Hellenic Heresy

The Greek Patient

Yanis Varoufakis Reuters
The Greek finance minister, Yanis Varoufakis, has plenty to say about austerity.
  • Why it matters

    Why it matters

    If Greece fails to agree on a new debt program with its European lenders, the country may have to leave the euro zone and see its economy collapse.

  • Facts

    Facts

    • A number of euro-zone members support changes to the austerity program, particularly those affecting pensioners and lower-paid workers.
    • The Greek prime minister and finance minister toured European capitals last week, to try and persuade governments to consider their demand for debt relief.
    • German Finance Minister Wolfgang Schäuble has rejected the option of lowering Greece’s interest rates or deferring interest payments.
  • Audio

    Audio

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Two weeks after the election victory of the left-wing populist Syriza party in Greece, bewilderment is spreading through the rest of the euro zone.

“We still don’t know what the new Greek government really wants,” one high-ranking European Union diplomat said.

The Greek finance minister, Yanis Varoufakis, is constantly presenting new plans for how to restructure the country’s national debt. But E.U. sources complain he still hasn’t made clear how Greece will handle the euro zone’s existing aid program for Greece – a program that runs out at the end of this month.

Euro-zone members are unanimous in demanding that Athens recommit to the economic reforms and cutbacks required by the current program. Only after these conditions are met, will concessions be made to Greece under any future arrangement, according to Brussels.

A wide range of concessions is under discussion, but some are far from being politically realistic. They include:

Easing austerity measures: Greece may only have to generate a primary surplus (without the servicing of debts) of one percent to two percent of its gross domestic product. Until now, a primary surplus of up to 4.5 percent was planned. With the money saved, Greece could mitigate the desperate situation of pensioners and low-wage earners. The European Commission and many euro zone states support this.

Investment promotion: European Commission President Jean-Claude Juncker’s new investment fund could promote priority projects, but Greece will also have to develop and propose projects that promise success. Whether Greek authorities can do a better job than in the past is not certain.

Debt extension: The maturity of loans issued to Greece by the European Financial Stability Facility (EFSF) could be extended beyond the present 30 years to 40, or even 50 years. Willingness to do so is relatively strong in the euro zone, but for the moment, the extension wouldn’t put a cent in Greece’s coffers, since the country has not even begun servicing its EFSF debts.

 

Greece Greek gov debt in percent and in billion of euro-01

 

Interest rate reduction: Athens pays negligible interest for the bilateral credit provided by the euro member states. Some E.U. diplomats see some leeway here. Interest could be lowered, or interest payments deferred, but some powerful figures including the German finance minister, Wolfgang Schäuble, reject this option.

E.U. Structural Fund: Aid to structurally weak Greek regions could be paid out from the E.U. budget if the Greek state is not financially involved in the project. The E.U. has reduced Greece’s national share in co-financing already. Martin Schulz, president of the European Parliament, noted that if it were dropped completely, Athens could quickly siphon off a lot of money from the E.U. budget. Berlin hasn’t thought much about this idea, largely because of fears the money would be wasted on senseless projects.

Pursuit of tax evaders: The E.U. could help track down and tax the major Greek fortunes stashed in foreign bank accounts. It has long been known that wealthy Greeks fleeing tax authorities take their money to Great Britain or Switzerland. The head of the International Monetary Fund (IMF), Christine Lagarde, submitted a “black list” some time ago. The previous conservative government of Antonis Samaras wasn’t interested in pursuing rich tax evaders, but it will be interesting to see if the left-wing populist prime minister, Alexis Tsipras, officially seeks E.U. help in this matter. During his election campaign, Mr. Tsipras repeatedly promised voters more tax equality.

Debt cutting: Initially, Mr. Varoufakis demanded Europeans write off part of the debt owed by Greece. He no longer repeats the demand because all of the euro member states are vehemently opposed to debt cancellation, though there is some talk of rescheduling.

Reparations: Greece has no chance of success with this demand. The German federal government refuses to once again pay World War II reparations.

 

Ruth Berschens is the Handelsblatt correspondent in Brussels. Gerd Höhler is the Handelsblatt correspondent in Athens. To contact: berschens@handelsblatt.com, hoehler@handelsblatt.com.

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