How painful is the Greek tragedy for the Germans?

Handshake between Angel Gurría, Secretary General of the Organisation for Economic Cooperation and Development (OECD) on the left, and Wolfgang Schäuble, German Federal Minister for Finance seated, in the presence of Olli Rehn, Member of the EC in charge of Economic and Monetary Affairs, on the right, (EC Audiovisual Services).

Handshake between Angel Gurría, Secretary General of the Organisation for Economic Cooperation and Development (OECD) on the left, and Wolfgang Schäuble, German Federal Minister for Finance seated, in the presence of Olli Rehn, Member of the EC in charge of Economic and Monetary Affairs, on the right, (EC Audiovisual Services).

When the International Monetary Fund completed some weeks ago its fourth review under the Extended Fund Facility Arrangement for Greece, and approved for this country a new disbursement of €1.72 billion, it performed also a Debt Sustainability Analysis, which is a prerequisite for any IMF loan. According to this DSA, Greece would face a funding gap of around 4% of GDP after 2013. Yet since the funding needs of the country were covered for the next twelve months and the DSA results are dependant on developments during that time, it was not certain that the Greek debt was not sustainable. That’s why the IMF approved the disbursement of the €1.72bn. Not without pain though. The Greek aid split deeply the Brazilian government.

It must be noted that the IMF cannot support a country if its debt is not sustainable. The IMF’s DSA however triggered a discussion between Brussels, Berlin and Washington where the IMF is based, over who is going to cover the financial gap of Greece when it will materialise and how much will it be. Conveniently this issue was termed as the ‘third aid package to Greece’.

Election time

Unfortunately the leaders of the major opposition SPD party (socialists) in Germany chose to make the extra capital needs of Greece, a central, if not the central, issue in their electoral campaign in view of the 22 September elections. Their target was to expose the Berlin government of the ruling coalition of CDU (Christian Democrats) and the Free Democratic Party (liberals) as hiding the truth from voters. Understandably if Greece was to receive a new third aid package, the largest contributor in it would be the German taxpayer.

The discussion was further animated when more than one IMF representative noted that in the Eurogroup meeting of November 2012, Greece’s Eurozone partners had undertaken the obligation to materially help this country make its debt sustainable. This means the country’s creditors have to accept a trimming of their loans, in one way or another. It must be noted at this point that the bulk of the Greek debt is now held by Eurozone governments and central banks and of course the ECB. In principle then it would be a simple procedure for those debtors to cut down their claims. The problem is that everywhere in Eurozone and more so in Germany such a measure would attract a hell lot of opposition from political parties and taxpayers.

The IMF insists

The IMF though didn’t let the issue sleep. Poul Thomsen, the Deputy Director of the IMF’s European Department, in charge of the Fund’s programs for Greece and Portugal, in an interview delivered at the end of July gave concrete evidence of how much a debt relief to Greece should be. He said “Now, on the other issue of debt relief, yes there is a mentioning of 4 percent, (of GDP) but that is just a number that comes from the debt service analysis that we have right now. As you know, the debt relief agreed by the Europeans, the commitment to provide any debt relief, if necessary, to bring the debt-to-GDP to 124 percent by 2020, will be based on a DSA analysis in two years, right? So it’s too early to say if any debt relief will be needed and how much. Under our current projections, that would be 4 percent. But the projections are revised every quarter as we go forward. So we cannot go out and say that the IMF says that x-percent will necessarily be needed. That will depend on the DSA at that time”.

Of course Thomsen didn’t want to be absolutely precise on the new package that Greece would need after twelve months, but he made it completely clear that currently those needs are estimated to be around 4% of the country’s GDP. Later on more exact estimates of this eventual third Greek package figured it at around €11bn.

The Greek tragedy costs

Meanwhile in Germany developments on this issue during the past few weeks have been prime news, heightening the confrontation between Angela Merkel’s government and the socialist-greens opposition. The socialists want to expose the Chancellor as hiding the truth, thus unduly protecting her electoral prospects, which by the way are bright in all opinion polls.

Given however that it is almost certain the CDU-FDP government coalition will win the 22 September election and will find the Greek drama on its agenda within months, the Federal Minister of Finance, Wolfgang Schaeuble, undertook the difficult task to ‘serve’ to German voters/taxpayers the prospect that Greece may soon need more of their money. He started this task last week by accepting that Athens may need more help after one year. Yesterday he became more accurate. In an interview to the daily Rheinische Post he said that the latest IMF’s estimate of the future financial needs of Greece at €11bn, “do not seem to be completely unrealistic”.

In short the German public opinion is now informed on the extra Greek cost. A large part of it will of course be financed by the German taxpayers, who are now been psychologically treated to be ready for that.


the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Dinner with friends: how Switzerland is relaxing its coronavirus lockdown

Across Europe, people are struggling to make ends meet. We need a common response immediately.

Mindfulness: a freedom we can still have in the pandemic

Hate speech exacerbating societal, racial tensions with ‘deadly consequences around the world’, say UN experts

GSMA Announces First Keynote Speakers for 2019 “MWC Los Angeles, in Partnership with CTIA”

Erasmus+ and its predecessors: a life-changing experience for 10 million young Europeans

Europe bows to Turkey’s rulers, sends Syrian refugees back to chaos

These are the world’s least – and most – corrupt countries

UN rights chief ‘extremely concerned’ over deadly crackdown on protesters in Iran

The London City-EU connection holds despite of Brexit and the ban of LSE-Deutsche Börse merger

On their epic journeys, migratory birds connect nations and inspire people, UN says on World Day

What is systemic racism, and how can we combat it?

This Pacific island has banned fishing to allow the marine ecosystem to recover

Brexit update: Leave campaign leads race but undecided voters will determine the outcome of the EU referendum

Rising human trafficking takes on ‘horrific dimensions’: almost a third of victims are children

Rise in Caribbean children displaced by storms shows climate crisis is a child rights issue: UNICEF

No way out for Eurozone’s stagnating economy

Do we judge robots on their colour? This study says we do

Austria: reforms will be necessary to uphold high well-being levels

$1.4 billion needed this year to fund UN’s agency for Palestine refugees

Here’s why leaders need to care about mental health

‘Complacency is still strong’ over stopping genocide, says top UN adviser

‘Protracted crisis’ in Venezuela leads to ‘alarming escalation of tensions’: UN political chief

UN chief hails Libyan leaders’ agreement to hold general election

The missiles fired against Damascus, Syria divided Europe deeply

UN Human Rights Council resolution on youth and human rights: a step forward for youth rights

Public health through universal health coverage can help to attain many SDGs

EU summit: Are the London Tories planning an exit from the EU?

The Amazon is reaching a dangerous tipping-point. We need to scale solutions now if we have any chance of saving it

UN expert condemns new sentence for jailed Venezuelan judge as ‘another instance of reprisal’

2 trillion drinks containers are made every year – so where do they go?

UK: Customs Union with EU or a longer delay of Brexit

Number of members in Parliament’s committees to change after Brexit

UN forum to explore use of outer space to improve lives, protect planet

A ‘charismatic leader’ dedicated to making the world a better place for all: officials bid farewell to former UN chief Kofi Annan

AIESEC @ European Business Summit 2014: The Digital Era: A New Business Frontier

Mental health: what can be done to diminish increasing suicide rates?

Towards a seamless internal EU market for industrial goods

Cash for babies: How Europe is tackling its falling birthrate

5 reasons to be more cheerful about the future of the oceans

How does your immune system work?

5 ways to be a better humanitarian

Time to make a fundamental choice about the future of healthcare

Fairer and clearer rules on social benefits for EU mobile workers agreed

A new kind of company is revolutionising Africa’s gig economy

How LA plans to be 1.6°C cooler by 2050

Global Goals top General Assembly President’s priority list

Why the Greeks forgave Tsipras’ pirouettes around austerity and voted again for SYRIZA

WHO chief underscores need to address climate change following visit to Bahamas

‘Reef cubes’: could these plastic-free blocks help save the ocean?

Africa is helping the drone industry get off the ground. Here’s how

Banks get new capital for free and citizens pay the bill

Circular Plastics Alliance: 100+ signatories commit to use 10 million tons of recycled plastic in new products by 2025

Cyclone Idai: emergency getting ‘bigger by the hour’, warns UN food agency

MWC 2016 LIVE: Ericsson/Cisco partnership on track, insist execs

Youth for Climate Change

Alarming level of reprisals against activists, human rights defenders, and victims – new UN report

The energy industry is changing. Are governments switched on?

COP21 Breaking News_03 December: Europe’s children urge leaders to commit to climate action at UN Climate Summit in Paris

ECB: Reaching the limits of its mandate to revive the Eurozone economy

More Stings?


Speak your Mind Here

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s