22 July 2013

FT: Schäuble keeps quiet on mounting cost to Germany of Europe's woes

Germans sense that some of the billions lavished on Greece since 2010 will probably never be repaid. However, German finance minister Wolfgang Schäuble carries the flag for those who hold that the eurozone's travails will be, in the long run, an opportunity to advance European integration.

Two government crises in the space of a month, the first in Greece and the second in Portugal, underline how Schäuble's vision risks being buried under mountains of unrepaid southern European debt. The ruling coalitions in Athens and Lisbon limp on, but they seem scarcely more confident than the societies they govern that obedience to German-inspired policy prescriptions will save their countries. 

Aware of the acrid political atmosphere in Athens, Mr Schäuble came bearing gifts: €100 million in state-backed loans for small and medium-sized Greek businesses. But what Greece really needs, to kindle a flame of hope in its future, is another restructuring of its foreign debt. Conventional wisdom holds that it would be suicidal for Mr Schäuble, or any German politician, to speak this unpalatable truth to voters before Germany’s September 22 national election. Unlike the Greek debt haircut of March 2012, which clipped private sector lenders, any future restructuring would shear the locks of official creditors, including Germany, which now hold over 90 per cent of Greece’s debt.

This would represent a revolution in the eurozone crisis. So far, the bailouts of Greece, Ireland, Portugal, the Spanish financial sector and Cyprus have cost German taxpayers much in loans and guarantees, but not one cent in hard, unrecoverable cash. Yet in their bones and wallets, German voters already sense that some of the billions of euros lavished on Greece since 2010 will probably never be repaid. To that extent, a second Greek debt restructuring would not shock German taxpayers.

More dangerous, for its impact on German political and public opinion, would be the dropping of a different penny: the growing possibility that debt write-offs, or extra financial aid, will have to be made available not just to Greece but to Portugal and Cyprus. Spain’s banks are not wholly out of the woods, either. The question, then, that threatens to dominate German public debate is: "Where will we Germans draw the line?"

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