Greek Fire, Part 49

After months of meetings, it appears European leaders finally have an agreement on bailouts and a permanent EU facility fund, Reuters reports...and it will include a balanced budget for all Eurozone countries.  But the question of Greece is still very much up in the air.

Negotiations between the Greek government and private bondholders over the restructuring of 200 billion euros of Greek debt made progress over the weekend, but are not expected to conclude before the summit begins at 9:00 a.m. EST.

Until there is a deal between Greece and its private bondholders, EU leaders cannot move forward with a second, 130 billion euro rescue program for Athens, which they originally agreed to at a summit last October.

Instead, they will sign a treaty creating the European Stability Mechanism (ESM), a 500-billion-euro permanent bailout fund that is due to become operational in July, a year earlier than first planned. And they are likely to agree the terms of a 'fiscal treaty' tightening budget rules for those that sign up.

The larger issue of course is the balanced budget requirement.  This means that the individual Eurozone countries would have to give up individual sovereign budget control to the EU in order to meet the new rules.  And of course the first country that everyone wants to cede budgetary control to the EU is Greece.

Greece must surrender control of its budget policy to outside institutions if it cannot implement reforms attached to euro zone rescue measures, the German economy minister was quoted as saying on Sunday.

Philipp Roesler became the first German cabinet member to openly endorse a proposal for Greece to surrender budget control after Reuters quoted a European source on Friday as saying Berlin wants Athens to give up budget control.

"We need more leadership and monitoring when it comes to implementing the reform course," Roesler, also vice chancellor, told Bild newspaper, according to an advance of an interview to be published on Monday.

And if you think Greece is the only country that will have to give up control of their budget to the EU, you haven't been paying attention.  The Greek Fire is unquenchable, and it may burn through the fiscal sovereignty of the entire eurozone before it's done.