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The World from Berlin
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06/17/2011
The World from Berlin
'Nothing to Be Gained in Greece by Playing for Time'
AP
A protester holds a Greek flag in front of parliament earlier this week: "The current rebellion in Greece wasn't unexpected."
Greece needs help, but what should that help look like? The question has deeply divided Europe this week, with many concerned about Berlin's demands for private sector involvement. A compromise emerged on Friday, but German editorialists are split over the way forward.
As French President Nicolas Sarkozy met with German Chancellor Angela Merkel in Berlin on Friday, it became obvious that the euro crisis is also putting a serious strain on Franco-German relations. Athens, it has become clear in recent weeks, needs additional aid from the European Union and the International Monetary Fund -- up to ?120 billion -- in order to meet its debt obligations until 2014.
But Paris and Berlin have butted heads in recent weeks over what that additional aid package might look like. The German parliament has said it would only back a bailout package if private investors are required to cover part of the tab. France, however, along with several other euro-zone countries, are concerned that such a move would drive bailout costs even higher if credit ratings agencies respond negatively, as some have threatened to do.
Berlin has been calling for up ?35 billion of the ?120 billion package to be voluntarily coveredby private lenders -- largely through extending the payment terms or through reinvesting in new Greek bonds with proceeds from old ones as they mature.
On Friday, Merkel appeared to soften Germany's position on the involvement of private investors, saying it would be voluntary. She also emphasized that any plan would be closely worked out with the European Central Bank, which had been concerned about the uncompromising German position on Greek aid.
"This should be worked out with the ECB," Merkel said on Friday. "There may be no contraditions here."
Like politicians themselves, editorialists at German papers remain deeply divided over the way forward in rescuing Greece. Most agree that the shock therapy austerity measures imposed by the European Union and the International Monetary Fund as part of the first ?110 billion bailout for Athens last May have failed, with the economy still sputtering in recession rather than growing. But they are unable to determine whether a hard default of Greece's debt would lead to an economic recovery or if it would result in a financial catastrophe that could push banks in Greece and across Europe to the verge of bankruptcy and a repeat of the global disaster triggered by the Lehman Brothers collapse in 2008.
The center-left S¨ąddeutsche Zeitung writes:
"Fundamentally and for reasons of fairness, there is no reason to object to the idea that private investors waive some of their planned proceeds or at least extend the amount of time until they receive this money. Those who want to turn a profit must also be prepared to make a loss. But so far no one has explained to the populace that the issue is not that simple. There is more to suggest that Germany's insistence on the participation of private investors could result in efforts to save Athens getting even more expensive. If private creditors are asked to pay up to ?35 billion, then Greek banks, which themselves hold many Greek government bonds, would be pushed to the verge of bankruptcy. That would inevitably also threaten banks in Cyprus and the Balkans. In order to prevent a domino effect, additional billions would have to be provided to rescue the banks."
"Instead of seeking a common solution, the euro-zone countries have so far only pursued national goals. Paris doesn't solely reject lender participation out of fears of a domino effect, either. The French government is concerned about its own major banks, which still have many Greek securities on their books and would face considerable losses if a restructuring took place."
"Finally, the restructuring wouldn't just hit greedy banks, but also solid pension funds, which invested in what they believed were secure investments in Greek bonds. Millions of customers would have to worry about their private pension coverage and life insurance if a restructuring took place. It is high time for political leaders to speak honestly to the taxpayers who, in the end, will have to pay (for the Greek rescue)."
The conservative Die Welt writes:
"A general strike, a political battle and protests -- the dramatic images from Greece are forcing people to move. Until now, the word in Berlin and Brussels has been that, without a ?100 billion aid package, Greece might go bust in July. Now they are changing their tune -- and instead it is argued that Athens can keep its head above water with loans that have already been approved."
"But there is absolutely nothing to be gained through playing for time. The change in thinking is largely to blame on hopes of the German government that public interest in the escalation in Greece will soon subside and that further bailout actions will rile the German people less. But in light of the growing resistance in Greece to Athens' austerity measures, it is becoming ever clearer that the policies pursued by the EU will not lead to their goal. The EU cannot force shock therapy on the country. Besides, economists doubt whether a country as indebted as Greece will ever be able to become economically healthy again without a hard restructuring of part of its crushing debt. Europe's taypayers aren't helping the Greeks as the self-named rescuers like to repeat like a mantra -- they are merely financing the servicing of their debt, and by doing so they are making it ever more expensive. It's a theater of the absurd."
"Doubts are growing in Germany and Greece over whether Europe's politicians can succeed in getting the overbearing debts under control. It is also a bitter twist that the European Central Bank is unable to assume a role as an honest broker. Because it buckled to political pressure a year ago and accepted Greek junk bonds as collateral, it is now fighting tooth and nail to defend its own interests against a restructuring."
"Instead of swinging from one bailout action to the next, however, politicians in the euro zone should finally be honest. The Greek debt disaster cannot be eliminated without the participation of private creditors. The German finance minister should use the time which has been bought at a steep price to fight for the German parliament's position in Brussels."
The left-wing Die Tageszeitung writes:
"The current rebellion in Greece wasn't unexpected. Any society will rupture if wages drastically sink and taxes climb just as dramatically. And yet nobody in the euro zone seemed prepared for the unrest currently taking place in the country. The secret hope was that people could just muddle through for another few years."
"The other euro-zone countries must now choose between two alternatives that couldn't be any more different from each other -- and neither is going to be attractive to taxpayers."
"Variant one: If the Greeks are unwilling to save and continue to rack up new deficits, the rest of Europe will let it go bankrupt. Of course, the ensuing chaos would be massive. Greek banks would collapse and the Greek state would no longer be able to service its debt. The Greeks would be banished from the euro and the Portuguese and Irish would probably follow soon after."
"Variant two: The euro zone extends its aid to Greece. It would thus accept that draconian savings measures do not work -- also because they further exacerbate the recession in Greece."
"Variant two is more probable, as the financial markets also appear to believe. They are viewing peace messages from the euro zone with goodwill. The message is that there will be a further payment of billions to Greece no matter what in July, even if no new savings package is in sight."
Financial daily Handelsblatt writes:
"Politically, new financial aid for Greece is extremely controversial in Germany and extremely unpopular within the populace. The situation is very different in France, though. The country has finally started to implement reforms worthy of the name, with budget consolidation and hidden tax increases. But within the entire political spectrum, there isn't any serious debate over whether the country should aid Greece again with fresh money. It's a bit odd given that France is the second biggest donor in the current aid program after Germany. In meetings with smaller groups, Merkel has even expressed her surprise over the French generosity."
"Observers suspect the reason for the French position is that France wants to provide aid in order to protect its banks from the possibility of a Greek insolvency. France's banks have the largest Greek investments. But one should also note that France's banks, at least compared to those in Germany, are in a stronger position and could handle the losses. Nor does that argument explain why there is no debate over Greek aid amongst the French populace."
"The real reason for the reserve appears to be the result of cultural differences. The French simply have a mentality that is closer to the Greeks and their problems than the savings-obsessed Germans. The French state finances may not be as disastrous as those of Greece, but the French have also lived beyond their means for the past 30 years. It required pressure from ratings agencies for the government to finally take steps to consolidate its budget."
-- Daryl Lindsey
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