Next couple of weeks will see quick political engagements across the globe for securing funds for the second bailout package for Greece. This time the EU leaders are chasing the present heavyweights of the global economy, especially the emerging countries to mobilize funds for the $170 billion aid package to Greece. The US has already indicated that it will not contribute to the IMF to finance the bailout. Hence, the EU leaders are working hard to secure money from China, Japan, India and other emerging countries to finance the next phase of the Greek bailout.
The EU leaders in their plan of disbursing the stressed Greek assets all over the world using the IMF window, implicitly warns export dependent economies like China, that failure of Greece means failure of the world economy. The EU leaders over the last few months were telling the G 20 that the Greek debt problem is a problem of the entire world. This indeed is request for responsibility sharing by bigger countries like China, Japan, India etc, and to invest in the Greek bailout measures.
An interesting fact is that the euro zone itself has a bailout mechanism called European Financial Stability Facility to rehabilitate debt ridden countries. The EFSF has a corpus fund of around US $ 500 billion. But the EU is not ready to put additional burden on EFSF now, given the hopeless position of Greece, and instead is trying to secure funds from outside Europe through the IMF. They can adopt the strategy comfortably because the Managing Director of the IMF is a European.
The Eurozone finance ministers on yesterday have agreed for the fresh Greek aid package amidst strong signs of dissent like the one from Germany which is considered to be the bread winner of the EU. In essence, the burden of Greek bailout is effectively transferred to the vault of the IMF and became a responsibility of the entire world because of the high contribution from the IMF. The emerging countries as contributors of additional injection of fund to the IMF are supposed to bear a major burden of the bailout as per the EU plan.
It is simple digestion that the present EU agreement is a hasty prepared one without sufficient political commitment from Greece, to undertake the supportive austerity measures and other requirements. The EU, before the February 24th, G20 meeting has somehow secured four legs to a piece of wood, calling it a chair and is inviting the emerging world to sit on it.
The emerging world should approach the issue with sufficient degree of hedging. If Germany has the right and wisdom to block the use of EFSF for further Greek bailouts, the emerging world has the same qualities to be careful on disposing their money as well. As a matter of cooperation, the emerging world may join the EU initiative, but without burning their fingers.