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Germans Remain Optimistic and Continue to Give Economic Advice to Greece

German Foreign Minister Guido Westerwelle wants to reassure Greeks

ATHENS – As German Foreign Minister Guido Westerwelle arrived in Greece on Jan. 15 for talks with political leaders of the debt-crushed and cash-starved country, with a message of support from European officials, German Chancellor Angela Merkel said Greece can rebuild itself, but only if it adopts structural reforms it has been refusing to make despite pressure from lenders who are providing the country with rescue loans to keep from defaulting, although it is already technically bankrupt.
Westerwelle met Greek Prime Minister Lucas Papademos on Sunday to discuss the financial crisis, ahead of more tough talks this week between debt-crippled Greece and the eurozone.
Germany is optimistic about the outcome of a bond swap deal aimed at slashing Greece’s towering debt pile, Germany’s foreign minister said.
“Discussions (on the bond swap) are difficult but with good faith they will reach a good result,” Westerwelle said, after a meeting with his Greek counterpart Stavros Dimas.
“It is very important that we give negotiations and packages a realistic chance,” he said.
Germany has repeatedly urged Greece to meet the fiscal conditions set out by its lenders – the European Union and the International Monetary Fund – but Westerwelle said Germany would stand ready to help.
“Germany will help so that there will be better days ahead,” Westerwelle said, speaking through an interpreter. “My visit brings a message of solidarity.”
Westerwelle also met with conservative leader Antonis Samaras, the head of the New Democracy party, who is leading in the polls to be the country’s next prime minister when elections are held, now expected sometime in April. They were slated for Feb. 19 but were pushed back because Papademos has been unable to secure a second bailout of $169 billion from the Troika of the European Union-International Monetary Fund-European Central Bank and a write down of 50 percent in Greek debt. A first round of $152 billion in loans has failed to slow the country’s slide towards bankruptcy, because it came with requirements for big pay cuts, tax hikes, slashed pensions and scores of thousands of layoffs that have created a deep recession of 18.2 percent unemployment and the closing of more than 100,000 businesses.
Despite that, the Troika wants more of the same and more austerity measures that many economic analysts said will bring certain doom, because the country is uncompetitive and political leaders have yet to go after tax evaders who owe more than $60 billion, nor have they privatized state-run enterprises or sold state-owned properties to raise an expected $70 billion. Merkel told Deutschlandfunk public radio that spending cuts alone were not enough but that structural reforms were needed as well, although will take time to show results and will have to be forcefully implemented. She said there were many examples in the world “where the IMF has arranged similar programs that, after a certain phase of recession, then come very strong phases of growth.” She added that while the Greek deficit is still at about 10 percent and the staggering debt of $460 billion hasn’t been lessened, that “Progress has been made in Greece,” although she said tax evasion remains a major problem.
Westerwelle’s visit comes as auditors from the Troika are due back at the same time to look at Greece’s books again, and as Papademos and Finance Minister Evangelos Venizelos, a PASOK Socialist who wants to run for Prime Minister, hope to resume talks on the second bailout and debt write off this week and reach a deal sometime in February. They were suspended after some private investors refused to accept big losses on their loans although Venizelos has been insisting for weeks that everything was fine.
Sources told the Athens newspaper Kathimerini that talks stalled after Greek leaders and private investors failed to reach a consensus on the interest rate level for the new bonds, as well as the new law that will apply to them. It said private sector negotiators want the new bonds to pay an interest of around five percent, whereas Greek officials are only willing to agree on no more than four percent.
German authorities want an even lower rate of two to three percent while the IMF believes the interest rate must not surpass 3.8 percent for the Greek debt to be sustainable, the newspaper reported. “Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach,” the Institute of International Finance (IIF), which heads negotiations for the banks, said, adding the talks had failed to produce a “constructive consolidated response by all parties.” Papademos warned that, “Until the (debt write-down talks) are complete and the new loan agreement is voted, the country continues to face acute economic dangers.”
Merkel said the aim of restructuring some of Greece’s debt was to bring it down to from a current 149 percent of Gross Domestic Product (GDP) to 120 percent by 2020, with the goal that Greece would then be able to return to the market, Agence-France-Presse reported. “Already with this timeframe one sees how serious this problem is,” she said. The breakoff in talks with private investors has increased the chance of a disorderly default that could threaten the 17-member Eurozone of countries using the euro as a currency and consequently affect world markets.
German Foreign Ministry spokesman Andreas Peschke said that the financial crisis in Greece, which has the highest debt ratio in the EU bloc, would be at the top of the agenda of Westerwelle’s visit. “The foreign minister is travelling with a message of encouragement and expectation,” he said. “Encouragement because… we want to embolden the Greek government to implement the reform steps it has announced and expectation because we want them to implement them,” he said, reiterating previous optimistic predictions from the EU that have never materialized.
It could be a bad news week for Greeks as the Troika is now targeting reductions in private sector salaries, as well as ending the minimum wage and eliminating collective bargaining for workers who would be forced to take whatever pay companies offer. Reducing salaries and increasing productivity will help close the competitiveness gap between the Greek and European economy, Task Force head Horst Reichenbach said in a newspaper interview.  “The most effective way of making up lost ground is by containing salaries and increasing productivity,” Reichenbach said. “It is estimated that by the end of 2013, Greece can bridge most of the gap in competitiveness compared to its European counterparts,” he told told Typos Tis Kyriakis.

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