BILD up in arms about Greek bailouts once again

This is the front page of Germany’s (and Europe’s) largest  newspaper Bild. The headline reads:

“Greeks richer than us! ...But [the German] government plans new billions of aid.”

Now this is not exactly a surprising or rare occurrence – we have pointed out the tabloid's concern with the bailouts and other eurozone crisis actions before.

The story is based on the ECB wealth survey published last year. But as as we detailed on the blog at the time, the survey is actually quite misleading since it is based on old data and distorted by the much higher home ownership in peripheral Europe than in Germany. It also misses the point that tapping into such ‘wealth’ would be incredibly difficult.

In any case, with Greece continuing to struggle, even while the rest of the eurozone posts some positive results, the chances are that further assistance will be needed at some point. This remains a tricky proposition in Germany (and Greece, given the strings attached, we might add).

Merkel's necklace aside, who won yesterday's German election debate?

Some 17 million Germans – and, we dare to say, a record number of keen international analysts - tuned in yesterday to watch the first and last televised debate between Angela Merkel and SPD contender Peer Steinbrück, ahead of the country’s elections on 22 September.

The debate only briefly touched on the Eurozone crisis and EU policy, with Steinbrück criticising Merkel’s policy over Greece in particular. Though some Anglo-Saxon commentators have written this up as the SPD candidate “criticising austerity” , in fact, he was more criticising the pace of austerity and its balance with more 'growth orientated' policies – not austerity itself.

As we've argued before, you just don’t criticise Sparpolitik in Germany – next to plagiarism, this is the best way to end a mainstream political career. Steinbrück did, however, criticise the pace and scale of Merkel’s austerity policies, again repeating his calls for an as yet very vague new “Marshal Plan” for Europe. “There must be budget consolidation”, he said, but must not be “a deadly dose”. Merkel hit back, saying that if, as Steinbrück claims, the need for a third Greek bailout is a sign of her Eurozone policies failing, why did he and his party vote in favour of all the bailouts so far?

So who won the debate?

The view in the German media and commentariat seems to be pretty unanimous that though the debate itself was pretty much a draw, it involved a bit of a boost for Steinbrück – which wasn't entirely unexpected, given that the man started from an exceptionally low base.

Germany: FGW poll: opinion of Merkel unchanged for 76% of viewers, 14% have a better opinion, 10% a worse one. Steinbrück: 47% 44% 9% #btw13
— electionista (@electionista) September 2, 2013

Snap post-debate polls also suggested a draw, with one putting Steinbrück in the lead (49% to 44%), and two others putting Merkel ahead (40% to 33% and 44% to 43% respectively). A fourth poll put both candidates on 50%.

However, Steinbrück did see a boost to his head-to-head ratings. An ARD poll (see below) has a massive swing in favour of Steinbrück on the question: who would you vote for if the Chancellor could be elected directly?















AnFG Wahlen poll for ZDF shows a much smaller swing for Steinbruck – but still a clear swing.

However, the real winner of the debate, according to many, was Merkel's fetching patriotic necklace, which has now has its own twitter account with over 6,000 followers.

The EU budget is a disaster that cannot save Greece

Our Director Mats Persson argues on his Telegraph blog:

Ever driven on a motorway in Spain or Portugal? You’ll notice it’s not exactly the M25 – often, cars are few and far in between (some pretty heavy congestion around Gibraltar not included).

According to some estimates, 25 per cent of the EU’s so-called regional funds in Portugal has been invested in roads, heavily contributing to a ridiculous situation where the country has 60 per cent more kilometres of motorway per inhabitant than Germany and four times more than Britain (H/T FT). Meanwhile, around one third of EU structural funds in Spain has been invested in infrastructure, further inflating an already critical construction bubble, while, like in Portugal, creating a whole host of ghost roads, airports and harbours. The EU’s own auditors have hammered EU spending on roads, noting that 74 per cent of the project they monitored in a recent investigation recorded less traffic than expected.

Welcome to the folly of the EU budget. This economic anomaly is at best irrelevant for the Eurozone crisis – at worst outright damaging.

Consider Greece. In the last week, there has been some talk of the EU budget being used in a third bailout for Greece. Although it’s not entirely clear how this could work – or how even how credible this speculation is – one way could be to reduce the amount of its own cash the Greek government needs to put up in order to unlock EU funds, known as co-financing. Depending on the circumstances, this usually ranges between 25% and 60% of a total grant. Greece currently has special permission to put up only five percent, and it wants this extended to the next EU budget period, to run between 2014 and 2020.

This is politically convenient since it draws from a cash allocation that has already been agreed (easier to sell to German taxpayers) while not coming with new, tough bailout conditions (easier to sell to Greek citizens). However, such an arrangement will also do absolutely nothing to save Greece:

• Most fundamentally, a quick look at the records shows that Greece has been allocated over €64bn in structural funds over the last two decades (to which the UK has contributed around 12%). Per capita, this is amongst the highest in the EU, yet the country is still bust and uncompetitive. 

• It follows therefore that it’s the wrong type of funding for Greece. It can’t be used for health spending, education or to recapitalise banks, for example, areas where the fiscal shortfall in Greece is / has been the most critical. It can, however, be spent on roads. 

• Like the structural funds in general, it risks creating an opportunity cost by diverting limited public investment away from where it can have the greatest impact. 

• Reducing the co-financing rate gets us away from the structural funds actually being a fiscal burden – Greece can’t afford putting up the matching cash (the structural funds tend to be oddly pro-cyclical). However, the trade-off is that it eliminates any form conditionality attached to the money. Is this really the way forward? 

• It’s a bureaucratic nightmare to get to the actual cash – exactly what Greece doesn't need. 

This also illustrates why (almost) the entire EU budget is pretty much a running disaster, in desperate need of root-and-branch reform.

Greece almost as worried about a third bailout as Germany...

As a follow up to our earlier post on the German reaction to the revelation of a third Greek bailout, we thought that it was also worth noting that there has been a fairly strong reaction in Greece as well.

As we suggested yesterday, the outrage over a third Greek bailout was unlikely to be confined to Germany, with the Greek themselves coming round to the cold realisation that this could mean many more years under tough bailout conditions. Many of the papers ran headlines expressing as much, with some including some rather ominous pictures of Schäuble…

“Schaueble is threatening us with new help.” (Sytakton, 21.08.13)

“Greece in German urns.” (Ta Nea, 21.08.13)

“Chains with new credit and saving programmes.” (Syriza, opposition party, 21.08.13)

How much more austerity Greece is willing and able to stomach will surely be a big factor in any discussion on future aid. The one saving grace may be that this bailout, whatever form it takes, is likely to be significantly smaller than the previous two, potentially allowing for more flexibility.

That said, as long as Greek debt continues to look inherently unsustainable any easing of conditions may be just a pipe dream. With both sides already expressing concerns over the project, expect another fiery set of negotiations towards the end of this year.

German parties scramble as third Greek bailout drops into the election campaign

The parties scramble on Greece in the election campaign

As we discussed yesterday, Germany has finally owned up to what everyone already knew – Greece needs more help. Not exactly ground breaking news some might say, but given that the German federal elections are 4 weeks away, the response in Germany has been frantic – providing a bit more insight into how each party views the eurozone crisis.

CDU
German Chancellor Angela Merkel said yesterday:

“I cannot say today what amount would possibly be needed…I cannot put forward a number, or confirm one. I don't know. One cannot know…We can only decide in the middle of next year." 

“I have to say I am a little surprised. Each Member of Parliament has all materials [relating to Greece.] And that, what [German Finance Minister Wolfgang] Schäuble said yesterday about Greece, everyone already knew that.”

Since Schäuble let the cat out of the bag a few days ago, the government, (via numerous politicians and spokespeople) has been tirelessly trying to display the comments as being in line with existing party policy. It has also tried to dispel the discussion altogether, suggesting no decision will be taken until mid-2014.

SPD
As expected in an election campaign, the opposition has jumped on the slip up. In an interview with Osnabrücker Zeitung, SPD Chancellor Candidate Peer Steinbrück said:

“I say clearly that saving Europe and the cohesion of the continent will cost something, also us Germans. It is time that Mrs Merkel tells that honestly to the people.”

In an interview with Handelsblatt, SPD Chairman Sigmar Gabriel said:

“[This] is the difference between the Chancellor and the SPD. Mrs Merkel says Germany will not go into a debt-union. In reality, the Chancellor has already long-organised such debt union secretly via the ECB. Mr Draghi has taken over state financing in the crisis states. But even before the election, the bill is going to arrive, in that Greece will guaranteed apply for another debt haircut.”

Former German Chancellor Gerhard Schröder also made his first foray into the election, telling a party rally:

“It is a big lie that Germany will not have to pay for Europe.”

For all the SPD's attempts to push the CDU into admitting that the eurozone will need further aid, it still isn’t entirely clear what the SPD sees as the solution to the eurozone crisis. This has hampered its attempts to take advantage of the situation. It’s also telling that interventions by SPD party 'big beasts' seem to make Chancellor candidate Steinbrück look timid and uninspiring -- rather than helping him.

CSU
The Bavarian sister party of the CDU has been notoriously pessimistic over the eurozone crisis and is, expectedly, none too happy about the timing and the substance of the admission that Greece needs more aid.

CSU leader and President of Barvaria, Horst Seehofer said that a new aid package for Greece "is not in question," and that he is "not very happy," with the current discussion. Meanwhile, Bavarian Finance Minister Markus Soeder warned that:

“It was completely wrong to announce a third programme [for Greece] now.”

ECB
The ECB has offered veiled support to the German government. ECB Executive Board member Jörg Asmussen, who was visiting Athens yesterday, said that the plan remained to assess Greece’s situation once it registers an annual primary budget surplus -- likely at the end of this year.

Meanwhile, Bundesbank President Jens Weidmann commented that, “Nobody here [in Germany] longs for the D-Mark…We are fighting for a stable euro,” playing down fears this could revive talk of a eurozone break up.

Other parties have weighed in as well, with Alternative für Deutschland and Die Linke slamming the prospect of any further bailouts as expected. This incident could potentially help increase their share of the vote, although it may well come at the expense of the junior coalition partner, the FDP, which has been fairly quiet throughout this episode – that of course could make creating a governing coalition a bit trickier.

Despite the CDU's attempts then, this issue seems here to stay, although it is unlikely to have a significant bearing on the outcome of the election.

That said, it doesn't paint a rosy picture for the German approach to the eurozone crisis after the election. Those expecting huge change are likely to be dissapointed. Another bailout simply suggests more of the same. Meanwhile, all parties seem short of any real policies for how to change the current approach and/or find a real solution to the eurozone's economic woes.