Now Greece Is Just One Step Closer To Leaving The Euro

Simone Foxman | 20 minutes ago | 107 | 1

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Greece has angrily rejected a German proposal that would co-opt control of the struggling country's budget in exchange for the next round of bailout funds to keep it afloat, according to the BBC.

In an interview with local television, Greece's education minister and former EU Commissioner Anna Diamantopoulou even called it, "the product of a sick imagination" (via the Telegraph).

However, the Telegraph reports that the IMF, too, has signaled its support for more EU control of Greece's budget. And if the IMF is on board with the plan, this could be a momentous sign.

We've argued before that the odds of private investors going through with a "voluntary" plan to impose haircuts on Greek bonds are incredibly small, regardless of whether or not representatives of the banking sector can come to an agreement with Greek officials. Beyond legal challenges, a high-handed effort to skirt CDS payouts would destroy confidence in CDS altogether, and in EU leaders' willingness to play by the rules.

But this newest round of rumors about the EU co-opting Greek sovereignty amounts to doing the unthinkable: telling the Greek government that it has to give up control over itself, or else. And it can't be a move Germany actually expects Greece to stomach.

Germany is unsurprisingly fed up with Greece's inability to implement the spending cuts and austerity measures EU leaders have demanded, but the country has already lost significant levels of sovereignty as part of the EU/IMF-led programs. Germany and the rest of the eurozone can't actually kick a country out of the euro for fear of investor panic and speculation against Portugal, Italy, Ireland, and Spain. But if Greece were to leave on its own...

Yielding control to the German-led core is not something Greeks are going to put up with. The fact that nine in ten Greeks are unhappy with Prime Minister Lucas Papademos's performance (via Bloomberg)--in reality, his willingness to meet the demands set forth by the European Union--implies that Greeks are increasingly resistant to doing what is necessary to stay in the euro.

If it stays in the euro, then Greece will suffer years of austerity and financial turmoil. If it leaves, then steep devaluation will probably return the country to growth much more promptly, albeit with a long-term stigma for investors.

Sooner or later, Greeks are going to face the facts: it's probably a better bet to leave the currency than to suffer years of financial hardship. Whatever its true intent, this latest German proposal may just help Greeks face the facts.

A Higher Education Bill, which was to be introduced in the forthcoming Queen’s Speech, has now been delayed indefinitely and is unlikely to be published before 2015.

The new legislation was designed to make it easier for private colleges, including big American education firms, to set up new universities in Britain.

David Willetts, the higher education minister, had hoped that introducing more competition, together with tougher regulation of universities, would help drive down costs for students while increasing standards.

State loans would have been offered to those attending the new private colleges. Under-performing universities would effectively have been allowed to go bankrupt and be replaced by more successful institutions.

However, it is understood that the Prime Minister is unwilling to embark on radical reform of another public service while facing battles on the reorganisation of the NHS, schools and welfare.

Mr Clegg, the Liberal Democrat leader, is opposed to further higher education reform.

The Deputy Prime Minister is also lobbying for the maximum amount of time possible to be given to House of Lords reform in the next parliamentary session and is therefore keen for other, contentious, bills to be scrapped or delayed.

A Whitehall source said: “The Liberal Democrats were increasingly opposed to further reforms to universities after the recent decision to increase fees.

"But David Cameron was also unimpressed by the recommendations so the whole thing is now off the table.”

In a letter to The Daily Telegraph last month, almost 500 professors claimed that giving profit-making companies more access to state funding risked leading to higher student dropout rates and lower academic standards.

Academics including Prof Martin Hall, the vice-chancellor of Salford University, and Prof Alan Ryan, the former warden of New College, Oxford, said government proposals would create a system in which institutions pursued short-term financial gain at the expense of a providing a decent education.

The decision to drop the legislation is a major blow for Mr Willetts who has given his wholehearted backing to the reforms. He had pledged to introduce legislation this year.

The legislation was to have two primary purposes: to expand the number of degree-awarding bodies and beef up the regulation of the sector.

But the proposed legislation angered many academics.

Sally Hunt, the general secretary of the University and College Union, said: “The letter from so many eminent professors shows that those responsible for building our strong academic reputation have grave doubts about the Government’s proposals.”

Mr Willetts said: “There’s going to be a further discussion in Cabinet in the next couple of weeks. There’s no final decision either way yet.”