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.

 

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

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

Benefits of rural migration effect often overlooked, new UN report suggests

Politicization of migrant ‘crisis’ in Hungary making them scapegoats, independent UN human rights expert warns

What do the economic woes of Turkey, Argentina and Indonesia have in common?

Latvian economy is thriving, but boosting productivity, improving social protection and transitioning to a low-carbon productive model are vital for sustainable and inclusive growth

EU elections: The louder the threats and the doomsaying the heavier the weight of the vote

Bundestag kick starts the next episode of the Greek tragedy

The Europe we want: Just, Sustainable, Democratic and Inclusive

Blockchain can change the face of renewable energy in Africa. Here’s how

FROM THE FIELD: Weather reports come to aid of Uganda’s farmers

Concern rising over fate of Rohingya refugees sent home by India: UNHCR

The MWC14 Sting Special Edition

We don’t need to ban plastic. We just need to start using it properly

Huawei answers allegations about its selling prices

How telehealth can get healthcare to more people

Eurozone stuck in a high risk deflation area; Draghi expects further price plunge

EU-Japan trade agreement enters into force

UN agency chief calls Ethiopia’s revised refugee law ‘one of most progressive’ in Africa

Digital transformation and the rise of the ‘superjob’

The next Google in biotech: will it be Chinese?

DR Congo: efforts to control Ebola epidemic continue, UN food relief agency doubles assistance to affected people

Amsterdam is getting a 3D-printed bridge

I cycled over 6,000km across the United States to document climate change. Here’s what I learned

3 ways to fight stress at work

Germany’s strong anti-bribery enforcement against individuals needs to be matched by comparably strong enforcement against companies

We all have a ‘hierarchy of needs’. But is technology meeting them?

Technology can help us end the scourge of modern slavery. Here’s how

Saudi Arabia, China, among 14 nations under UN human rights spotlight: what you need to know

European Parliament and Eurovision sign partnership for European Elections

France is building a village for people with Alzheimer’s

Greece’s last Eurogroup or the beginning of a new solid European Union?

UN ‘prioritizing needs’, ramping up aid, as Hurricane Dorian continues to batter the Bahamas

Gender equality and medicine in the 21st century

“Leaked” TTIP document breaks post 8th negotiations round silence and opens door to critics

‘Crippling to our credibility’ that number of women peacekeepers is so low: UN chief

Women must be at ‘centre of peacekeeping decision-making’, UN chief tells Security Council

This app lets you plant trees to fight deforestation

Africa Forum aims to boost business, reduce costs, help countries trade out of poverty

EU–US: What is the real exchange in a Free Trade Agreement?

Eurozone: Even good statistics mean deeper recession

The EU Commission vies to screen Chinese investment in Europe

With security improving in DR Congo’s Kasai, thousands of refugees head home from Angola

Partnerships key to taking landlocked countries out of poverty: UN Chief

These are the world’s 20 most dynamic cities

Biggest London City Banks ready to move core European operations to Frankfurt or Dublin?

New Erasmus: more opportunities for disadvantaged youth

What is digital equality? An interview with Nanjira Sambuli

‘Race against time’ to help women who bore brunt of Cyclone Idai: UN reproductive health agency

At UN, Cuba slams US ‘criminal’ practices undermining country’s development

UN chief hopes for new agreement after Israel concludes international observation mission

Migrant workers sent more money to India than any other country last year

Security Council condemns ‘heinous and cowardly’ attack in Iran

Opening – Parliament expresses support for victims of Fuego volcano in Guatemala

Kenya wants to run entirely on green energy by 2020

A Sting Exclusive: “The Digital Economy and Industry are no longer opposing terms”, Commissioner Oettinger underlines live from European Business Summit 2015

Can Obama attract Iran close to the US sphere of influence?

This is what the world’s CEOs really think of AI

COP21 Breaking News: “We must accelerate the process”, Laurent Fabius cries out from Paris

Migrant caravan: UN agency helping ‘exhausted’ people home

European Citizens’ Initiative: Commission registers ‘Mandatory food labelling Non-Vegetarian / Vegetarian / Vegan’ initiative’

More Stings?

Speak your Mind Here

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

WordPress.com Logo

You are commenting using your WordPress.com 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