Olli Rehn:''Debt restructuring is not on the agenda'',''we would not accept a Greek withdrawal...from the euro zone" .
ΕΙΚΟΝΕΣ ΑΠΟ ΙΣΤΟΣΕΛΙΔΑ: ''in.gr''
Tens of thousands of people in Greece attended protests over the weekend against new austerity measures.
(Getty Images)
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(1)
Interview with EU Currency Commissioner Rehn
'There Is a Certain Aid Fatigue in Northern Europe''
Many in Europe assume that Greece will ultimately have to default on a portion of its debt. In an interview with SPIEGEL, European Monetary Affairs Commissioner Olli Rehn, however, insists that debt restructuring is not on the agenda. He also discusses reports that Athens is considering a return to the drachma.
SPIEGEL: Mr. Rehn, your Greek colleague on the European Commission, Maria Damanaki, said last week that either Athens and its lenders agree to tough sacrifices, "or we return to the drachma." Did she merely say what everyone is thinking?
Rehn: The public misunderstood my colleague's statement. She was trying to encourage her countrymen to implement the austerity program so that Greece can remain a member of the euro zone.
SPIEGEL: So you are no longer ruling out a return to the drachma?
Rehn: I do not see a withdrawal from the monetary union as a serious option. It would harm the Greek economy and be a setback for European integration. The euro is more than a currency; it's the central political project of our community. For this reason, too, we would not accept a Greek withdrawal.
SPIEGEL: But the Greeks themselves have played out the scenario of reintroducing the drachma.
Rehn: All I can say is this: I am not aware of it. We in the Commission and in the euro group are not working with such a scenario.
SPIEGEL: Then let's put it this way: What do the Greeks have to do to avoid a withdrawal from the euro zone?
Rehn: We expect Athens to do its homework, which includes reducing its deficit and privatizing government assets worth €50 billion ($71 billion).
SPIEGEL: Why so little? Greece could sell off a lot more. There is talk of €300 billion.
Rehn: It's true that the estimates are much higher. But of course it isn't possible to monetize everything in the short term. There are obstacles, such as the lack of registration of property. To help the Greeks, we are seriously thinking about establishing a privatization agency based on the model of the Treuhandanstalt (Eds. note: the institution which privatized former East German state assets following German reunification), as Eurogroup President Jean-Claude Juncker already indicated in SPIEGEL last week.
SPIEGEL: Within your department, it is said that the Greek government employs hundreds of thousands of civil servants more than it needs.
Rehn: The public sector in Greece is very large in comparison with the overall economy. According to the reform program already underway, the government has only pledged to replace one in five civil servants who are retiring. Government salaries have also been reduced. Further cuts will be needed, but in light of the tense situation I do not wish to speculate on this issue publicly.
SPIEGEL: Why is Greece falling behind on its promised reforms?
Rehn: It has taken great pains to consolidate its public finances. However, we were already warning of certain risks in February. Since then, Athens has diverged somewhat from its original reorganization plan. The Greeks have begun talking about a debt restructuring. This curbed their enthusiasm over implementing reforms. For instance, tax evasion was simply not pursued as successfully as would have been advisable.
SPIEGEL: Do you believe that Greece will be able to raise €25 billion on the capital markets next year, as planned?
Rehn: Greece's planned return to the markets in March 2012 is a very ambitious goal, to be sure. Given the current risk premiums, a return to the markets is virtually impossible. For that reason, Greece will face some very tough decisions in the coming months.
SPIEGEL: Luxembourg Prime Minister Jean-Claude Juncker warns that the International Monetary Fund (IMF) could refuse to disburse the next loan tranche to Athens in late June.
Rehn: We Europeans see the policy conditionality eye-to-eye with the IMF. As to the next disbursements, we will wait for the conclusion of the review mission of the troika.
SPIEGEL: Greece's total debt already amounts to almost 160 percent of its economic output. How can the country ever recover?
Rehn: The country needs stronger economic growth. It achieved 0.8 percent growth in the first quarter of 2011, which was almost a percentage point more than expected. But I wouldn't draw any far-reaching conclusions from this. Greece must continue to reduce its spending and increase tax revenues. Most of all, to reduce its debt Greece will have to achieve a primary budget surplus…
SPIEGEL: …in other words, a revenue surplus prior to the deduction of interest on debt.
Rehn: The current reorganization program provides for a surplus of 5 percent, which can be maintained for several years, at least until 2020. Examples of other heavily debt-ridden EU member states show that this is certainly possible. Belgium achieved a primary budget surplus of more than 5 percent for more than six years. The critical question is whether Greece's political class is willing to achieve this goal, and whether Greek society possesses sufficient social staying power. The situation is very serious.
SPIEGEL: That's exactly why so many experts are thinking about a debt haircut before the situation explodes.
Rehn: A debt restructuring is not on our agenda. It would have negative consequences for the Greek financial system and could trigger a chain reaction in the rest of Europe. A debt haircut also wouldn't solve the underlying problem: Greece has to stop living beyond its means. By contrast, a debt restructuring would weaken the pressure to reform.
SPIEGEL: There are growing calls within Germany's governing parties to involve German parliament before a euro-zone country receives funds from the planned permanent euro rescue fund, the European Stability Mechanism (ESM). Would the ESM be feasible if the German parliament had a say in payouts?
Rehn: We need the trust of the national parliaments, of course. But I doubt whether parliamentary control has to go into such great detail. In my country, Finland, the parliament has to approve every single disbursement of funds. To act effectively in a crisis, we must be capable of reacting quickly and flexibly. This should also be reflected in the mode of operation of the future bailout fund.
SPIEGEL: But you understand that the Germans don't want to become Europe's paymasters?
Rehn: In Brussels, we Finns are referred to as "English-speaking Germans," because we pursue the same economic policy principles: stability, sustainable growth and fiscal responsibility. The Germans aren't the only ones who are concerned. There is a certain aid fatigue in all of northern Europe. And we are experiencing a certain reform fatigue in southern Europe. As monetary commissioner, I feel this schizophrenia every day. We must try to build a bridge between these two camps.
SPIEGEL: Chancellor Angela Merkel recently said "it is ... important that people in countries like Greece, Spain and Portugal are not able to retire earlier than in Germany -- that everyone exerts themselves more or less equally." Is she right?
Rehn: It's important that all EU member states take responsibility for their economic policy and keep their national budgets healthy. As long as each country complies with the rules of the Stability Pact, it can control certain areas individually. However, we must be prepared throughout Europe to adjust our economic and social policy. For example, we have to raise the retirement age because of rising life expectancy.
SPIEGEL: When will the euro zone have overcome the debt crisis?
Rehn: That depends very much on the EU and the individual member states. I am confident that we will make the necessary decisions, better sooner than later. I believe that we Europeans have more staying power than the crisis.
Interview conducted by Christian Reiermann and Christoph Schult
Translated from the German by Christopher Sultan
ΤΟ ΚΕΙΜΕΝΟ ΔΗΜΟΣΙΕΥΕΤΑΙ ΣΤΗΝ ΙΣΤΟΣΕΛΙΔΑ:
ΤΟ ΚΕΙΜΕΝΟ ΔΗΜΟΣΙΕΥΕΤΑΙ ΣΤΗΝ ΙΣΤΟΣΕΛΙΔΑ:
www.spiegel.de/international/europe
30-5-2011
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FT Deutschland:
H Ευρώπη στην παγίδα των Ελλήνων
Η Ελλάδα πρέπει να λάβει οπωσδήποτε την επόμενη δόση της βοήθειας, αναφέρει η εφημερίδα
Βερολίνο
Άρθρο των Peter Ehrlich και Wolfgang Proissl στην έκδοση της Δευτέρας της εφημερίδας Financial Times Deutschland, με τίτλο «Η Ευρώπη είναι εγκλωβισμένη στην παγίδα των Ελλήνων» και υπότιτλο «Πολιτικοί και ΕΚΤ πιέζουν για συναίνεση στο νέο πρόγραμμα λιτότητας – Η αναδιάταξη δεν είναι πλέον στο τραπέζι των συζητήσεων – Αποκλείεται η χρεοκοπία»,
αναφέρει μεταξύ άλλων τα εξής:
Η ευρωζώνη αναζητεί όλο και πιο απελπισμένα τρόπο να αποτρέψει τη χρεοκοπία και την αναδιάταξη του χρέους της Ελλάδας. «Η κατάσταση είναι σοβαρή», παραδέχτηκε ο Επίτροπος Όλι Ρεν στο Spiegel. Οι προσπάθειες επικεντρώνονται τώρα σε ένα νέο πολυετές πρόγραμμα βοήθειας, για το οποίο οι Έλληνες θα πρέπει να κάνουν πολλές παραχωρήσεις. Ωστόσο η ελληνική κυβέρνηση δεν κατόρθωσε να διασφαλίσει τη συναίνεση της αντιπολίτευσης γι’ αυτό το πρόγραμμα, όπως απαίτησαν η ΕΕ και το ΔΝΤ. Τις επόμενες τρεις εβδομάδες θα πρέπει να βρεθεί μια λύση, για να μπορέσουν στη συνέχεια να αποφασίσουν οι ευρωπαίοι υπουργοί Οικονομικών και η σύνοδος κορυφής της ΕΕ, πριν καταβληθεί η επόμενη δόση του δανείου.
Το βέβαιο πάντως είναι ότι η Ελλάδα πρέπει να λάβει οπωσδήποτε την επόμενη δόση, γιατί διαφορετικά κινδυνεύει να κηρύξει μη ελεγχόμενη πτώχευση. Μετά τη δήλωση Ρομπάι ότι θα πρέπει να γίνουν τα πάντα, προκειμένου να αποτραπεί αδυναμία πληρωμών, και από την Καγκελαρία στο Βερολίνο ακούγεται τώρα ότι δεν θα επιτρέψουν να καταρρεύσει η χώρα.
Κύκλοι κεντρικών τραπεζών δηλώνουν ότι είναι πλέον θέμα των πολιτικών να λάβουν αποφάσεις. Οι κεντρικές τράπεζες συνηγορούν υπέρ ενός νέου προγράμματος βοήθειας έναντι αυστηρών όρων. Η καγκελάριος Άνγκελα Μέρκελ βέβαια θα προτιμούσε να έχει λίγο περισσότερο χρόνο για να εγκρίνει ένα τέτοιο πρόγραμμα. Η στάση του ΔΝΤ όμως δεν επιτρέπει καθυστέρηση.
Η γερμανική κυβέρνηση θα πρέπει να αναλάβει μαζί με άλλες χώρες της Ευρωζώνης το ποσοστό του ΔΝΤ στην επόμενη δόση του δανείου ή να εγγυηθεί ή να αποφασίσει αύξηση της βοήθειας προς την Ελλάδα. Παραμένει ασαφές ακόμα για τι ποσό πρόκειται. Μόνο το 2012 η Αθήνα θα χρειαστεί, σύμφωνα με το ισχύον πρόγραμμα, 25 δισ. ευρώ, τα οποία τώρα θα πρέπει να εξευρεθούν διαφορετικά.
Αν η Ελλάδα επιταχύνει το πρόγραμμα ιδιωτικοποιήσεων, θα μπορούσε να περιοριστεί η τρύπα χρηματοδότησης. Όπως δήλωσε ο Γιούργκεν Σταρκ, η Ελλάδα μπορεί να πετύχει πιο φιλόδοξο στόχο από τα 50 δισ. ευρώ ως προς την αξιοποίηση της δημόσιας περιουσίας της, η οποία εκτιμάται μέχρι και τα 300 δισ. ευρώ.»
ΠΗΓΗ:
www.tovima.gr 30-5-2011
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The Haircut War
Tensions Worsen Between Berlin and European Central Bank
By Christian Reiermann and Michael Sauga
European Central Bank President Jean-Claude Trichet:
The cold war between Berlin and Frankfurt reached a new high last week.
(REUTERS)
What's best for Greece and Europe -- a soft debt restructuring or billions of euros in loans for years to come? Berlin and the ECB are deeply divided over the best way to handle the crisis. A number of influential Germans fear the threat of austerity measures could be greater than a "haircut" of Greek debt.
It wasn't all that long ago that Europe's top monetary policy experts and the leader of the European Union's most important member state were politely exchanging compliments. Jean-Claude Trichet, president of the European Central Bank (ECB), praised German Chancellor Angela Merkel for having made Germany into an "example for all of its neighbors." Merkel, for her part, thanked the Frenchman for his decidedly "successful actions."
A few years and a crisis later, the relationship has cooled off considerably. Merkel feels that the Frankfurt-based monetary watchdogs are pressuring her inappropriately, while Trichet and his fellow bankers have taken to characterizing the Berlin government's proposals as "incorrect," "illusory" or simply as a "catastrophe."
Today, members of the German government and the ECB seem to have trouble spending time in the same room together. At a recent meeting of finance ministers in Luxembourg, Trichet stormed out of the room after being confronted with yet another crisis plan from Germany that he didn't like.
The controversy revolves around the future of the common currency, which instruments ought to be used to rescue the euro and, not least, a workable plan to support ailing Greece. While Merkel has long advocated a cautious restructuring of Greece's debt, Frankfurt-based Frenchman Trichet categorically rejects any form of debt deferral for Athens.
'Central Bank Equivalent of Nuclear Deterrence'
The cold war between Berlin and Frankfurt reached a new high last week. Should Germany implement its plans, the ECB would have to cut off funding for Greece, the monetary watchdogs warned. The consequences for Europe's banks and the Greek economy would be devastating.
The mere suggestion of what the Financial Times called the " central bank equivalent of nuclear deterrence" was enough to prompt German Finance Minister Wolfgang Schäuble to withdraw the German proposal immediately. A debt restructuring, Schäuble admitted sheepishly, could lead to a repeat of the events triggered by the bankruptcy of Lehman Brothers in September 2008.
In addition to revealing how serious the euro's problems are, the slugfest proves how much of its reputation the Frankfurt-based ECB has lost in the euro zone's strongest economy.
In the past, the central bank was seen as the undisputed economic authority in Germany. Anyone who opposed the monetary policy experts was quickly marginalized. Today, however, the central bank must threaten with the most drastic of measures just to force the German government to toe the line. A majority of German economic politicians and economists see the ECB's crisis strategy as unrealistic and contradictory.
One Year On, Situation in Greece Hasn't Improved
Experts concede that a restructuring of Greece's debt is undoubtedly risky. On the other hand, more of the same would mean the prolonged agony of propping up Greece with European loans for many years to come.
The facts speak for themselves. After a year of collective aid, the situation in Greece has not improved. On the contrary, almost all economic indicators have reached alarming levels. Meanwhile, the reform process has stalled and the country is making little progress.
This is the conclusion reached by the so-called troika, consisting of the ECB's economic and financial policy investigation and intervention team, the European Commission and the International Monetary Fund (IMF). In their quarterly report, which they expect to release at the end of this week, the experts maintain that Greece is failing to meet almost all agreed to fiscal goals.
The country's budget deficit is now higher than expected, because the Greek government is spending more than agreed under the aid program, and because tax revenues are significantly lower than targeted revenues.
'We Expect Athens To Do Its Homework'
The consequences of these undesirable developments could be fatal, experts at the three key organizations warn. The Greek government's creditworthiness in capital markets would decline even further, creating a new funding shortfall in the agreed aid program. Under the existing plan, Greece is scheduled to take on €25 billion ($36 billion) in new loans within the next year, which seems impossible at the moment. "We expect Athens to do its homework," EU Economic Monetary Affairs Commissioner Olli Rehn said in an interview published in this week's issue of SPIEGEL.
But if Greece is unable to come up with its own contribution next year, the IMF will not be permitted to disburse the next tranche of its bailout loans, payable in late June. Under IMF rules, the fund can only make loans available to a country if its financing is secure for 12 months. Little wonder, then, that Jean-Claude Juncker -- the Luxembourg prime minister and president of the Eurogroup, the regular meetings of the 17 finance ministers of the countries that use the common European currency -- hinted last week that the IMF could end up opting out of the Greek bailout.
The experts are now rushing to develop proposals on how Athens could return to the capital markets by 2012. The troika recommends a package of measures. For one, it wants the Greek government to ensure that taxes are indeed being collected. It always wants Athens to raise taxes even further.
In addition, the administration of Greek Prime Minister Georgios Papandreou is being asked to expedite its sale of government assets. Some €50 billion in proceeds from privatization are already planned for 2015, but the troika experts believe that this amount could be easily increased. Their inquiries have revealed that the Greek government owns real estate, businesses and other assets worth a total of about €300 billion.
The Greeks are also expected to rein in spending more effectively. The triumvirate of watchdogs wants to force the Greek government to shrink government spending until it falls within the agreed framework. The organizations hope that this will avert a government bankruptcy, which would have a devastating impact, says the ECB, particularly on Greek banks.
Many of these banks could go under if the maturity dates of Greek government bonds were extended and the ECB, as a result, were no longer willing to accept them as collateral for fresh loans. The Greek banking sector would be cut off from the money supply, the country's economy would be on the verge of collapse once and for all, and Greece would have to withdraw from the monetary union.
'ECB's Position on Debt Restructuring Untenable'
However, the central bankers' doomsday scenario isn't convincing, at least not among experts. "The ECB's position on Greek debt restructuring is untenable," says Hans-Werner Sinn, head of the Munich-based Ifo Institute for Economic Research. According to Sinn, it is entirely up to the central bank as to whether it agrees to accept the bonds as collateral for providing Greek banks with liquidity.
"The ECB makes its own rules," says Thomas Mayer, chief economist at Deutsche Bank. He also points out that it isn't true that Greek banks would lose access to central bank funds in the event of a debt restructuring. If, for example, old Greek bonds were exchanged for new securities issued by the European bailout fund, they would be "completely acceptable to the ECB," says Mayer. "Besides, Greek banks own large amounts of foreign assets, which the central bank could also accept as collateral."
Clemens Fueset, an Oxford economics professor and member of the independent economic advisory council to the German Finance Ministry, is also sharply critical of the ECB announcement. "It just isn't possible that the rehabilitation of Greece could fail because of such a technocratic argument," he says. "This is a scandal."
Fueset characterizes as "ridiculous" the European central bankers' fear that their reputation could suffer if they continue to supply Greece with funds. He even uses the words "rather insolent" to describe the behavior of ECB President Trichet and his colleagues in recent weeks.
Trichet and his colleagues also face criticism for having added large numbers of toxic securities to their own assets in recent years.
An Extremely Dangerous Development
Economists agree that Greece will not emerge from its crisis without a debt restructuring. "To become competitive again, the country would have to reduce prices and wages by 20 to 30 percent," says Ifo President Sinn. This would correspond to the devaluation that occurred in Germany in the early 1930s as a result of the emergency decrees of then Chancellor Heinrich Brüning. "This sort of thing works in theory, but in practice it leads to the brink of civil war."
The development is extremely dangerous for the ECB. If it hopes to keep faltering Greece afloat with new government loans, it will need the consent of Germany, the biggest financial contributor to the community. But how does it expect to get it if no one in Germany has any faith in its strategy anymore?
As a result, a rethinking of the ECB's approach seems to be taking shape -- not in the bank's Frankfurt directorate, which is stubbornly adhering to the anti-restructuring doctrine, but at its most important branch, the Bundesbank, only a few kilometers farther north.
Last week Jens Weidmann, the new president of Germany's central bank, expressed his views on the subject in the Frankfurter Allgemeine Zeitung. And to ensure that no one would overlook it, Weidmann uttered a sentence at the beginning of the interview that Trichet would delete from any document: "The Bundesbank is not opposed to a debt restructuring per se."
Weidmann is a member of the ECB's governing council, a body which is set to meet next week. It's likely to be a lively session.
ΠΗΓΗ:
www.spiegel.de/international/europe 30-5-2011
Οι ''υπογραμμίσεις'' -χρώμα,μέγεθος γραμματοσειράς και οι εικονογραφήσεις - με εικόνες από το World Wide Web-στις αναρτήσεις γίνονται με ευθύνη του blogger'')
30-5-2011
(2)
FT Deutschland:
H Ευρώπη στην παγίδα των Ελλήνων
Η Ελλάδα πρέπει να λάβει οπωσδήποτε την επόμενη δόση της βοήθειας, αναφέρει η εφημερίδα
Βερολίνο
Άρθρο των Peter Ehrlich και Wolfgang Proissl στην έκδοση της Δευτέρας της εφημερίδας Financial Times Deutschland, με τίτλο «Η Ευρώπη είναι εγκλωβισμένη στην παγίδα των Ελλήνων» και υπότιτλο «Πολιτικοί και ΕΚΤ πιέζουν για συναίνεση στο νέο πρόγραμμα λιτότητας – Η αναδιάταξη δεν είναι πλέον στο τραπέζι των συζητήσεων – Αποκλείεται η χρεοκοπία»,
αναφέρει μεταξύ άλλων τα εξής:
Η ευρωζώνη αναζητεί όλο και πιο απελπισμένα τρόπο να αποτρέψει τη χρεοκοπία και την αναδιάταξη του χρέους της Ελλάδας. «Η κατάσταση είναι σοβαρή», παραδέχτηκε ο Επίτροπος Όλι Ρεν στο Spiegel. Οι προσπάθειες επικεντρώνονται τώρα σε ένα νέο πολυετές πρόγραμμα βοήθειας, για το οποίο οι Έλληνες θα πρέπει να κάνουν πολλές παραχωρήσεις. Ωστόσο η ελληνική κυβέρνηση δεν κατόρθωσε να διασφαλίσει τη συναίνεση της αντιπολίτευσης γι’ αυτό το πρόγραμμα, όπως απαίτησαν η ΕΕ και το ΔΝΤ. Τις επόμενες τρεις εβδομάδες θα πρέπει να βρεθεί μια λύση, για να μπορέσουν στη συνέχεια να αποφασίσουν οι ευρωπαίοι υπουργοί Οικονομικών και η σύνοδος κορυφής της ΕΕ, πριν καταβληθεί η επόμενη δόση του δανείου.
Το βέβαιο πάντως είναι ότι η Ελλάδα πρέπει να λάβει οπωσδήποτε την επόμενη δόση, γιατί διαφορετικά κινδυνεύει να κηρύξει μη ελεγχόμενη πτώχευση. Μετά τη δήλωση Ρομπάι ότι θα πρέπει να γίνουν τα πάντα, προκειμένου να αποτραπεί αδυναμία πληρωμών, και από την Καγκελαρία στο Βερολίνο ακούγεται τώρα ότι δεν θα επιτρέψουν να καταρρεύσει η χώρα.
Κύκλοι κεντρικών τραπεζών δηλώνουν ότι είναι πλέον θέμα των πολιτικών να λάβουν αποφάσεις. Οι κεντρικές τράπεζες συνηγορούν υπέρ ενός νέου προγράμματος βοήθειας έναντι αυστηρών όρων. Η καγκελάριος Άνγκελα Μέρκελ βέβαια θα προτιμούσε να έχει λίγο περισσότερο χρόνο για να εγκρίνει ένα τέτοιο πρόγραμμα. Η στάση του ΔΝΤ όμως δεν επιτρέπει καθυστέρηση.
Η γερμανική κυβέρνηση θα πρέπει να αναλάβει μαζί με άλλες χώρες της Ευρωζώνης το ποσοστό του ΔΝΤ στην επόμενη δόση του δανείου ή να εγγυηθεί ή να αποφασίσει αύξηση της βοήθειας προς την Ελλάδα. Παραμένει ασαφές ακόμα για τι ποσό πρόκειται. Μόνο το 2012 η Αθήνα θα χρειαστεί, σύμφωνα με το ισχύον πρόγραμμα, 25 δισ. ευρώ, τα οποία τώρα θα πρέπει να εξευρεθούν διαφορετικά.
Αν η Ελλάδα επιταχύνει το πρόγραμμα ιδιωτικοποιήσεων, θα μπορούσε να περιοριστεί η τρύπα χρηματοδότησης. Όπως δήλωσε ο Γιούργκεν Σταρκ, η Ελλάδα μπορεί να πετύχει πιο φιλόδοξο στόχο από τα 50 δισ. ευρώ ως προς την αξιοποίηση της δημόσιας περιουσίας της, η οποία εκτιμάται μέχρι και τα 300 δισ. ευρώ.»
ΠΗΓΗ:
www.tovima.gr 30-5-2011
(3)
The Haircut War
Tensions Worsen Between Berlin and European Central Bank
By Christian Reiermann and Michael Sauga
The cold war between Berlin and Frankfurt reached a new high last week.
(REUTERS)
What's best for Greece and Europe -- a soft debt restructuring or billions of euros in loans for years to come? Berlin and the ECB are deeply divided over the best way to handle the crisis. A number of influential Germans fear the threat of austerity measures could be greater than a "haircut" of Greek debt.
It wasn't all that long ago that Europe's top monetary policy experts and the leader of the European Union's most important member state were politely exchanging compliments. Jean-Claude Trichet, president of the European Central Bank (ECB), praised German Chancellor Angela Merkel for having made Germany into an "example for all of its neighbors." Merkel, for her part, thanked the Frenchman for his decidedly "successful actions."
A few years and a crisis later, the relationship has cooled off considerably. Merkel feels that the Frankfurt-based monetary watchdogs are pressuring her inappropriately, while Trichet and his fellow bankers have taken to characterizing the Berlin government's proposals as "incorrect," "illusory" or simply as a "catastrophe."
Today, members of the German government and the ECB seem to have trouble spending time in the same room together. At a recent meeting of finance ministers in Luxembourg, Trichet stormed out of the room after being confronted with yet another crisis plan from Germany that he didn't like.
The controversy revolves around the future of the common currency, which instruments ought to be used to rescue the euro and, not least, a workable plan to support ailing Greece. While Merkel has long advocated a cautious restructuring of Greece's debt, Frankfurt-based Frenchman Trichet categorically rejects any form of debt deferral for Athens.
'Central Bank Equivalent of Nuclear Deterrence'
The cold war between Berlin and Frankfurt reached a new high last week. Should Germany implement its plans, the ECB would have to cut off funding for Greece, the monetary watchdogs warned. The consequences for Europe's banks and the Greek economy would be devastating.
The mere suggestion of what the Financial Times called the " central bank equivalent of nuclear deterrence" was enough to prompt German Finance Minister Wolfgang Schäuble to withdraw the German proposal immediately. A debt restructuring, Schäuble admitted sheepishly, could lead to a repeat of the events triggered by the bankruptcy of Lehman Brothers in September 2008.
In addition to revealing how serious the euro's problems are, the slugfest proves how much of its reputation the Frankfurt-based ECB has lost in the euro zone's strongest economy.
In the past, the central bank was seen as the undisputed economic authority in Germany. Anyone who opposed the monetary policy experts was quickly marginalized. Today, however, the central bank must threaten with the most drastic of measures just to force the German government to toe the line. A majority of German economic politicians and economists see the ECB's crisis strategy as unrealistic and contradictory.
One Year On, Situation in Greece Hasn't Improved
Experts concede that a restructuring of Greece's debt is undoubtedly risky. On the other hand, more of the same would mean the prolonged agony of propping up Greece with European loans for many years to come.
The facts speak for themselves. After a year of collective aid, the situation in Greece has not improved. On the contrary, almost all economic indicators have reached alarming levels. Meanwhile, the reform process has stalled and the country is making little progress.
This is the conclusion reached by the so-called troika, consisting of the ECB's economic and financial policy investigation and intervention team, the European Commission and the International Monetary Fund (IMF). In their quarterly report, which they expect to release at the end of this week, the experts maintain that Greece is failing to meet almost all agreed to fiscal goals.
The country's budget deficit is now higher than expected, because the Greek government is spending more than agreed under the aid program, and because tax revenues are significantly lower than targeted revenues.
'We Expect Athens To Do Its Homework'
The consequences of these undesirable developments could be fatal, experts at the three key organizations warn. The Greek government's creditworthiness in capital markets would decline even further, creating a new funding shortfall in the agreed aid program. Under the existing plan, Greece is scheduled to take on €25 billion ($36 billion) in new loans within the next year, which seems impossible at the moment. "We expect Athens to do its homework," EU Economic Monetary Affairs Commissioner Olli Rehn said in an interview published in this week's issue of SPIEGEL.
But if Greece is unable to come up with its own contribution next year, the IMF will not be permitted to disburse the next tranche of its bailout loans, payable in late June. Under IMF rules, the fund can only make loans available to a country if its financing is secure for 12 months. Little wonder, then, that Jean-Claude Juncker -- the Luxembourg prime minister and president of the Eurogroup, the regular meetings of the 17 finance ministers of the countries that use the common European currency -- hinted last week that the IMF could end up opting out of the Greek bailout.
The experts are now rushing to develop proposals on how Athens could return to the capital markets by 2012. The troika recommends a package of measures. For one, it wants the Greek government to ensure that taxes are indeed being collected. It always wants Athens to raise taxes even further.
In addition, the administration of Greek Prime Minister Georgios Papandreou is being asked to expedite its sale of government assets. Some €50 billion in proceeds from privatization are already planned for 2015, but the troika experts believe that this amount could be easily increased. Their inquiries have revealed that the Greek government owns real estate, businesses and other assets worth a total of about €300 billion.
The Greeks are also expected to rein in spending more effectively. The triumvirate of watchdogs wants to force the Greek government to shrink government spending until it falls within the agreed framework. The organizations hope that this will avert a government bankruptcy, which would have a devastating impact, says the ECB, particularly on Greek banks.
Many of these banks could go under if the maturity dates of Greek government bonds were extended and the ECB, as a result, were no longer willing to accept them as collateral for fresh loans. The Greek banking sector would be cut off from the money supply, the country's economy would be on the verge of collapse once and for all, and Greece would have to withdraw from the monetary union.
'ECB's Position on Debt Restructuring Untenable'
However, the central bankers' doomsday scenario isn't convincing, at least not among experts. "The ECB's position on Greek debt restructuring is untenable," says Hans-Werner Sinn, head of the Munich-based Ifo Institute for Economic Research. According to Sinn, it is entirely up to the central bank as to whether it agrees to accept the bonds as collateral for providing Greek banks with liquidity.
"The ECB makes its own rules," says Thomas Mayer, chief economist at Deutsche Bank. He also points out that it isn't true that Greek banks would lose access to central bank funds in the event of a debt restructuring. If, for example, old Greek bonds were exchanged for new securities issued by the European bailout fund, they would be "completely acceptable to the ECB," says Mayer. "Besides, Greek banks own large amounts of foreign assets, which the central bank could also accept as collateral."
Clemens Fueset, an Oxford economics professor and member of the independent economic advisory council to the German Finance Ministry, is also sharply critical of the ECB announcement. "It just isn't possible that the rehabilitation of Greece could fail because of such a technocratic argument," he says. "This is a scandal."
Fueset characterizes as "ridiculous" the European central bankers' fear that their reputation could suffer if they continue to supply Greece with funds. He even uses the words "rather insolent" to describe the behavior of ECB President Trichet and his colleagues in recent weeks.
Trichet and his colleagues also face criticism for having added large numbers of toxic securities to their own assets in recent years.
An Extremely Dangerous Development
Economists agree that Greece will not emerge from its crisis without a debt restructuring. "To become competitive again, the country would have to reduce prices and wages by 20 to 30 percent," says Ifo President Sinn. This would correspond to the devaluation that occurred in Germany in the early 1930s as a result of the emergency decrees of then Chancellor Heinrich Brüning. "This sort of thing works in theory, but in practice it leads to the brink of civil war."
The development is extremely dangerous for the ECB. If it hopes to keep faltering Greece afloat with new government loans, it will need the consent of Germany, the biggest financial contributor to the community. But how does it expect to get it if no one in Germany has any faith in its strategy anymore?
As a result, a rethinking of the ECB's approach seems to be taking shape -- not in the bank's Frankfurt directorate, which is stubbornly adhering to the anti-restructuring doctrine, but at its most important branch, the Bundesbank, only a few kilometers farther north.
Last week Jens Weidmann, the new president of Germany's central bank, expressed his views on the subject in the Frankfurter Allgemeine Zeitung. And to ensure that no one would overlook it, Weidmann uttered a sentence at the beginning of the interview that Trichet would delete from any document: "The Bundesbank is not opposed to a debt restructuring per se."
Weidmann is a member of the ECB's governing council, a body which is set to meet next week. It's likely to be a lively session.
ΠΗΓΗ:
www.spiegel.de/international/europe 30-5-2011
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