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German Officials Gang Up on Greece: More Austerity or Else

German Finance Minister Wolfgang Schaeuble told Greece: you will make more cuts even if you don't like it

ATHENS – Just as it appeared Socialist leader Evangelos Venizelos might be able to form a shaky coalition government, another feud broke out between political leaders. German officials also said Greece would not get any more money from international lenders unless an administration is formed that continues the punishing austerity measures that have worsened a deep recession and caused public outrage.
Venizelos said he had an agreement with Fotis Kouvelis, leader of the small Democratic Left party that finished seventh in the fractious May 6 elections which didn’t give any party a ruling majority. PASOK finished a dismal third with 13.2 percent and 41 seats in the Parliament, while Democratic Left had just 6.1 percent and 19 seats. But Venizelos seemed to have a deal with the first-place finish New Democracy Conservatives, who had 108 seats – including a 50-seat bonus given the winner – which would have allowed the three to have 168 seats in the 300-member Parliament.
But Kouvelis, who reportedly was ready to be offered the Prime Minister’s job, apparently got cold feet and Greek media said he was afraid of being branded a traitor to the Left and insisted that any deal include the second-place SYRIZA led by Alexis Tsipras, who wants Greece to nullify its deals with the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) Troika putting up $325 billion in two bailouts. That came with attached pay cuts, tax hikes and slashed pensions that were backed by previous hybrid New Democracy-PASOK government that was repudiated by voters, only 32 percent of whom supported the once-dominant parties.
As Venizelos was trying to balance demands and egos, Samaras appeared to have upset the deal when he launched a blistering attack on Tsipras, warning that the party’s “irresponsible and populist” tactics are jeopardizing Greece’s membership of the euro area. “Party with power but without responsibility does not exist anywhere in the world,” Samaras said of SYRIZA, accusing the leftist party of having no plan to deal with the crisis. “They have no idea how the banking system works,” he said.
German Chancellor Angela Merkel also warned Greece of dire consequences if it does not conform and German Foreign Minister Guido Westerwelle said that continued international aid depends on the implementation of economic reforms. “We stand by our commitments… but Greece’s fate is in its own hands,” Dow Jones quoted him as telling the German Parliament. Westerwelle reiterated Berlin’s position that Greece must introduce the economic reforms agreed with the Troika and that the fiscal pact on budget discipline cannot be renegotiated, as demanded by new French President Francois Hollande, an anti-austerity Socialist. “The fiscal pact is done,” he said. “We want to get away from a policy of making debt.” The Germans are demanding more austerity, including another $15 billion in cuts being pressed by the Troika and Greece has no other option.
In a sign some European countries are coming to terms with a possible Greek exit, German Finance Minister Wolfgang Schaeuble said in an interview published May 11 that the Eurozone was much more resilient now to nasty shocks following the creation of bailout funds that are supporting Greece, Portugal and Ireland. “The contagion dangers for other countries of the Eurozone have shrunk, the Eurozone has become more resilient,” Schaeuble told the online edition of Rheinische Post. “The idea that we are not able to react to something unforeseeable at short notice is wrong. Europe does not go under so quickly,” he said.
The Eurozone would survive without Greece, Schaeuble told the Rheinische Post newspaper. “We have learned a lot in the last two years and built in protective mechanisms,” he said. “The risks of contagion for other countries of the Eurozone have been reduced and the Eurozone as a whole has become more resistant. The notion that we wouldn’t be able to react in a short time to something unforeseen is wrong.” He added, “We want Greece to stay in the Eurozone,” Schaeuble said. “But it has to want this and has to accept its commitments. We can’t force anyone. Europe won’t go under that quickly.”
Germany is the biggest lender to Greece in the Eurozone. In a speech to Parliament, Westerwelle said Germany wanted to help Greece stay in the Eurozone but made clear the EU-IMF-ECB loans needed to stave off bankruptcy hinged on continued spending cuts and tax hikes.“The future of Greece in the eurozone lies in the hands of Greece,” Westerwelle said. “We want to help and we will help Greece, but Greece has to be ready to accept help. If Greece strays from the agreed reform path, then the payment of further aid tranches won’t be possible. Solidarity is not a one way street,” he said.
Such is the fear in Greece that banks are reportedly flush with drachmas and ready to dispense them again although reports said a return to the drachma would bring a 50 percent increase in inflation and create a calamitous collapse of the Greek economy, leaving the country unable to pay workers, pensioners, the more than 1 million unemployed or its bills. Some analysts, however, have said that Greece could survive by walking away from its debt and starting over and that Germany and the Troika are trying to blackmail Greek political leaders into succumbing to more demands.
The government would run out of cash by early July if its international partners decided to withhold their next aid payment because politicians have yet to form an administration, Bank of America Merrill Lynch said. Greece currently has about 2.5 billion euros ($3.2 billion) in cash and could survive for about two months if inflows and expenses are similar to those in 2011, according to the report by a team led by Chief European Economist Laurence Boone. If revenue collection falters, the government could run out of cash as early as June, it added.
Greece is totally dependent on public aid after Venizelos, as the former finance minister, imposed losses of 74 percent on investors to write down Greece’s debt by $134 billion, but locking the country out of private markets. The Troika released $5.43 billion of an expected $6.73 billion loan installment this week – which went straight into an escrow account to pay banks and investors – and withheld the rest and warned Greece might not get any more money unless it complies with demands and forms a government that holds to the reforms.
(Sources: Kathimerini, AP, Reuters, Bloomberg, Dow Jones)

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