by Christoph Dreier
On Monday Greek Foreign Minister Dimitris
Avramopoulos met for talks with his German counterpart, Guido
Westerwelle. Avramopoulos will be followed on Friday this week by Greek
Prime Minister Antonis Samaras, who travels to Germany for discussions
with the German Chancellor Angela Merkel.
These meetings aim to put pressure on Greece to
commit to further social cuts while ruthlessly implementing those
already agreed upon. In line with the credit agreement drawn up between
Greece, the European Union (EU) and International Monetary Fund (IMF)
earlier this year, Athens must slash at least 11.5 billion euros from
its budget over the next two years.
After meeting with Avramopoulos, Westerwelle made
clear that Berlin would oppose any “substantial watering down of the
agreements” and would make minimal concessions or none at all. Greece’s
future lies in the hands of the so-called troika—IMF, the EU Commission
and the European Central Bank (ECB)—which are due to publish a report on
Athens’ compliance with promises to implement drastic austerity.
The report is likely to be published in time for a
Euro Finance Ministers meeting scheduled for September 14
in Nicosia.
This meeting will decide whether to award the next tranche of promised
loans totalling 31.5 billion euros. Without this instalment, originally
planned for June this year, Greece would be bankrupt within weeks and
probably be forced to leave the euro zone.
The date was chosen to follow a sitting of the German
Constitutional Court two days earlier, which will rule on the legality
of the European Stability Mechanism (ESM). The establishment of the ESM
to ensure fresh loans to ailing economies is regarded as necessary to
preventing financial turmoil following a possible Greek exit from the
euro zone.
In the run-up to the euro meeting, leading European
politicians are discussing the prospect of Greek bankruptcy, with
leading right-wingers proclaiming such a step to be absolutely
necessary. Bavarian Finance Minister Markus Söder (Christian Social
Union, CSU) declared that Athens “should be made an example of, to show
that the euro zone can also bare its teeth”. Such comments also pressure
countries like Spain and Italy to make further social cuts.
For the first time the president of the Federation of
German Industry (BDI), Hans-Peter Keitel, has also expressed support
for a Greek exit. In a Business Week interview, he stressed
that in the event of non-compliance with credit agreements, there was
“no longer a place for Greece in the euro zone”. Such an exit no longer
constituted a threat to the German economy, he continued. This is a
significant shift in the position of the BDI, which previously declared
its wish to keep Greece in the monetary union to protect German export
markets.
Keitel has been supported by the parliamentary group
of the conservative governing parties. “We want the full implementation
of the agreements”, Michael Fuchs (Christian Democratic Union, CDU) said
in Berlin on Friday. If the troika concludes that the implementation is
faulty Athens should be denied any further aid, he explained: “Then
there will be no payment and everything else is in Greek hands.”
Finnish Foreign Minister Erkki Tuomioja also recently
stated that his country was not only preparing for a Greek exit, but
also for the collapse of the euro. “This is something that everyone
checks, but that cannot and should not be publicly discussed,” he told
the BBC. His Austrian counterpart Michael Spindelegger is also looking
for opportunities to “throw” countries like Greece out of the EU.
ECB executive board member Jörg Asmussen, who until now had said he preferred that Greece remain in the euro zone, told the Frankfurter Rundschau
that Greece’s fate ultimately lies in its government’s hands. A Greek
withdrawal would be “manageable”, he said. His simultaneous announcement
of the readiness of the ECB to buy large amounts of government bonds of
indebted euro zone countries in order to lower their interest payments
apparently aims to limit the impact of a Greek exit from the euro on
countries like Spain and Italy.
European governments and EU institutions are
preparing for a Greek default and exit strategy. In the first place,
however, the threat of driving Greece into bankruptcy is being used to
pressure the Samaras government to carry out further austerity measures,
as Greece is squeezed like a lemon before being discarded. Greek
workers are being impoverished to ensure that Greek and European banks
receive their loans, plus exorbitant interest.
Just last Monday Athens paid 3.2 billion euros to the
ECB for outstanding government bonds. The ECB had bought the bonds on
the open market at 70 percent of nominal value, according to the Süddeutsche Zeitung.
Now Greece must repay not just 100 percent of the value, but also all
accrued interest. It is estimated that the ECB holds Greek government
bonds totalling over 50 billion euros.
At the same time, Greek social cuts are now hitting
hard. In the first seven months of 2012, Athens slashed the budget
deficit, excluding debt servicing, to 3.07 billion euros. This is
considerably less than the target of 4.53 billion set by the loan
agreement with the troika. Nevertheless, Greece’s debt levels continue,
to rise due to growing interest charges. In March and June alone, Greek
government debt increased by 23.2 billion to over 300 billion euros.
Due to rising interest payments and falling tax
revenues as austerity measures plunge Greece into depression, Athens
must slash its budget by at least another 11.5 billion euros in the next
two years to meet the original agreement with the troika. According to Der Spiegel,
the troika now assumes that this sum is as much as 14 billion euros.
Every cent accrued from the cuts goes directly to the Greek and European
banks.
Samaras originally planned to ask Merkel and Hollande
to extend the time period for the implementation of budget cuts by two
to four years. After a wave of threats, he has abandoned this proposal.
Instead, his cabinet is working to develop more austerity measures.
According to Greek daily Kathimerini, the
cabinet plans further cuts of 2 billion in addition to the previously
announced total of 11.5 billion euros. One third of this sum is to be
saved in pensions and wages, and cuts will also on the
already-devastated health and education sectors.
These measures both increase misery and deepen the
recession. Since the austerity measures began to be introduced three
years ago, Greece’s economy has shrunk by 20 percent. Far from
preventing a Greek bankruptcy, the cuts make it more likely.
Bankruptcy and expulsion from the euro zone are not
empty threats. Whether this actually happens in September has not yet
been decided. Representatives of the Italian, Spanish and French
governments fear that a Greek exit from the euro zone could have
incalculable consequences for the interest rates of their own government
bonds. In addition, many European banks, especially the ECB, continue
to hold large amounts of Greek government bonds which they would have to
write down in bankruptcy.
These economic debates reflect the political
bankruptcy of European capitalism, whether it keeps the euro based on
savage attacks on the working class, or forces Greece into bankruptcy
and to restore its national currency, the drachma. With Greece deeply
indebted and bled dry, a default and return to the drachma would lead to
the Greek currency’s collapse on global financial markets,
hyperinflation and the pulverisation of wages, pensions and social
benefits.
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