Greece has asked for more time to make fiscal reforms, but DW's Bernd Riegert says we've been here before. He argues that with a number of eurozone countries on the brink, the present course cannot hold for much longer.
Eurozone countries won't let Greece go broke. At least not this time. Talks between German Chancellor Angela Merkel, French President Francois Hollande and Greek Prime Minister Antonis Samaras are just at the beginning of a long series of negotiations sure to weary the public. After the summer break, the latest act in the Greek tragedy is set to last until at least mid-September.
That is also when the German Constitutional Court is expected to give a temporary ruling on whether the rescue mechanism known as the European Safety Mechanism (ESM) can go ahead as planned. The ESM is the central pillar of the European rescue plan. Without it, the whole approach must be reinvented. The ESM is aimed at preventing contagion from spreading to Spain, Italy and France if Greece goes bankrupt. For that reason alone, a decision on Greece won't be made today or tomorrow, but in September.
It is no accident that the troika consisting of the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF) will not ready a decisive report until September. Even with the bailout fund and a flanking action by the ECB, the financial and political consequences of Greek bankruptcy and its possible emergency exit from the eurozone are hard to calculate. For that reason alone, Greece won't be allowed to go broke. Not yet.
Most economists agree that the Greek drama cannot go on forever. The Greek economy keeps falling apart. It will be impossible for the debt avalanche to lead to either new growth or more savings. That's why the EU and IMF cannot avoid another debt decree in the foreseeable future. While costing German taxpayers billions, it would still come cheaper than having to deal with Greek bankruptcy.
Samaras' personal guarantee that Greece will pay back its emergency loans is more of a publicity stunt. The Greek prime minister has not been able to present the 11.5-million-euro budget cuts Greece agreed to and March, which was supposed to go into effect in July. The Greek government is under enormous pressure from domestic politics. The opposition is already getting ready for massive protests.
Perhaps Merkel wants to grant Greece additional help until she's survived Germany's 2013 elections. That would also allow Greece more time to make reforms, at least, if they do not cost more money. Germany's governing coalition has ruled out a third bailout for Greece. However, one can imagine the ECB using financial tricks, extensions for repaying existing loans, low interest rates and indirect help to effect a delay; and thereby make the Greek rescue seem somehow plausible to the astonished public. Earlier this year, the EU gave beleaguered Spain an extra year to reach budget targets.
The real problem of the euro crisis lies in the fact that every county is bound together. If the Greek's are granted more time, then Italy, Spain, Portugal and Ireland will insist on the same thing for themselves. That would put the credibility of the savings and rescue packages at risk. Financial markets would continue to lose faith in the eurozone, possibly raising interest rates on Spanish or Italian government bonds.
It is thus imperative for the ECB to clearly explain how it wants to stand by the beleaguered countries. ECB President Mario Draghi has announced a breakthrough before, but is yet to deliver. The ESM plays a central role in the ECB's deliberations. With the help of the ECB, the ESM is supposed to buy troubled countries' government bonds. But as stated, the ESM cannot do much until Germany's highest court has made its ruling in mid-September.
In spite of all this, growing solidarity between Merkel and Hollande is encouraging. Hollande, just over 100 days into his term, appears to have come to reality. He must prep voters for unpopular austerity measures France will not be able to avoid over the coming months and years. Hollande also knows Greece will need additional help, and that France will have to pay. After all, France is the second-biggest contributor to the eurozone rescue fund after Germany. Italy and then Spain come in next. More time for Greece is not a long-term viable solution and would only burden the rescuers themselves.
And just a reminder: rescue packages approved over the past two years were supposed to buy more time. They have, however, been little used. Along with Greece, Ireland and Portugal are on life support. Meanwhile, Cyprus has made a request for assistance, Spain is on its way to doing the same and Italy's future is doubtful.