Germany Stands Firm on Greece But at What Price

Der Spiegel has a good piece on Germany and Greece. Lauding the IMF as introducing a sustainable and logical alternative. Greek debt has to be reduced. Lenders and at the forefront Germany don’t seem to be so clear on the issue. Specially when national political capital is at stake.

It is something of a paradox. Originally, Germany was the primary backer of IMF involvement in efforts to save the euro, primarily because of the group’s experience, as Merkel repeatedly emphasized. Schäuble, for his part, said at the time: “There is no institution worldwide that has a comparable level of expertise.”

Now, however, it is Berlin that has shown the greatest resistance to Lagarde’s approach to the crisis. The reason is simple: If the Greek government were in fact forgiven a portion of its debt, Germany would have to write off billions in aid loans. It would mark the first time that Greece’s crisis actually cost German taxpayers money, a novelty that Merkel and Schäuble would like to avoid on the eve of an election year.

As such, their resistance to Lagarde’s proposal runs deep. For the IMF it is a question of truthfulness and economic good sense, for Germany’s current leadership, the coming campaign takes priority.

In the private economy, it’s considered a crime to delay an unavoidable bankruptcy. Merkel and Schäuble, however, are determined to do just that, adopting a stance that could have drastic consequences for the Greek government and its economy. With the country’s mountain of debt remaining unsustainably high, the government has been forced into intensifying its austerity policies. Meanwhile, the situation in Greece is scaring away private investors. But instead of providing Athens with the perspective of economic improvement in the foreseeable future, the Euro Group refuses to change its approach.

Not surprisingly, relationships are beginning to sour. Last week, Lagarde — who was once among Schäuble’s favorite colleagues — lectured the German finance minister in no uncertain terms. If you want to keep Greece in the euro zone, Lagarde said, you have to be prepared to pay the price.

via Der Spiegel

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza
Alfonso Esparza

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