Germany's foreign minister Guido Westerwelle pledged support in the Greek fight against a runaway public deficit ahead of his visit. But Deutsche Welle's Karl Zawadzky warns against relying on the eurozone nations.
All eyes are on Berlin in this crisis. Europe's strongest economy is expected to bear the main burden in a bail-out of faltering Greece. After all, this is not only about averting a looming Greek state bankruptcy, but also about averting massive damage to the common currency, the euro. The damage is already palpable: since early December, the euro has lost eight percent in value against the dollar. On the other hand, a Greek government loan worth billions of euros was oversubscribed as early as mid-January. The reason is clear: the Greeks were offering four percent interest more than German federal government bonds, used as the eurozone countries' reference value for state loans.
As the markets continue to act on the assumption of a Greek bail-out, it's a good deal for investors. And more good deals are on the horizon: with more than 300 billion euros in state debt, that is 113 percent of the annual GDP, the government in Athens has to reschedule 54 billion euros via bond issues this year alone; in addition, it must cover the current deficit in the state budget. Greece's debt service threatens to strangle the country.
The Greeks lived beyond their means, they themselves are to blame for the mess. But the other eurozone nations and the European Central Bank weren't attentive enough; rather, they relied on the figures Athens quoted. And that although Greece had first gained entry into the eurozone with falsified statistics and then continued its economic activities in a very lax manner while busily continuing to fake the statistics. The deception surfaced during the global financial and economic crisis; particularly bad timing.
The Greek state deficit last year amounted to 12.7 percent of GDP; according to euro stability criteria, the upper limit is three percent. Only a rigid austerity program can avert state bankruptcy now, or help from the outside. While the government in Athens has announced massive cuts in state expenditures and social security, no one is confident Greece is stable enough to push through its agenda against a rebellious population.
With the introduction of the euro, Germany initiated a painful reorganisation of the budget and improved the country's competitiveness while other eurozone members have let things slide. Greece is merely the most outstanding example. Other Euro nations – above all Ireland, Spain, Portugal and Italy - have also lived beyond their means, creating mountains of debt and losing their competitiveness to a frightening degree. Storm clouds are gathering over euro-land. It is no longer possible for a country to improve its own position by devaluing its national currency to the detriment of others.
Every country must do its homework. Some have neglected to do so, and have to catch up now. Backup credit is expressly forbidden in the accord on how the EU functions. Should Greece receive aid all the same, other shaky candidates would soon come knocking at the door, overtaxing the EU and rewarding dubious budget and finance policies. It would be sending the wrong signal. The International Monetary Fund is the right address to aid the Greek. Trying to tap the other eurozone member won't get any results.
Karl Zawadzky is the head of Deutsche Welle's business department. (db)
Editor: Rob Turner