No Greek budget cuts, no bailout aid: German Finance Minister

[Teh One Who Knocks]

Reporting by Christiaan Hetzner; editing by Sophie Walker


FRANKFURT (Reuters) – German finance minister Wolfgang Schaeuble warned that a veto of the Greek government's austerity plans by parliament this week could mean Athens will not receive a bailout tranche it needs to remain solvent.

"If the package is rejected, which no one expects actually, then the prerequisites would no longer exist for the IMF, EU and euro zone countries to release the next tranche of aid," he told German Sunday newspaper Bild am Sonntag.

Athens needs to get its fifth slice of a 110 billion euro ($155.7 billion) EU/IMF bailout worth 12 billion euros, without which the country would be unable to cover pressing funding needs after July 15.

"The stability of the entire euro zone would be in danger and we would need to quickly ensure that the risk of contagion for the financial system and other euro area countries would be contained," he said.

The Greek parliament is due to vote on Wednesday and Thursday on measures that include 6.5 billion euros worth of extra austerity steps for this year and savings of 22 billion euros for 2012-2015 to cut deficits and keep qualifying for EU/IMF aid. It also speeds up the sale of state assets under a 50 billion euro privatization program.

"We are doing everything to prevent the crisis from escalating, but we must be ready for everything. That's our responsibility and we are preparing ourselves for that," he said.

"I am confident that a majority can be found in the Greek parliament for the austerity package," Schaeuble added.

The PASOK part of Greek Prime Minister George Papandreou counts 155 MPs in a 300-strong parliament, but his already razor thin majority may be undermined by two announced defections.

In Bild am Sonntag, Finance Minister Schaeuble also said that he expected private sector creditors to participate willingly in a second bailout package, which is likely to be similar in size to the 110 billion euros of EU/IMF loans from May 2010 and should tide Greece over until the end of 2014.

"Stabilizing the situation in Greece and bringing it under control is really in the absolute interest of all investors. Therefore the private sector doesn't need any additional incentives," Schaeuble said.

German banks, which say they have some 10-20 billion euros in exposure to Greece, have called for the state to guarantee their risk with taxpayer money should they participate in some form of a debt rollover.

Separately, German Sunday weekly Welt am Sonntag reported that German banks were expected to name what kind of maturity extension on Sunday that they are willing to accept.

Welt am Sonntag wrote that as of Friday banks were only offering to grant a one-year extension, instead of the five that the German government wanted.

Speaking to Bild am Sonntag, Schaeuble also said that he was confident his coalition could muster up the votes necessary to approve the creation of the European Stability Mechanism (ESM), the permanent fund to finance euro zone sovereign bailouts that goes into effect in 2013.

"I don't have the slightest doubt that once the summer break is over the treaty over the European Stability Mechanism finds a sufficient majority in the Bundestag and Bundesrat," he said, referring to the upper and lower houses of parliament.

[FBD]

Wow, is the rest of the EU going to have the balls to actually take a stand against Greece, or are they going to cave in and bail them out again (and again next year, once more the year after that...)

get some balls, people. Dont give these fat lazy socialists any more money to waste.

[Arkady Renko]

Wow, is the rest of the EU going to have the balls to actually take a stand against Greece, or are they going to cave in and bail them out again (and again next year, once more the year after that...)

get some balls, people. Dont give these fat lazy socialists any more money to waste.

amusingly enough, one of the most faithful supporters of a bailout for greece is the US government. Apparently US banks are sitting on tens of billions' worth of greek bonds and it would be a shame to see them default. That's exactly why France is so adamant to see those guys rescued.

But in my opinion greece is a bottomless pit. If we help them out, they'll see it as an encouragement to go on as they were. They can't stop at budget cuts, they also need to modernize their entire public sector and tax law. They don't even have a real estate property register, so basically anyone who owns real estate is free to pay as much tax as they want, nobody will verify the surface you state in your declaration. Same goes for income tax. only a percent of the population declres incomes above 100 grand a year (in euros).

[Deepsepia]

We don't know the US bankss exposure to Greece, but it is likely much less than that of France and Germany.

Greece ought to default and exit the Euro for the simple reason that any other outcome is a fib. They can't pay what they owe, and pretending otherwise doesn't really do anyone any good.

We've come to this bizarre moment in "phony capitalism" where it turns out that no bum enterprise or credit of any size can be permitted to fail because that would be "systemically dangerous". As one economist observed "capitalism without failure is like religion without sin-- it just doesn't work".

[Arkady Renko]

even for Greece it would be better to default. many jounalists and politicians make it sound as if the world would implode once greece defaults, but history tells us that it's often a fresh start for a country. Look at Argentina or mexico for instance, in spite of all their other shortcomings they've managed to keep deficits and public debts inside reasonable limits since then and at least Argentina paid a significant compensation to most of the bond holders.

I can't see how it could do anyone any good if the major countries of the euro zone throttle their growth for years on end in order to save greece.

[Deepsepia]

I can't see how it could do anyone any good if the major countries of the euro zone throttle their growth for years on end in order to save greece.

All good points. You're quite right-- Mexico, drug war notwithstanding, grew at %5 last year.

The cynic would say that that at this point the world financial system is more or less being run for the benefit of the participants in the finance industry. Devaluation and default might well mean "no bonuses this year" at Credit Agicole, Barclay's, Deutsche Bank, UBS, and Citi.

Its a bum system where bankers can say "we cannot accept less than 100 cents on the dollar or the system will collapse." How can one argue that the failure of a nation as small as Greece (10 million people) is "systemically dangerous"?

And as you point out, trying to grind it out of Greece is going to fail. For one thing, Greeks with marketable skills can simply move . . . there's also a rather ominous historical parallel with the pre-War period, when the victors kept the squeeze on Germany to pay their WW I indemnities.

Interestingly, it was only last year that Germany completed their payments of WWI debts




Oct. 3, [2010] the 20th anniversary of German unification, will also mark the completion of the final chapter of World War I with the end of reparations payments 92 years after the country's defeat.

The German government will pay the last instalment of interest on foreign bonds it issued in 1924 and 1930 to raise cash to fulfil the enormous reparations demands the victorious Allies made after World War I.

The reparations bankrupted Germany in the 1920s and the fledgling Nazi party seized on the resulting public resentment against the terms of the Versailles Treaty.

The sum was initially set at 269 billion gold marks, around 96,000 tons of gold, before being reduced to 112 billion gold marks by 1929, payable over a period of 59 years.

Germany suspended annual payments in 1931 during the global financial crisis and Adolf Hitler unsurprisingly declined to resume them when he came to power in 1933.

{snip}

"It's a historical curiosity that the Versailles Treaty should continue to have a financial impact to this day," Professor Gerd Krumeich, a German historian who has specialized in the World War I, told SPIEGEL ONLINE.

He said Hitler's rise to power had its roots in Germany's deep sense of injustice at the 1919 treaty that gave Germany sole responsibility for the war and forced it to make crippling payments.

"The central factor behind Hitler's seizure of power was his promise 'I'll win this war in the end, I will undo this injustice and tear up this treaty and restore Germany to its old greatness,'" Krumeich said.

"There was tremendous frustration in Germany in the 1920s -- this conflict that cost 2 million lives and left 4 or 5 million wounded is supposed to have been in vain, and it was all our fault? The reparations payments compounded everything. Not only was Germany given the moral blame, it was also supposed to pay an outlandish sum that most people had never even heard of."

France and Britain needed the reparations to repay their own debts. Both countries had borrowed vast sums from the US during the war. Germany only settled about an eighth of its treaty obligations by the time it suspended payments.

http://www.spiegel.de/international/germany/0,1518,720156,00.html

[Arkady Renko]

Absolutely correct. What's more, the banks and private investors involved asked a considerable premium on the yield as compared to german or durch bonds, so they already got some money up front. you can't fuck around with risky bonds and then run to mommy for help when the things blow up in your face.

As for the potential fallout from a greek default: I know a few people with greek roots here. Their relatives from "the old country" keep flooding them with questions if they'd be willing to put them up until they find a job here. Those people will be even more eager to leave if they see their tax burden explode for no tangible benefit.

[FBD]

Part of the issue with Greece is...Spain, Portugal, Italy, and all the other countries that are on the precipice of serious issues - that's where one small country can cause the needles to tip badly for these other countries that are all heavily invested in each other, private or public. At least most of the other countries at least appear to understand that they have some issues, whereas the people of Greece just generally want to flip everyone the bird and continue on not paying for anything - thinking the entire way that really, they shouldnt have to.

They should be let out of the euro, or just let the fuggin euro go the way of the dodo, it was a poor experimental attempt that dollar competition anyway, it barely ever made it off of shakey knee street.