The standoff over the Greek debt crisis was nowhere closer to an amicable resolution on Sunday, when Germany’s deputy finance minister Jens Spahn said in an interview with German broadcaster Deutschlandfunk that Greece must not be granted a “bail in” that would involve creditors taking a loss on their loans, reiterating the German government’s opposition to debt relief for Athens, and confirming that when it comes to Europe’s recently adopted “bail-in” protocols, they “work” in theory, but certainly not in practice (see the latest taxpayer funded bailout of Monte Paschi for another recent example).
“There must not be a bail-in,” Jens Spahn said quoted by Reuters, adding that “we think it is very, very likely that we will come to an agreement with the International Monetary Fund that does not require a haircut,” he said, referring to losses that Greece’s creditors would have to take if debt was written off.
As everyone is aware by now, the IMF – which recently admitted its bailout policy vis-a-vis Greece has been a disaster perpetuating the Greek depression to unprecedented levels – has repeatedly called for Greece to be granted substantial debt relief, but this is opposed by both Germany, which makes the largest contribution to the budget of the European Stability Mechanism (ESM), the euro zone’s bailout fund, and the ECB, whose Greek bond holdings would be impaired should a haircut on official Greek bonds be implemented.
In a positive sign over the recent impasse, last Monday Greece and its creditors agreed to further reforms by Athens to ease a logjam in talks with creditors that has held up additional funding for the troubled euro zone country. As a result, inspectors from the Troika are due to return to Athens this week where they will hardly be greeted with a warm reception.
Spahn, a senior member of Chancellor Angela Merkel’s conservatives, said Greece’s problem was a lack of growth rather than debt and said that giving Athens debt relief would upset other euro zone countries such as Spain that had to deliver tough reforms.
“Our Spanish friends, for example, say: ‘Hang on – that wouldn’t be fair: we carry out reforms and get no haircut and now you’re talking about giving Greece one?!’”
Spahn said Germany was campaigning hard to keep the IMF on board in Greece’s bailout because of its expertise in helping countries that need to deliver reforms in return for aid.
Yet while Spahn is not wrong that Greece is in dire need of more growth, especially since “less” growth seems almost mathematically impossible at this point…
… the German has a clear political agenda in pushing for more Greek growth, which would likely be funded with even more debt, and against a haircut since the real problem facing Europe remains an insurmountable debt load. And as the third Greek bailout case study showed, Germany is willing to risk a Grexit rather than give a greenlight to the rest of Europe’s periphery that they, too, can come asking for debt haircuts and similar concessions.
Meanwhile, despite recent progress over stalled Greek bailout talks, Manfred Weber, who leads the conservative bloc in the European Parliament, said this month that if the IMF insisted on debt relief for Greece, it should no longer participate in the bailout, breaking ranks with Berlin’s official line that the program would end if the IMF pulled out.
A survey published on Friday showed around half of people in Germany are against granting debt relief to Greece.
Today’s news will hardly be welcome in Athens, where the increasingly more unpopular Syriza party has been promising a debt haircut, despite Germany making it abundantly clear such an action would not take place. In any event, we expect no real progress over the latest Greek “situation” for at least another 5 months, when Greece faces €6 billion in bond payments on July 17 and 20, at which point the can will once again be kicked, even if it means more unsustainable debt for the insolvent nation.
Finally, as laid out earlier this month, here is the timeline of near-term events for Greece, via Credit Suisse:
There is an immediate set of events (in February) that could resolve the issues and make the programme progress swiftly. If not in February, there are several intermediate dates that could still deliver an agreement, although at a later stage, most likely around the scheduled Eurogroup meetings – although an extraordinary gathering to approve the bailout happened in the past and cannot be discarded. July 17 – or 20 – would be the “hard” deadline, as Greece would be, same as in July 2015, unable to repay those amounts without additional support under the EU/IMF programme. There are earlier relatively large redemptions, notably in late February and in April – but we believe there is probably room in Greece’s public finances to fulfill those commitments.