Germany’s finance minister Wolfgang Schäuble confirmed this week that Greece would need a third aid package in order to get on top of its towering debt load. Over the past three years, Greece has received €246bn of loans. Its economy has shrunk by a quarter in the past five years and its debt pile is expected to peak at 180% of GDP this year. Schäuble’s comment raised eyebrows as European policymakers had always hoped to avoid a politically contentious new aid programme, and were keeping very quiet in the run-up to German federal elections in September.
What the commentators said
Schäuble’s let the cat out of the bag soon after Berlin had denied reports that another Greek bail-out was in the offing. It suggests he expects to win the election, said Ian King in The Times. “Short of banning Baywatch reruns, it is hard to think of anything less popular with German voters than showering Greece with more of their money.”
This has looked inevitable for some time, as Wirtschaftswoche points out. Greece has been burning through its recue loans so fast that the €14bn remaining are hardly likely to last until the end of 2014. European policymakers have been far too optimistic in their estimates of everything, from GDP to privatisation revenues. Officials pencilled in €4.5bn of the latter for 2013 and 2014, but this is “utterly illusory”. Indeed, the original target was €50bn by 2016; now it’s €15bn. Progress on clamping down on tax evasion has also been slow.
Meanwhile, austerity measures have deepened the recession, added Capital Economics, while banks are still “unable or unwilling to lend” despite having been recapitalised. So the current forecasts for a return to growth next year look unrealistic and the debt pile is set to grow even higher. Add all this up, and it’s clear that we are heading for “another major debt restructuring”. The next chapter in the euro crisis saga is about to begin.
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