Greece Before the AbyssOnly Bankruptcy Can Help Now
A Commentary by Stefan Kaiser
Der Spiegel, 14/08/2012
Officially, at least, everything is going according to plan. In September, officials with the troika -- made up of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) -- are planning to travel to Athens to check on the progress that Greece has made with its cost-cutting program. Then, according to the plan, they could disburse billions more in aid out of the second bailout package for Greece, which the euro-zone countries and the IMF agreed on in February.
But, in reality, it is rather unlikely that all of the €130 billion ($160 billion) in the bailout package will ever be paid out. And what is even more unlikely is that the money would keep Greece from going bankrupt.
The assumptions on which the current program was based in February are no longer valid. At that time, it was thought that the Greek economy would only contract by 4.5 percent this year, but now it appears that this figure will be closer to 7 percent. This would mean even fewer tax receipts and even more social expenditures. What's more, given these circumstances, it's almost irrelevant that the Greek government is expected to ask for a two-year extension, to 2016, of the agreed austerity plan.
One thing is clear: In addition to more time, Greece also needs more money. And those who have been financing it thus far -- primarily the major euro-zone countries and the IMF -- are either unwilling or unable to give the country any more. In political terms, that is completely understandable: One can only imagine the earful that German Chancellor Angela Merkel would get if she were to present a third aid package for Greece before the Bundestag, Germany's parliament. In fact, the members of her own conservative coalition would probably chase her out of the building.
Truth be told, Merkel only has herself to blame for the fact that she is stuck in this pickle. She dug in her heels too much in insisting that the problems of Southern European countries could only be solved by drastic belt-tightening, and that what the Greeks were really lacking was the will to do what was necessary. Now she can hardly abandon this way of interpreting the crisis.
Delaying the Inevitable and Necessary
If it was ever the goal of Merkel and her allies to rescue Greece from bankruptcy, then they have failed. The only thing the drastic austerity measures have done is to exacerbate the economic crisis and push Greece's debts even higher. Nevertheless, the creditors have insisted on moving forward with their plan -- even though it already became clear long ago where it was heading.
The end of this approach now appears to have been reached. Neither euro-zone countries nor the IMF can provide Greece with more aid without sacrificing their own credibility. Given these circumstances, there is only one option left: Greece must go broke.
European politicians have balked from taking this step -- probably also because the new permanent bailout fund, the European Stability Mechanism (ESM), which is supposed to cushion the economic impacts of a Greek bankruptcy, has yet to enter into force.
Instead, they have tried to buy time with the help of a dangerous interim arrangement: The Greek government is supposed to borrow the money it needs from the ailing Greek banks. In return, the banks receive sovereign bonds that they can, in turn, provide as securities for new loans from Greece's central bank. In this way, Greece's central bank is financing the Greek state in what is really just a kind of shell game that gets riskier the longer it is played. In any case, all euro-zone countries will in the end be jointly on the hook for these liabilities.
A Greek bankruptcy would already be costly enough at the moment. Estimates say that it would cost Germany alone some €80 billion. Lest this figure climb any higher, the right thing to do would be to finally make that one fateful step.
No matter how unpredictable the consequences of a Greek bankruptcy might be, it appears to offer the only chance to resolve the messy situation. In this way, Greece would be free of its debts and would have a chance to make a fresh start -- either as part of the euro zone or not. And the creditors in Berlin and Brussels could finally free themselves from the spiral of threats and rescue actions that they have gotten themselves into.
The assumptions on which the current program was based in February are no longer valid. At that time, it was thought that the Greek economy would only contract by 4.5 percent this year, but now it appears that this figure will be closer to 7 percent. This would mean even fewer tax receipts and even more social expenditures. What's more, given these circumstances, it's almost irrelevant that the Greek government is expected to ask for a two-year extension, to 2016, of the agreed austerity plan.
One thing is clear: In addition to more time, Greece also needs more money. And those who have been financing it thus far -- primarily the major euro-zone countries and the IMF -- are either unwilling or unable to give the country any more. In political terms, that is completely understandable: One can only imagine the earful that German Chancellor Angela Merkel would get if she were to present a third aid package for Greece before the Bundestag, Germany's parliament. In fact, the members of her own conservative coalition would probably chase her out of the building.
Truth be told, Merkel only has herself to blame for the fact that she is stuck in this pickle. She dug in her heels too much in insisting that the problems of Southern European countries could only be solved by drastic belt-tightening, and that what the Greeks were really lacking was the will to do what was necessary. Now she can hardly abandon this way of interpreting the crisis.
Delaying the Inevitable and Necessary
If it was ever the goal of Merkel and her allies to rescue Greece from bankruptcy, then they have failed. The only thing the drastic austerity measures have done is to exacerbate the economic crisis and push Greece's debts even higher. Nevertheless, the creditors have insisted on moving forward with their plan -- even though it already became clear long ago where it was heading.
The end of this approach now appears to have been reached. Neither euro-zone countries nor the IMF can provide Greece with more aid without sacrificing their own credibility. Given these circumstances, there is only one option left: Greece must go broke.
European politicians have balked from taking this step -- probably also because the new permanent bailout fund, the European Stability Mechanism (ESM), which is supposed to cushion the economic impacts of a Greek bankruptcy, has yet to enter into force.
A Greek bankruptcy would already be costly enough at the moment. Estimates say that it would cost Germany alone some €80 billion. Lest this figure climb any higher, the right thing to do would be to finally make that one fateful step.
No matter how unpredictable the consequences of a Greek bankruptcy might be, it appears to offer the only chance to resolve the messy situation. In this way, Greece would be free of its debts and would have a chance to make a fresh start -- either as part of the euro zone or not. And the creditors in Berlin and Brussels could finally free themselves from the spiral of threats and rescue actions that they have gotten themselves into.
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