Germany Refuses Debt Writedown for Greece
Maybe that’s why Germany has a strong economy and Greece doesn’t.
Greece’s new prime minister Alexis Tsipras is finding out that his country’s massive debt won’t go away just because he wants it to. Maybe that’s why Germany has a strong economy and Greece doesn’t.
Jane Wharton of Express UK reported:
Merkel refuses to write off Greece’s debt
In her first interview since Syriza won the Greek election last weekend, Angela Merkel has made it clear the debt stands but she hopes they stay in the eurozone.
The far-left party stormed to victory last weekend with 36 per cent of the vote, promising to ditch austerity and renegotiate the country’s £180billion bailout from the European Union, the European Central Bank and the International Monetary Fund – also known as the troika.
Their finance minister Yanis Varoufakis has said this troika of global institutions is “rotten” and has refused to work with them to renegotiate bailout terms.
Syriza is now beginning to roll back on the austerity measures imposed by the EU on the previous administration in exchange for the loans.
However this morning the German Chancellor said that while Europe will continue to show solidarity with Greece and other nations hit by Europe’s debt crisis, the debts must be repaid in full.
Speaking to Hamburger Abendblatt, she said: “I do not envisage fresh debt cancellation.
“There has already been voluntary debt forgiveness by private creditors, banks have already slashed billions from Greece’s debt.”
It’s amazing what can happen when a politician is told he can’t spend money he doesn’t have.
The Tsipras administration, which knows it doesn’t have the negotiating power (or money) to defy reality has quickly adopted a new position.
Greece Changes Strategy: No Longer Demands Debt Write Off, Ask For Debt Exchange Instead
Over a week after the new Greek government came to power, it has presented its first actual proposal of how it hopes to negotiate with Europe that does not involve the infamous “debt write off”, which as both Germany and the ECB have made clear, is a non-starter as it impairs the ECB’s balance sheet and leads to a loss of “faith” in the money printer, the legacy monetary system and so on. So instead of yet another debt restructuring, the FT reports that Yanis Varoufakis “would no longer call for a headline write-off of Greece’s €315bn foreign debt. Rather it would request a “menu of debt swaps” to ease the burden, including two types of new bonds.” Actually he still does, only he is not calling it as such.
The first type, indexed to nominal economic growth, would replace European rescue loans, and the second, which he termed “perpetual bonds”, would replace European Central Bank-owned Greek bonds.
Greek voters put their faith in a charismatic politician who made big promises, but they’re going to learn a harsh lesson.
The deck chairs of the Titanic can only be rearranged so many times.
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Comments
They and Obama reject government “austerity” as the cure for a bad economy, because they are all confused about the effect government overspending (and overtaxing) has on the economy.
Stupid. Stupid. Stupid. Stupid.
And, I would add, stupid.
The reason so many hate ‘austerity’ is that it is associated with living within your means.
Those who hate it have been listening for decades to politicians who nearly unanimously promise that those whose votes they’re buying will under the new regime be subsidized by Someone Else, preferably ‘the rich’, but foreign taxpayers will do as well.
Looks like Someone Else has run out of patience.
Greece has now run out of Other People’s Money. How long before other Euro economies do the same thing?
I’ve yet to see how “rearranging deck chairs” equates with bailing out or even stabilizing a sinking ship. It’s past time to let this ship (of state – e.g. Greece) go under. It’s only when richer economies quit enabling the borrowing by broke countries that debtor countries will stop trying to borrow to live a rich lifestyle. That is called being responsible
I don’t see how the plight of the Greek people can get any worse. They are in the midst of a 1930’s Great Depression: overall unemployment, 26%; youth unemployment, 50%; loss of GDP, 25%. This is not austerity; it is all out economic warfare.
Total default on the debt, leaving the Euro and EU, would not make Greece’s situation any worse, and it might lay the foundation for some recovery. The reality is that Greece has nothing to lose.
Greece has a long way to go down yet. Look at Venezuela or Zimbabwe. If they don’t face up to their situation, that’s where they will go.
Pettifogger, look at what drove both Zimbabwe and Venezuela to where they currently are and what is now in charge of Greece. Greece WILL fall to these levels – it’s the only thing than communists can do with an economy.
My evergreen comment on Greece and the EU is that the question is not when Greece will exit the EU, but when Germany will exit. Germany is the only adult in the room and will soon tire of being the source of “other people’s money”.
Any success in downgrading debt or some measure of debt forgiveness will be emulated by the left in Portugal, Spain and Italy. They will win elections promising the same debt relief that the Greeks get.
The end result will be Germany re-instituting the DM and an exit from the EU.
At some point, the EU becomes a burden to the German economy that is not offset by the advantages.
However, Germany’s exit would have negative impacts to it’s trading partners (as in the whole house of cards collapses…) that also have negative economic impacts to the German economy.
How do you say “Damned if you and damned if you don’t” in German?
Verdammt, wenn Sie tun, verdammt, wenn Sie dont ‘ t
This doesn’t really sound like a refusal, more like the first step toward eventual surrender:
Refusal is “No, absolutely no more, regardless of the consequences”. Push has not come to shove yet, and the brinksmanship has started with Merkel sounding weak-kneed.
Democrats count on America voting for communism not austerity, per the Greek model. Queen Hillary would redistribute wealth from productive America, under the banner of feminist and racial fairness, with a little climate justice thrown in the mix.
Lots of posturing all around. Unfortunately posturing doesn’t generate wealth. Tough talk by Greece won’t make its debts go away. Tough talk by Germany won’t make Greece solvent.
As always when dealing with grossly overextended borrowers, the lenders have to (1) make a deal which leaves the borrower still alive and kicking, thus making it possible to get at least some of their money back, or (2) drive the borrower into bankruptcy, ensuring that the lender is repaid essentially nothing. The only rational option is (1), and both Greece and Germany know it.
But in addition, nations have problems ordinary lenders don’t. Option (2) would leave Germany with a huge financial loss, and a dying European country not so very far from its borders. A dying country is one with a bankrupt government which can’t pay for road repairs, air traffic control, sufficient police forces to suppress banditry, etc, and a population which will eventually have to escape the decay. And that means a refugee crisis. Simply telling the Greeks to stop being morons won’t magically alleviate these problems.
So, as always, the Germans will eventually compromise (i.e., cave), and the Greeks won’t get all the freebies they want.
There used to be a mechanism for dealing with situations like this:
It’s called “March your army to their doorstep, conquer them, fold them into your economy as a colony or, if contiguously geographically positioned, as part of your country. Tax as necessary.”
Do that, and you bring the people to governing power who will address the issues in the manner the creditor country desires.
Unfortunately war has fallen out of vogue as a method to resolve these sorts of issues. The 10-11 old peace-niks who stand on the street corner across from the El Paso Courthouse almost every Friday tell me so.
I’m so often tempted to walk up to them and say “Sometimes war IS the answer. Drones are cheaper and expendable where planes are expensive and pilots are not expendable. Guantanamo battlefield ununiformed terrorists should stay right where they are, unless you’re suggesting we should execute them immediately.”
But arguing with morons is a lost cause.
The newly elected leader of Greece ran on the promise that austerity was over and Greece would not be repaying it’s debt. Now he’s singing another song…….an Obama song.
Oops, I was lying!!!!
Greece ain’t going anywhere. By the way, the German people save, and invest. Part of this strategy is to lend money out at interest. Here? The greeks took lots of money. (In Euro’s. Spent it. Have nothing to pay back.) Bottom line, they won’t be selling any of their islands.
Their economy is in the tank. Unemployment runs high. (Especially among the young.) There’s also no accounting system in greece. Buying and selling property is not recorded, anywhere.
Ahead? If greece is forced to switch back to drachmas, they’ll be further down in the hole. That the greeks hate the germans? Nothing new.
Will greece need to borrow, ahead? Sure thing. But it should be interesting to see if germans line up to lend them money, again. (Place your bets.)
Meanwhile, here at home, the band plays on.