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Greece bailout

February 21, 2012

A new aid package and a debt write-off - that is how Greece is meant to be saved from bankruptcy. But the effect of these measures remains uncertain, says Henrik Böhme from DW's business desk.


We have already got used to this ritual. First comes the deadline, in this case March 20. Then the usual statement: if there Greece doesn't get the extra aid money by then, the country will go bankrupt. Then come days and weeks of negotiations and finally, a crisis meeting. That all ends with an early morning announcement that everyone can now relax, the situation has been resolved "at the last minute." Following the 100 billion euros that Athens received in 2010, this second aid package is worth 130 billion euros and even includes a debt write-down.

One thing is for sure: It won't be the last aid package for Greece. Sure, the government in Athens had to make some tough compromises this time round. Repayments will be made from a trust account. That can almost be seen as a loss of national sovereignty. But at least that ensures that Greece really does pay its debts back and is not using the money for other things.

Deutsche Welle Henrik Böhme Chefredaktion GLOBAL Wirtschaft
Henrik Böhme from DW's business deskImage: DW

Now there are two facts which need to be noted. Firstly, this rescue package is not just about Greece. Even though not all their demands have been met, the finance industry is also being helped here. Greece has most of its debts with private banks, investors and insurance companies. A quarter of the aid money won't even go to Athens, but will head straight to creditors. The banking lobby has once again done their best to predict horror scenarios about incalculable chain reactions, loan default insurance problems and the possible breakdown of the whole financial system. This, for such an economically insignificant country as Greece.

After all, and this is the second aspect: in reality, Greece has been bankrupt for some time now. It's just that it's not official. It has debt levels of 160 percent in comparison to economic performance. The aim is to reduce this debt to 120 percent. How would that be any better? The truth is much easier to understand: Greece is stuck in the past. Investment funds have long since categorized it as an emerging economy. Banks are already considering the scenario of the country returning to its former currency, the drachma. It has a huge amount of ineffective, overly bureaucratic, administrative bodies. Why was the report from the so-called troika of the EU, European Central Bank and International Monetary Fund basically kept secret? Because it speaks out about these problems. Namely, that 130 billion euros will not be enough to stop the economic downfall of the country.

That's why the solution needs to be much more radical. We can not force Greece to leave the eurozone. So we have to make it clear to the people of Europe: this is going to be expensive, for a long time. The tactic of aid packages has to be ended, immediately. We have to properly help the country to reinvent itself. There needs to be incentives to invest. People in the development business call it "state building". Probably the only thing that will help is Greece going officially bankrupt. This may happen by the fall, by which time Spain and Italy have hopefully restabilized. Hedge funds are already betting about when it will happen.

Author: Henrik Böhme / al
Editor: Joanna Impey