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Thursday, July 16, 2015

Five Reasons Germany Says No to Greek Debt Haircut

Germany insists on its refusal to write off part of Greece’s debt, despite the fact that the International Monetary Fund (IMF) claims the debt is unsustainable. German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble say that they would give Greece more time to pay off its debt and perhaps lower interest rates, but no debt haircut. According to an AP report, there are five reasons Germany doesn’t want to write off part of Greece’s debt. 1) It is taxpayers’ money and Greece’s overspending does not sit well with the majority of German citizens. The Merkel and Schaeuble conservative party is not very fond of Greeks because they refuse to endure spending cuts, while other countries with similar problems, such as Spain, went through painful bailout programs and their economies are recovering. 2) The European Union treaty forbids countries from taking on each other’s debts, and rules are rules, as Schaeuble says. That was an essential provision installed from the beginning, in part to ensure that the shared currency wouldn’t mean Germany paying for other countries’ mistakes. 3) If Greece gets exceptional treatment, other countries in debt, such as Ireland, Portugal, Cyprus and Spain, may ask for the same. Yet, those countries implemented reforms and are beginning to recover. If Greece’s leftist-led SYRIZA government got debt relief, then other leftist parties, such as Podemos in Spain, would be encouraged. Spain, Portugal and Ireland have elections in the next nine months. 4) Future Eurozone governments may look at the debt haircut and feel less compelled to keep debt under control, an issue economists call “moral hazard.” Tightening budgets and avoiding overspending has worked in other countries and Germany believes it can work in Greece as well. 5) Greece has done very little to help itself since the first bailout in 2010. It has implemented very few reforms, while it retained high pensions, early retirement, inadequate tax collection, clogged legal system, restricted entry in trades while at the same time promising it will get rid of them. Why should Germany write down Greece’s debt and keep pumping more money to a failed economy? Germany will take a big part of Greece’s new 86-billion-euro bailout package but this will include conditions such as spending cuts, pension reforms, effective tax collection, privatizations and pro-business changes that will ultimately improve Greece’s ability to pay.


READ THE ORIGINAL POST AT greece.greekreporter.com