Is "Moral Support" a Plan?

Hooray! EU leaders offer Greece moral support.

The leaders of Germany and France have offered moral support for Greece and sought to tamp down speculation prompted by the Greek debt crisis that is hurting the euro.

German Chancellor Angela Merkel said "we stand shoulder to shoulder with Greece" but added she wanted reliable information "about what Greece is actually doing."

French President Nicolas Sarkozy "we wanted to shoulder our responsibility" by offernig political support to Greece. He added, "It is not in our interest to foster whatever speculation some will indulge in."

But EU nations offered no firm financial support for Greece at a summit Thursday. EU leaders said they would seek advice from the International Monetary Fund for an assessment of Greece's situation due in March.

Moral Support Equals No Support

Moral support and a couple bucks will buy you a cup of coffee at Starbucks. One has to wonder though, if Germany and France actually believe there is some sort of benefit to moral support. If there is, someone please quantify it.

Nonetheless, no support (or moral support if you prefer as both are the same), is the correct policy decision by Germany and France. Greece, Portugal, and Spain have to dig out of their problems themselves. However, moral support or not, the question still remains whether Greece, Portugal, and especially Spain have the resolve to reduce their budgets.

If Greece, Portugal, and Spain do commit to meeting terms of the European Union, they are virtually guaranteed to remain in deep recession for at least two more years. Note that Greece has a historical track record of no pain and near-constant threats of default. Can it take two to three years of pain?

Spain, which is the far bigger problem, has an unemployment rate of 20%. How much can Spain take?

Eventually, we can look forward to moral support being tested when either Greece or Spain decides to spend their way out of recession. Of course, spending out of a recession caused by a collapsed debt boom is impossible, but that will not stop Greece or Spain from trying should social unrest pick up.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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