Early on, countries made a
pact aimed at preventing a free-spending state from undermining the common currency
The Greek problem has shown that EU financial institutions don't have enough teeth or expertise to rein in renegade member states, said Jean-Pierre Jouyet, chairman of France's stock-market watchdog and former chief of staff to a president of the European Commission, Jacques Delors. "We need new tools to manage these disequilibriums, because a pact without sanctions is not enough," said Mr. Jouyet.
With much less fanfare, countries later revised their numbers: Of the original 11 entrants that qualified on the basis of their 1997 data, three—Spain, France and Portugal—later revised their 1997 deficit figures to above 3%. France's budget revision, to 3.3%, wasn't made until 2007.
Greece didn't make the first wave. Its 4.0% deficit in 1997 missed by too much. Even then, technocrats doubted Greek statistics. But in late 1999, eager to keep the euro zone on track, the EU overlooked those concerns. The figures for 1998 appeared better, and European governments agreed that Greece had met the fiscal goals.
They cited a cut in its deficit to 2.5% of GDP in 1998 and a projection of 1.9% for 1999, and saluted Greece for reducing its debt. "The deficit was below the Treaty reference value in 1998 and is expected to remain so in 1999 and decline further in the medium term," the governments proclaimed in December 1999.
None of that turned out to be true.
The currency union was seen by some politicians as a way to pull the EU toward political union; others,
mainly in Germany, emphasized the need for fiscal and monetary rectitude.
Once a country is in the currency,
little can be done to a wayward member because the euro's architects built in no real means of enforcement.
That was after the tragicomic tale of Greece's 2003 deficit. In March 2004, Greece reported that its 2003 deficit had been €2.6 billion, or 1.7% of GDP. Eurostat put in a footnote calling the figure "provisional," but it was still well below the euro-zone average of 2.7%.
Any Greek celebration was short-lived. Two months later, under pressure from Eurostat, Greece put out new figures. The 2003 deficit was now 3.2%,
In short, says Vassilis Monastiriotis of the London School of Economics,
Greece "failed to internalize the logic of the euro zone—which is fiscal discipline."
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