BERLIN, Germany — The government here appears to be losing patience with Greece’s unconvincing attempts at reform.
With the debt bailouts highly unpopular among German voters, Berlin is loath to be seen throwing good money after bad.
On Monday Finance Minister Wolfgang Schaeuble directly warned Athens that a second bailout was not inevitable. “Greece needs to decide,” he said in an interview with the Wall Street Journal, when asked if the euro zone would be coming up with the second bailout.
He said Europe was prepared to give Greece a second loan package, but warned: “Unless Greece implements the necessary decisions and doesn’t just announce them... there’s no amount of money that can solve the problem.”
His harsh words are an indication of the frustration in Berlin at the pace of reforms in Greece, which has been instructed to cut public spending, improve tax collection and open up the economy. Such measures had been a condition of the first rescue package of 110 billion euros ($144 billion) in 2010.
Greece, with its economy contracting and its people furious at the extent of the austerity being imposed, now requires another bailout to prevent default. Yet this is on hold pending the conclusion of talks with Greece’s private creditors on a debt relief deal.
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So far bondholders are offering to slash 50 percent off the sovereign bonds in the debt swap deal, cutting 100 billion euros from Greece’s public deficit. Yet this may still not be enough to scale back Greece’s debt to 120 percent of GDP by 2020.
With private creditors insisting they cannot take much more of a hit, there are growing calls for the troika of bailout creditors — the ECB, IMF and EU — to help meet the shortfall in the Greek public finances. Der Spiegel magazine reported over the weekend that the international lenders are now even considering increasing the bailout for Greece from 130 billion to 145 billion euros.
The ongoing Greek crisis has overshadowed Monday’s EU summit. European leaders are gathering in Brussels to finalize the plans for the future permanent backstop fund, the European Stability Mechanism (ESM) as well as details for a fiscal compact, which would enforce strict adherence to the EU’s budget deficit rule.
Yet the specter of a Greek default looms, something that could kick off contagion, pushing up borrowing cost for other countries, including Spain and Italy to unsustainable levels, and perhaps jeopardizing the euro zone itself.
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However Germany, the EU’s paymaster, is reluctant to simply throw ever- increasing amounts of money at Greece’s problems.
Tensions between Berlin and Athens were stoked even further over the weekend by the news of a German proposal to impose an external commissioner to oversee the Greek budget, with the power to veto budget decisions that were not in line with lenders’ targets.
German Economics Minister Philipp Roesler, who is head of the pro-business Free Democrats, said Sunday he backed the idea.
“The Greeks have to finally send a clear signal that they are taking things seriously,” he told the Bild newspaper. “Action must now follow the talk. In the implementation of the reforms, we need more leadership and oversight. If the Greeks cannot do this themselves, then the leadership and oversight must come increasingly from outside the country, for example from the EU."
However, the suggestion has been met with skepticism from other EU countries and was roundly rejected by the Greeks. Finance Minister Evangelos Venizelos on Sunday stated that: "Anyone who puts a nation before the dilemma of 'economic assistance or national dignity' ignores some key historical lessons.”