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Monday, February 13, 2012

Has Schäuble given up on Greece?

It is estimated that 80,000 took to the streets of Athens yesterday to vent their anger at the latest round of bailout austerity. Another 20,000 reportedly protested in Thessaloniki.

After days of talks, Greek MPs finally approved the latest round of measures required by the EC-ECB-IMF troika. The vote was carried by 199 in favour to 74 against. But the Coalition parties expelled 43 deputies for failing to back the bill.

Police said 150 shops were looted in the capital and 48 buildings set ablaze. Some 100 people - including 68 police - were wounded and 130 detained, a police official said this morning.

While condemning the violence, Prime Minister Lucas Papademos conceded yesterday that, "The full, timely and effective implementation of the program won't be easy. We are fully aware that the economic program means short-term sacrifices for the Greek people."

The problem is that "short-term sacrifices" is rather optimistic. Everyone recognises that Greece needs to reform, and no one could fail to be shocked by yesterday's scenes, but the Greek people also need to be offered some hope of a brighter future. Given that the plan for Greece is for it, in 2020, to be in more or less in the shape that Italy is in now - and many would suggest Italy's situation is unsustainable in the long-term without its own dose of reforms - the structural change required in Greece looks to be well beyond what the country can take.

At the weekend, German Finance Minister Wolfgang Schäuble seemed to be reaching a similar conclusion. He said in an interview published in the Welt am Sonntag newspaper that, "The promises from Greece aren't enough for us any more. Greece needs to do its own homework to become competitive, whether that happens in conjunction with a new rescue programme or by another route that we actually don't want to take."

When asked if that other route meant Greece quitting the eurozone, Schäuble said: "That is all in the hands of the Greeks themselves. But even in the event [Greece leaves the eurozone], which almost no one assumes will happen, they will still remain part of Europe."

Today, FT Deutschland quotes sources involved in the bailout negotiations suggesting that Germany's position on Greece is hardening to such an extent that it would actually now rather see Greece default. "Germany confused everyone else" in the negotiations, complained one. The paper also suggests that observers in the CDU are noticing a rift between Schäuble and his Chancellor. "Schäuble supports the bankruptcy of Greece, Merkel wants to strictly avoid it," said a leading member.

However, it seems that some in the German government may finally be beginning to realise that they are flogging a dead horse.

5 comments:

Anonymous said...

A dead horse? Are you serious man?
It should be more proper to rename your blog to CLOSED EUROPE, cause that you're aiming at.

Shame on you!

Open Europe blog team said...

Anonymous, the point we were trying to make with the "dead horse" is that austerity, without the prospect of growth, is not working in Greece and is never likely to.

We have always argued that there needs to be a restructuring in Greece to reduce the debt burden.

To us Schauble's comments would suggest that he might finally be coming around to this fact.

Rik said...

1. A restructuring is simply not an urgent issue for Greece although alot of people tell us otherwise. In no way Greece can go to the markets even if it present debt would be 30-40%. The gov. deficit is simply too high and too structural, you never know were it will end (only that is is very likely unsustainable). 120% (and we all know they are not going to make that without very high inflation is simply a joke. No creditor will lend them under normal conditions.
2. Greece never will have growth before GDP (and more important wages) have come down with at least half and likely considerably more.
With hardly any movement in the government sector, costs/taxes will remain that high and tax burden is more likely to rise than drop even as a total amount (and certainly as a percentage).
3. Its democracy (or what you want to call it) is simply nowhere near making the sacrifices necessary to get to a sustainable situation.
Nobody, no solution (unless massive subsidies/transfers from the North and those are not going to happen) can offer them something remotely close to growth. A dictator might have been able to push it down their throat within a democracy that is simply not possible.
4. The question is who will pick up the bill until they have faced reality and are somewhere along the way to a new start?
It looks to be not Germany and Co at least not for much longer.

Rik said...

1. A restructuring is simply not an urgent issue for Greece although alot of people tell us otherwise. In no way Greece can go to the markets even if it present debt would be 30-40%. The gov. deficit is simply too high and too structural, you never know were it will end (only that is is very likely unsustainable). 120% (and we all know they are not going to make that without very high inflation is simply a joke. No creditor will lend them under normal conditions.
2. Greece never will have growth before GDP (and more important wages) have come down with at least half and likely considerably more.
With hardly any movement in the government sector, costs/taxes will remain that high and tax burden is more likely to rise than drop even as a total amount (and certainly as a percentage).
3. Its democracy (or what you want to call it) is simply nowhere near making the sacrifices necessary to get to a sustainable situation.
Nobody, no solution (unless massive subsidies/transfers from the North and those are not going to happen) can offer them something remotely close to growth. A dictator might have been able to push it down their throat within a democracy that is simply not possible.
4. The question is who will pick up the bill until they have faced reality and are somewhere along the way to a new start?
It looks to be not Germany and Co at least not for much longer.

Anonymous said...

Rik I agree with most part regarding the sustainability of the greek dept, BUT :
Greek politicians are corrupt, however German politicians are at least IDIOT. The reforms they want to force are IMPOSSIBLE to take place so fast. DO THEY REALIZE IT OR NOT.
And it is contradictory for them to see Greece default as a Desaster for Europe, and then FORCE THE IMPOSSIBLE to avoid it.
This is fully hypocritical.
Moreover, even if Greece did all reforms (theoritically, because in real it is not possible) its economy would be fully destroyeed due to 20% recession, and the debt would become 200% of GDP as GDP would fall drastically. IS SCHAUBLE SO IDIOT????
What should be done? Europe should keep paying, and YES demand from Greece to gradually reform, in a period of lets say 10 years.
Public sector and public companies should shrink by posing strict measures for no new recruiting, through pensions in a smooth way.
Investments from Germany should help the development of the economy.
Instead they want Greece to become Bulgaria. But this is a different case.
Tell me is there a country ANYWHERE IN THE WORLD that was forced to MAKE ITS PEOPLE SO MUCH POORER just because somebody from abroad demanded it? GIVE ME JUST ONE EXAMPLE.
THIS IS JUST STUPIDITY.