Greece is in trouble. Swamped by public debt and shunned by international investors, the country has been told by EU leaders to face up to its fiscal crisis on its own. German papers on Friday ask how much fellow Europeans ought to do to help and who is to blame for the mess.
European Union leaders on Thursday sent a strong message to Athens that it needs to embark on tough reforms to deal with its historic debt crisis. Sweden’s prime minister, who currently holds the EU’s six-month rotating presidency, insisted that Greece’s problems should be solved domestically.
Greek Prime Minister George Papandreou pledged to tackle the growing crisis head-on. “We’re absolutely aware of the problem,” he said during Thursday’s EU summit in Brussels. He added that European Central Bank President Jean-Claude Trichet and Luxembourg Prime Minister Jean-Claude Juncker saw “no possibility” of a Greek bankruptcy.
Still, the markets didn’t share his confidence. Greek stocks and debt have plunged in value as investors shunned the small nation with the biggest budget deficit in the bloc. For 2009, the Greek budget deficit is expected to rise to 12.7 percent of gross domestic product, more than four times the EU’s set limit. Athens’ surprise recent announcement of the surge in debt in recent weeks angered other EU members.
The country, one of 16 European countries that has adopted the euro, has mounted a mountain of debt: Greek Deputy Prime Minister Philippos Sachinidis said this week the nation owes a whopping €300 billion ($442 billion). Adding to the country’s woes, the international ratings agency Fitch downgraded Greece’s debt rating earlier this week and many fear fresh downgrades may follow in the coming days.
German Chancellor Angela Merkel said on Thursday that Greece would not be deserted in its time of need. “What happens in one member state affects all others, especially as we have a common currency, which means we have a common responsibility,” she remarked ahead of the summit.
But German media commentators are divided on what should be done next. While they make no bones about the dramatic scale of the Greek problem, some editorialists warn that pumping euro zone aid into the country would set a dangerous precedent for other struggling or economically reckless nations. Why save or practice fiscal responsibility, after all, if you know other EU member states will ultimately bail you out? Others stressed that the reputation of the bloc — and the stability of the euro — could be at stake.
The business daily Handelsblatt writes:
“Will the severe financial crisis in Greece trigger a paradigm shift in Germany’s European policy? Angela Merkel’s recent comments on the events in Athens might suggest so. The chancellor admitted Thursday that the EU will probably exert more influence over chronically badly run states. … The EU has been passively watching developments for decades, observing how the Greek government postpones overdue pension reforms, bloats its bureaucracy and runs down the education system. Similar shortcomings exist in other member states — like Italy, for example. This simply cannot continue in the European market and certainly not in the European Monetary Union.”
“The EU’s budget guardian (Economic and Monetary Affairs Commissioner Joaquin) Almunia lacks the instruments necessary to prevent disasters such as the debt situation in Greece. But just as he is at the point of initiating deficit-related punitive measures, it’s too late. The commissioner must be able to intervene at an earlier point in time — together with the euro group finance ministers in situations where a member state lets overdue social reforms drag on for years and national debt to balloon. Unfortunately, the Lisbon Treaty now going into effect doesn’t give Almunia those legal tools. The political leaders must therefore start thinking of something new.”
The right-leaning Die Welt writes:
“We could react angrily towards the Greeks, for adding credence to earlier prejudices against the euro and Europe. Critics may also feel affirmed in their belief that these ‘no goods’ from the south are pulling us into the abyss. Instead, though, we should be deeply thankful to the Greeks for providing an urgently needed test case for the EU. On the one hand, it’s a resolvable case, since Greece’s gross domestic product is only slightly larger than that of the German state of Hesse. At the same time, it could be painful enough to underscore the weaknesses of monetary union and push people to address them.”
“The basic problem is that, while the European Central Bank may be well established, the zone has no way of enforcing member countries’ fiscal discipline. Such a mechanism is important because these cases always raise the question of who will step in to help out. At the end of the day, it’s the central bank that has to print the money.”
“So what’s the solution? The EU should allow countries stuck in such situations to turn to the International Monetary Fund for help. This would be the case if investors avoid Greek government bonds and the country faces bankruptcy. And that means that no one should rule out a national bankruptcy in Greece. In an emergency, fiscal authority would have to temporarily be moved, de facto, to an EU institution that is independent of the typical political games — something resembling a euro zone IMF. In any case, this path should be conceived as a deterrent, so that other countries see no alternative to fiscal soundness.”
“If the euro countries show willingness to bail out their unreasonable southern daughter again and again, then it will all be over for the euro. Other countries will follow Greece’s example and, along the way, a strong currency area will degenerate into a weak area whose money no one wants to have in their savings account.”
The Financial Times Deutschland writes:
“Alongside the budget deficit, the Greeks has been generally criticized for living-beyond-their-means, which has repercussions on the country’s competitiveness. The Financial Times has written that in Greece unit labor costs rose, whereas in Germany they stayed flat, which left the Greek economy looking in bad shape. ”
“That is true. According to European Commission figures, unit labor costs are the most important indicator of competitiveness in a currency union. In Greece, these rose 26 percent between 1999 to 2009, whereas in Germany they climbed just 8 percent. What does that mean? According to the European Monetary Union should wages stay flat or steadily increase? There is a clear answer to this question. The European Monetary Fund has an inflationary goal which specifies that inflation should rise by slightly under 2 percent a year. If that is accumulated over 10 years that means growth of just under 21 percent. A total 21 percent growth is then the norm that every member country should have stuck to. But Greece witnessed 26 percent; Germany just eight. The European Monetary Union without Germany had an average of 27 percent. So which of the two countries was more at odds with the European Monetary Union’s rule, those who overtook the goal by 5 percentage points, or those who trailed it by 13 percentage points? And how much damage can the smaller sinner inflict onto the bigger sinner?”
“How can those in Brussels allow that one member country is being slammed in the press and the rating agencies while another, which went against the rules in a far more dramatic way, is celebrated. Would long-standing ideological beliefs be challenged when Greece is praised and Germany criticized?”