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Europe

Germany offers Greece further financial lifeline

For many Greeks, German Finance Minister Wolfgang Schäuble is the face of austerity and harsh economic measures. But this time, he visited Athens bearing a promise of 500 million euros.

German Finance Minister Wolfgang Schaeuble flanked by his Greek counterpart Yannis Stournaras (R) and Greece's Minister for Development & Competitiveness Kostis Hatzidakis Photo: REUTERS/John Kolesidis

Wolfgang Schäuble Besuch Griechenland Athen Juli 2013

He's been one of the most unpopular foreign leaders since the onset of the financial crises. Nevertheless, Greek Finance Minister Yannis Stournaras greeted Germany's finance minister with a "Dear Wolfgang," on Thursday - and Wolfgang Schäuble reciprocated those sentiments. At his first public appearance at a meeting of the German-Greek Chamber of Commerce, Schäuble admitted he was "impressed with what Greece had achieved so far," and praised the "big steps in the consolidation of the Greek economy."

On the issue of finances he remained firm and pleaded again for austerity measures and painful reforms. "There is no other way if you want to achieve sustainable growth," the CDU politician warned, adding, "Sound public finances create trust." A modernization of the labor market and social security system, as well as a reform of the judiciary and tax system are necessary, Schäuble warned the predominantly Greek audience.

Investments against recession

Schäuble's special gift for the host: a preliminary agreement for the establishment of a Greek "development fund," for small and intermediate-sized businesses along the lines ofthe German KfW development bank. Overall the funds will comprise an initial capital of 500 million euros ($656 million), with KfW funding accounting for 20 percent.

The President of the German-Greek Chamber of Commerce, Michalis Mailis, praised the move in an interview with DW. "After six years of recession, the Greek economy is suffering from extreme liquidity problems," said Mailis, who runs an export-oriented packaging company. Numerous companies with great potential were threatened when the financial crisis hit. While the recapitalization of Greek banks has been successful, Mailis said, a lot more needs to be done to generate new income for the companies. The businessman from Athens said Germany's initiative would help in that arena.

Commentators welcomed the commitment of 500 million euros for small and intermediate-sized businesses, but nevertheless doubted that the funds could actually make a difference. According to a recent study by the consulting firm Oliver Wyman on behalf of the economics ministry, the recession-induced liquidity failure of the Greek economy totals more than 15 billion euros ($20 billion) a year. This is a huge sum in comparison to the investment fund's offerings. At a joint press conference with Schäuble, Greek Finance Minister Kostis Hatzidakis remained optimistic and pointed to the expected long-term results of the new development project.

"We believe that the support from the German side could inspire further donors, who are reluctant today, to contribute to the fund," Hatzidakis said.

Greek demonstrators are arrested by riot policemen Photo: REUTERS/Grigoris Siamidis

New austerity measures seek to eliminate redundancies in the public sector - including the police.

'Relief' but no debt reduction

Just before Schäuble's arrival, the Greek government narrowly passed a new austerity package. Among other things, thousands of public sector workers will be laid off and a luxury tax will be re-introduced. These measures were necessary to ensure that the EU, the International Monetary Fun and the European Central Bank troika would release the next bailout payment totaling 2.5 billion euros. It remains to be seen whether further modifications to the Greek bailout will be made. Press reports about a funding gap of 10 billion euros ($13 billion) have been vehemently denied. During his Athens visit, Schäuble rejected any further reductions in Greece's debt.

However, the German finance minister would not exclude other concessions. Such considerations could potentially be made after 2014, if the Greeks achieve a primary surplus and carry out the promised reforms, Schäuble told journalists in Athens.

"We have said that if the conditions are met, then we will talk about further action," Schäuble said. "But it would be wrong now - where the focus needs to be on implementing everything that was promised - to talk about the end of the program."

Greek political expert, Dimitris Tsiodras Photo: Jannis Papadimitriou

Political analyst Dimitris Tsiodras: Schäuble's visit was a positive signal

For the first time the CDU politician spoke quite clearly about easing the burden of Greece's debt, said political analyst and former government spokesman Dimitris Tsiodras. He is certain that Schäuble is suggesting a tactical change.

"Previously, he spoke of a bottomless pit, today he's distancing himself from such remarks," Tsiodras said. Though the German finance minister had announced no fundamental change in policy, he at least opened the door for changes in the Greek aid program, said the political analyst.

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