Greece’s agony drags on, as we’re reminded by remarks from Germany’s deputy finance minister Jens Spahn. Greece must not be granted a “bail in” that would involve creditors taking a loss on their loans, he said.
The International Monetary Fund wants Greece to be given relief on its debt, in effect having their capital value written down. But Germany opposes this, and it is not only Greece’s largest creditor. It also makes the biggest contribution to the European Stability Mechanism, the eurozone’s bailout fund, which has to make a further payment to Greece this summer to enable the country to keep meeting its obligations. A team of European negotiators, plus the IMF, are expected to go back to Athens this week to try to hammer out an agreement. But there is a chasm not only between the Greek government and its creditors, but between the different creditors.
The European negotiating team, in practice led by Germany, argue that the problem is not the size of Greece’s debts but the country’s slow growth and failure to reform. They point to the experience of Spain, which has carried through massive economic reforms and is now growing strongly, with 3.2 per cent growth last year. If Greece has its debts written down, this would not be fair on other European countries.
Indeed it is not just a question of fairness. If a Greek government debt is not worth its face value, it is hard to see quite how the country can remain in the eurozone. The European Central Bank operates on the basis that all member states’ debt is 100 per cent secure. Wolfgang Schäuble, the German finance minister, was prepared to see Greece leave the eurozone during earlier debt negotiations. Since then support for the common currency has weakened with Marine Le Pen, the French presidential candidate, calling for a referendum on France’s membership of the euro, and votes threatened in the Netherlands and Italy too.
So this is not just a technical issue about the…