Vilified in the Greek press as the cruel taskmaster, 72-year-old German Finance Minister Wolfgang Schaeuble speaks the truth about the latest bailout, more likely to fail than succeed. When 40-year-old socialist Greek Prime Minister Alexis Tsipras rolled the dice, letting the previous bailout deal expire June 30, calling instead for a July 5 national referendum on whether or not Greeks wanted more austerity, he turned up snake eyes. Declaring capital controls June 28 to prevent a run on Greek banks, Tsipras heaped misery on the Greek people promising he’d get more leverage to negotiate a better bailout deal with the 19-member Eurozone. While Tsipras remains at the helm, the mutiny’s well underway, after his tough talk wreaked havoc on the Greek economy. Had Tsipras and his former Finance Minister Yanis Varoufakis not antagonized the Eurogroup, Greece would be far better off.
German Chancellor Angel Merkel rejected calls by the International Monetary Fund’s Christine Legard to write off Greek debt, the so called “hair cut.” Merkel and Schaeuble have insisted that Greece pays for its fiscal mismanagement, rather than passing the buck to German taxpayers. Germany, though only one of 19 Eurozone countries, accounts for 27% of bill paid for Greece’s default. While agreeing to all the the Eurogroup’s reform demands July 13, Chief Finance Minster Jeroen Dijisselbloem expressed the same skepticism over the new 86 billion euro bailout. Finish Prime Minister Sauli Niinisto agreed with Merkel and Schaeuble that the likelihood of the new bailout working was slim-and-none. Despite reservations from Merkel and Schaeuble, the Bundestag, Germany’s lower house, is expected to approve discussions for a third Greek bailout.
Merkel faces a revolt in the ranks for her conservative Christian Democratic Union Party for going along with the Eurogroup’s third Greek bailout. “We will no see in the negotiations whether there is even a way to get a new program taking into account [Greece’s] financing needs, which have risen incredibly, Schaeuble told Deutschlandfunk radio. Merkel and Schaeuble reject the IMF’s request to write down Greek debt to make any bailout more successful. IMF’s Largarde believes without a “haircut” or write-down of debt, the Greek economy won’t climb out of recession, leaving the prospects of success in doubt. Largarde agreed to take over Greece’s debt servicing, knowing her funding comes primarily the U.S. and European Union countries. Lagarde strongly opposed Schaeuble’s suggestion that Greece take a “temporary” hiatus from the euro, believing it would be permanent.
Schaeuble’s concerns stem from Greece’s history in 2010 and 2012 taking 240 billion euros and still running out of cash in 2015. Given that the current bailout amount is only 86 billion euros, it likely Greece will run out of cash more quickly this time around, unless Merkel and Schaeuble agree to the “haircut.” Refusing to accept the IMF-suggested “haircut,” Schaeuble suggested Greece to back on the drachma until it can get its spending under control. Social Democrat Party of Germany budget expert Carsten Schneider accused Schaeuble of sabotaging Merkel’s commitment to open up talks on a new Greek bailout. Despite Schaeuble’s reservations, Germany’s Christian Social Union [CSU] expects to open up talks in the Bundestag on a Greek bailout. “I strongly recommend to my friends in the part and parliamentary group to official vote in favor of starting negotiations,” said CSU’s Hosrse Seehofer.
Tsipras believed he held all the cards with the Eurozone fearing a “Grexit” would destabilize the common currency, potentially ending the euro. While there’s no mechanism for ending a member-state’s participation in the euro, Dijsselbloem and the Eurogroup had to look carefully at the euro’s fallibility. “I don’t see that the stability of the euro-zone as a whole is in danger. And sustainability of Greece’s deal isn’t given either,” said Detlief Seif, a deputy spokesman for the Bundestag’s European Affairs for Merkel’s Social Democratic Union. Schaeuble tried to steady the Eurogroup, reassuring them that the Eurozone could survive as “Grexit,” even wind up stronger. Seif admitted he’ll vote against opening up negotiations with Greece for a third bailout because he sees no end in sight to Greece’s economic woes. Despite objections to the new Greek bailout, it’s expected to pass in the Bundestag.
Whatever happens with the latest Greek bailout, Dijsselbloem’s Eurogrop must work on methodical procedures for extricating insolvent members of the Euozone. If there’s any lesson learned, it’s that the common currency union is bigger than any one country. Eurozone’s remaining states must have some confidence that the Eurozone can survive one or more of its members reverting back to their own currency. No one promised Greece a rose garden in 2001 when they joined the Eurozone. Nearly fifteen years later Greece has gone through essentially three bankruptcies with a fourth potentially on its way. Once the dust settles with Greece, Eurogroup finance ministers must work on a methodical path out of the Eurozone for countries that don’t follow the rules and prosper. Instead of worrying about Greece, the Eurozone should look to add more economically solvent members of the EU.
