP) and has issued 5 billion euros in 10-year government bonds, oversubscribed at over 15 billion. So just as some predicted the end of the euro, others are predicting the end of the Greek crisis. Both are wrong. We sustain our Europeanist proposal because we feel that the Greek crisis is not over. This is not just because in the next few months that country will have to refinance 20 billion euros of public debt, but also because social disorder is a dreadful sign for Europe, which has the inalienable role not only to have member countries with sustainable public finances, but also to have a cohesive political and socio-economical identity. If the social crisis continues, Greece will end up going to the IMF for help, which would be a real blow to the EMU and the euro. In conclusion, the European Commission, guilty of not having dealt with the Greek situation when it should have, has lost authority and the ability to make tough decisions. Thus reinforced cooperation in the eurozone should be strengthened on the basis of upward subsidiarity, redefining the limits of individual countries’ sovereignty in specific cases. Just as occurred with the euro. We hope that the eurozone can quickly regain that innovative strength, at once communitarian and intergovernmental, which provided the basis for EU growth. Because if the EU hides behind the «technical» impossibilities of treaties, then the EMU should pursue the «identity» that would make it a future geo-economic power on the level of the US and China. Some say this is utopia. It probably is as long as the Euro Group, which should be the engine of the EMU, is presided over by the Prime Minister of Luxemburg, a country with a GDP that is just 0.4% of that of the eurozone. The big decisions are being taken by statesmen, not «mediators». Thus we have no choice but to wait for the return of courageous personalities like the founding fathers of Europe and the euro, which included some Italians. If this process is delayed for long, European unity will be at risk. In any case, without a strong re-launch of the EMU/EU, in a few years the countries belonging to them will not have much clout on the world scene where powers like China are emerging, and are being watched with much greater interest by the US. A bipolar world, a G2 (Quadrio Curzio, 2009b), would be a loss not only for individual European countries but also for worldwide economic, financial and monetary stability. Let us hope that Europe rediscovers that sense of responsibility that guided it in its construction. Addendum While this issue goes to print, the European Council Spring Summit, held on the 25th and 26th of March, has approved a kind of compromising agreement, proposed by France and Germany, by Nikolas Sarkozy and Angela Merkel. The compromise includes possible help to Greece, if the market will not refinance the government bonds, grounded on a two-tier system of lending delivered at market conditions: a majority share of bilateral and voluntary lending by European countries; a minority lending by the IMF. There is no time and space here to go into the details of this scheme of lending, which has received a certain number of positive evaluations not only by those who made the agreement, but also by many observers. The immediate reaction of the markets has been positive as the euro gained some ground on the dollar and the spread of ten years Greek bonds on German ones narrowed. On this ground someone said that the markets have given their approval to the agreement. We think that the market assessment must be judged on a longer time span. More generally we have expressed a first evaluation of this agreement with an article (Quadrio Curzio, 2010c) published on the 26th of March while the European Summit was not yet concluded. In this article we have expressed criticisms to this agreement, which are similar to those expressed by a highly qualified European statesman, Romano Prodi, in an interview given one day later. We’ll go back to this topic in an article that will come out in the journal “Il Mulino” in May. Up to now we have not changed our assessment except for the opinion on the role played by Herman von Rompuy, the President of the European Council, who received convincing words of appreciation from many different, and even opposite, observers and therefore deserves a longer period in office for a more objective evaluation.