Saturday 27 December 2014

Germany warns Greece over begging for relief

Ambrose Evans-Pritchard

Published 19/07/2013 | 10:18

German Finance Minister Wolfgang Schaeuble (C) gestures while flanked by his Greek counterpart Yannis Stournaras (R) and Greece's Minister for Development & Competitiveness Kostis Hatzidakis during a news conference at Greece's Ministry of Finance in Athens.
German Finance Minister Wolfgang Schaeuble (C) gestures while flanked by his Greek counterpart Yannis Stournaras (R) and Greece's Minister for Development & Competitiveness Kostis Hatzidakis during a news conference at Greece's Ministry of Finance in Athens.
Protesters hold Greek flags as they chant anti-German slogans outside the Greek Finance Ministry during a visit by the German Finance Minister Wolfgang Schaeuble.
Protesters shout slogans in front of the parliament during a rally against the visit of the German Finance Minister Wolfgang Schaeuble in Athens.
A protester shouts slogans during a protest against the visit of German Finance Minister Wolfgang Schaeuble in Athens.

German finance minister Wolfgang Schauble has warned Greek leaders on a heavily guarded trip to Athens not to play with fire by pressing for fresh debt-relief.

“Greece must stop lobbying for a second restructuring of its debt. We have to stick to what has been agreed. Anything else is not in the best interest of Greece,” he said, during a day of political clashes in the capital. “If you take guarantees and then you are discussing a haircut, you are a liar. You will destroy any confidence.”

Mr Schauble admitted that Greece may ultimately need a second bail-out package as public debt spirals to 176pc of GDP this year, higher than when Greece first defaulted. The privatisation plan intended to chip away at the debt has stalled. Russia’s Gazprom has pulled out of a deal to buy Depa, the Greek gas utility.

But Mr Schauble insisted that talk of writing off loans from EMU bail-out funds or imposing losses on northern eurozone taxpayers would have a devastating impact on support for Greece.

The warnings came a day after the Greek parliament cleared the way for 25,000 state workers to lose their jobs over the next two years – the condition for €6.8bn (£5.9bn) in fresh loans from the EU-IMF-ECB Troika. The lay-offs risk pushing the unemployment rate towards 30pc.

Demonstrations were banned on the main road to Athens airport, while Syntagma Square was closed to prevent anti-German protesters wearing Swastikas and carrying Nazi banners approaching parliament.

Mr Schauble came with the sweetener of €100bn in loans for small business from the German state bank KfW. The gesture failed to assuage critics in Greece, where he is reviled as the chief architect of a policy that has pushed the country into a downward spiral, facing a seventh year of recession in 2013. The economy will have contracted by 27pc from its peak by the end of this year.

Alexis Tsipras, leader of the opposition Syriza party, called Mr Schauble’s visit a sham that was intended to keep a lid on the crisis until after the German elections in September.

Mr Tsipras pointedly called for a popular vote on whether to demand reparations from Germany for its wartime occupation, which led to the death of 300,000 Greeks and the seizure of Greek assets.

The government opened a secret inquiry into the case last year – a move seen as a ploy to give Athens a bargaining chip. The attempt to link the two issues has led to accusations of moral blackmail from politicians in Germany, and Mr Schauble has said that reparations are “out of the question”.

The Greek economy is still in a downward spiral. The IMF has pencilled in contraction of 4.2pc this year. The Greek think tank IOBE – which has been more accurate through this crisis – expects a fall of 5pc, and possibly 7pc

Mr Schauble said Greece’s only option is to stick to tough reforms and restore the competitiveness by slashing the budget. “There is no short-cut. We Germans know this. Ten years ago we were the sick man of Europe. We had to take a long and painful path to become the anchor of stability in Europe.”

Professor Yanis Varoufakis from Athens University said the comparison with Germany confuses two different situations, repeating the discredited narrative that Europe’s crisis stems from overspending by the south, rather than from misaligned cycles and excess capital flows.

“Germany was able to piggyback on a booming global economy when it did its homework 10 years ago. If it had tried today with the rest of the eurozone imploding, and the US and China faltering, its reforms would have ended in ruin just like ours,” he said.

Prof Varoufakis said private investment has fallen 22pc over the past 12 months and is still crashing. “The banking sector is completely zombified. Companies cannot get a loan. The calamity goes on, and there is absolutely nothing in sight to reverse it ,” he said. The Hellenic Confederation of Merchants expects the economy to shed another 195,000 jobs this year as 55,000 small firms go bust.

The Troika programme for Greece has entailed IMF-style austerity without the IMF cure of devaluation, which was ruled out by euro membership.

The Fund confessed in a mea culpa in May that it had breached three of four key guidelines by going along with the EU-led rescue package, and that the measures were chiefly designed to buy time to save the euro rather than to help Greece recover.

Asian members of the IMF board complain that the Fund is being abused for political purposes, with the lion’s share of its resources devoted to the EMU periphery on opaque terms.

It is unclear whether it will let the Fund sink fresh funds into Greece as debt ratios spin out of control yet again. An IMF withdrawal could bring the Greek crisis back to the boil, forcing EMU creditor states to rethink their strategy.

John Petley from International Monetary Research, said Greece would be recovering if it had left the euro when the crisis began. “By now it would probably be exporting its way back to growth with a more competitive drachma,” he said.

Telegraph.co.uk

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