Simple truths on Greece

Commenting about Greece to the Financial Times newspaper earlier this week, Carsten Schneider, budgetary policy spokesman for Germany’s Social Democrats, said, “It is evident that there will be a new support program with conditions.”

It’s clear that Germany’s new coalition government has something in the works for this country.

Schneider, who is allegedly interested in succeeding Wolfgang Schaeuble as Germany’s finance minister, likes to promote the European face of the Social Democratic Party (SPD). But when it comes to dealing with the debt crisis in the southern eurozone states, his party does not stand far from Chancellor Angela Merkel’s Christian Democrats (CDU). During the coalition agreement between the two parties, the SPD abandoned the idea of euro bonds – in other words the mutualization of European debts – a proposal backed by prominent German figures including former Chancellor Helmut Schmidt and former Vice Chancellor Joschka Fischer.

But is giving Greece another loan – as Schneider seems to suggest – really a good idea when the country has already starved its economy in order to be able to pay off its debt? Over the next four years, the bonds held by the European Central Bank and other national central banks will suck about 30 billion euros out of the Greek economy. If this money were to stay in the country, with a temporary moratorium on debt repayment, it could be spent on public investment and development projects so as to finally put the brakes on the recession and rising unemployment. At the same time, the state would have greater room for measures that would protect the more vulnerable members of society and ease the tax burden on businesses.

The current target of the Greek program – i.e. full repayment of debt combined with the creation of budget surpluses – has proved unfeasible. The state is simply overtaxing a frozen economy and society for the sake of servicing its debt and posting a surplus that is mostly for show.

This, of course, is known to German officials. They have to acknowledge that a Greece standing on its feet is also in their own interest.

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