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Greece vs Germany: A bare-knuckled battle

In a last ditch attempt to buttress Athens from an economic meltdown, European finance ministers have approved a provisional loan of €7 billion ($7.6 billion) meant for the country’s most critical debts. The European Central Bank will also provide assistance of €900 million in emergency funding into Greek banks.

The first bailout of €750 billion ($920 billion) package was agreed upon in May 2010. Since then, Greece has been under the siege by its bailout institutions, the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF).
Hegemonic Germany, one of the key players pushing for the fall of the Athenian Empire, has boxed Greece into a corner of the ring. The two main players’ disparate backgrounds have made it difficult to reach a compromise. During the latest negotiations in July, Germany, Finland, the Netherlands and a few former Eastern bloc countries sought a Greek knockout. France and Italy, though wary of Tsipras after his snap decision to call a referendum, delayed the final bell. While the Greek empire has not yet completely collapsed, at least for now, it is clear that more political instability lies beyond the horizon.

Germany’s stereotypical insistence on procedural order highlights its view that Greece is only welcome in the eurozone if it complies with the rules set out. Germany’s finance minister, Wolfgang Schäuble, has stated that an exit from the European Union might be a better alternative for Greece and its citizens. Both Merkel and Schäuble successfully negotiated that Greece set up a €50 billion privatisation fund that would be supervised by European institutions.

The Austrian Chancellor, Werner Faymann, in an interview with Austrian newspaper Der Standard stated that he believes that Wolfgang Schäuble is “totally wrong” about Greece being better off if the country were to leave the Eurozone. His argument is that the German Finance Minister has “created the impression for some that it may be useful for us if Greece falls out of the currency union.” This seems to be the wrong impression.

Poverty in Greece has been deepening since the financial crisis began more than five years ago. Now, aid groups and local governments say they are beginning to feel the effects of weeks of bank closures as Greece struggles to keep its financial system from failing, and to break out of years of economic hardship. More than half of the members of Syriza’s central committee signed a statement condemning the bailout agreement, describing it as a coup against their nation by European leaders.

Nobel Prize-winning economist, Joseph Stiglitz, stated that if the eurozone were to split, it would be better for Germany to leave than Greece. He adds that Greece is not the only economy facing struggles under the euro which underscores the idea that a new approach is needed. Furthermore, Stiglitz stressed that although Greece has made some mistakes, Europe has “made even bigger mistakes”. In similar sentiment, the IMF criticised the latest bailout deal offered to Greece by the eurozone saying that Greece’s public debt is highly unsustainable, urging that a greater scale of debt relief be provided. Findings from an IMF study reveal that EU countries would need to give Greece 30 years to repay all of its European debt and also provide significant extensions on the maturity of its debts. According to the IMF, without such extensions creditors might have to accept “deep upfront haircuts” on existing loans.

Had the talks on July 18 collapsed resulting in Greece leaving the currency union, every member state stood to lose the loans extended to Greece from past bailouts. Ratings agency Standard & Poor’s approximates that total German exposure to Greece amounts to roughly €84.5 billion, making Germany Greece’s largest eurozone creditor. Regrettably, Greece is the eurozone’s Achilles heel.

Credit Guarantee Insurance Corporation

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