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Sun, May 2nd 2010, 12:31

Christopher Nash, Atlantic Community Member, (4)

For Germany to commit to a bail out without a strong indication that the Greek government can implement necessary austerity measures, would be not only foolish on the part of Merkel, but also an irresponsible act with regard to her country and the economy of the Eurozone. In agreeing under a very public protest, far from acting like a diva, Merkel has shown authority and shrewdness, both of which are crucial if the Eurozone economy is to emerge from a very real, looming crisis.

Let us not be under any illusion that austerity measures are something positive or minor. The measures demanded of these southern European countries, as well as several others like the UK, will require lower pay, fewer services, and ultimately a lower quality of life for millions of people. People will lose their jobs and homes, people will be pushed below the poverty line, and people will die as healthcare systems are hit.

Greece, along with several other counties, has been living on money that it does not have. This filters to every man, woman and child in the country: a large percentage of the money in the economy, paid quite legitimately as salaries, benefits and services, simply does not belong to them. The overdraft limit is now reached. The loan is being called in. Greece must choose whether to start paying it back, or let the debt accumulate to levels even more mind boggling than they are now.

Delaying cuts will only increase the amount that has ultimately to be paid back. The choice facing Greece, and other countries in a similar position is this: make cuts in the short term in order to reduce the long term damage, or try and appease the demands not to make cuts and as a result increase the problem even more.

Merkel is, whatever you may think of her policies and character, an astute politician and scientist. Yes, the press have leaped upon the 'dramatic' will-she won't-she nature of the decision process, but had she 'acted quickly', as demanded by Mr Horn, and simply agreed to a bail out, then the culture of prudence that needs to develop very quickly among at-risk European economies, could just as quickly be undermined. This cannot happen, or the problem will be pushed back into the closet, along with billions of Euros of German people's money, to rot even further. By demanding that the cancerous debt afflicting the Greek economy is removed before injecting more life into it, and by, as a result of the what Mr Horn describes as 'diva-like' reluctance, emphasising the gravity of such a commitment by the German people and their Eurozone counterparts to their indebted colleagues, Merkel is forcing Greece to take responsibility for its actions past, present and future.

This shift in expectation of a bail-out must succeed, or the Eurozone will very quickly become little more than a redistribution mechanism with successful, prudent economies like Germany having to increasingly support toxic extensions of their Euro economy like Greece in its current situation. No doubt Merkel and her advisers are aware of this risk, and although history will be the ultimate judge, at this early stage her conduct has been exemplary in balancing the very valid, immediate concerns of her employer (the German people), and the long term interests of this economic union, currently at very-real risk of meltdown, to which they have committed.

Sun, May 2nd 2010, 20:03

Harry Hunter, University of Plymouth, Bronze Contributor (14)

While Merkel may have 'done right' by her constituency, she has failed to act in the best interests of Euro area as a whole. Just as the British government's indecision over HBOS in 2008 lead to the public sector bailout, the German government's hesitation has once again brought about a situation where only public (Taxpayer) finance is available to prop up a nation's ledgers.

If there had been a rapid response to Greece's requests for credit lines and loans two weeks ago, there would have still been the possibility for a split in liabilities between the public and private sector, buying time for orderly reorganization of the existing debt and to begin to introduce the much needed structural reforms. As it is, the past two weeks has seen Greece's long term debts reduced to 'Junk' status by the credit rating agencies and escalating domestic disruption and violence over the suggested cuts in services and pay.

Merkel's actions are based purely on self-interest with regional elections taking place on May 9th she (and her party) did not wish to be seen to support 'wasteful governments' so soon after financial problems of the last three years. Instead of explaining to her populace that such measures are necessary for the good of Germany and indeed the whole Euro area, she decided to agree with the incorrect opinion of many that Greece deserved its problems.

Mon, May 3rd 2010, 17:53

Christopher Nash, Atlantic Community Member, (4)

In response to Harry, I agree that the nature of Merkel's response seems in large part to have been influenced by domestic concerns. I also agree that the viewpoint that 'Greece deserved its problems', so widespread currently both in political circles and the media, is inaccurate, and neither important nor helpful. Such an attitude is an easy swipe to justify inaction and non-intervention, and is especially cheap when deployed in an election situation when the majority of the population is largely inward-looking and receptive to charges of external blame for the problems it sees on its own doorstep.

Nevertheless, however cheap the swipe may be, and however cynical an act it is by Merkel to use it in the context of an election, there is an underlying debate which must be separated from short-term politics. Harry touches on what is needed: long term structural reforms and short term availability of credit in order to support the economy until the effect of reforms can be felt. This is widely accepted now, and as I suggest below, has gained greater gravity in Greece in recent weeks, helped more than hindered by Merkel's indecision.

The question that stands out is whether these reforms would have been achieved in Greece as a result of a quick-fix loan. Perhaps they would, but it is evident from the popular and political opposition to the move around Europe that there was not enough confidence that the money being requested would not simply have been wasted. All economics is based on trust. Until this weekend there was simply not enough European trust in Greece.

It is doubtful that Merkel's oh-so-public indecision was really that, and it is even more doubtful that she gave even half a thought to who was responsible for the situation. In any business negotiation for one party to say they are unsure about the other party's offer does not mean they are, in fact, uncertain; it means they want something more. The political pantomime surrounding Merkel's diva-esque decision-making has served its purpose wonderfully to drive the negotiation home and the extra resolve in Greece is already visible. Indeed, it was reported over the weekend that Papandreou has publicly undertaken not only to introduce austerity measures as demanded, but has gone further by promising to combat a culture of corruption both on high and throughout society; the very Greek Fakelaki 'custom' in the medical profession, for example, has been one target.

I agree that the interests of the Eurozone have not been the only concern of Merkel's in this debate and at best she has cleverly and cynically played the situation to her own domestic political advantage. However, this does not mean that the outcome will be bad for the Euro area. Far worse would have been billions in Eurozone loans having no long term effect, and Greece requiring further bailouts in six months time.

If there is one thing we should all have learned in the past two years, it is not to accept rotten credit. Until this weekend, Greece was rotten, and the credit rating downgrade reflects this. It will not affect the willingness of the Greece's Eurozone neighbours to lend, however, and in fact it will give them more power, in the light of fewer alternative credit sources for Greece, to push Greece in the direction it needs to economically. Papandreou will thank Merkel and the EC: the theatre of recent weeks will enable him to shift the blame upstairs and externalise the problem to Germany, and to a lesser extent the EU and international community. In the meantime, he can get on and push through unpleasant, controversial and needed reforms. Papandreou's new slogan of 'crisis into opportunity' is representative of a new Greek resilience and determination, which has not been harmed by German resistance and European heel-dragging. Rest assured, Merkel will not mind this one bit. She has played a political game and got all the results she wanted. Self-interest? Sure. An outcome that is, in the long-term, good for Greece and the Eurozone? Quite possibly.

Wed, May 19th 2010, 10:21

Olaf Theiler, Political Scientist, German Armed Forces, Platinum Contributor (173)

Just to add a thought I found in a recent BBC article: "For Germany the single currency has become not so much a monetary union but a transfer union. It raises the unresolved question of the great divide in economic cultures between the North and southern Europe. In the long term that cannot be resolved by Germany bailing out the rest."
No Union can work without some kind of redistribution and solidarity in wealth, but there has to be a balance to be found and a limit to be set.