With evidence growing that Greece may never be able to pay the $325 billion it borrowed from international lenders to keep the economy afloat, German Chancellor Angela Merkel and her Finance Minister Wolfgang Schaeuble have rejected any notion that Greece will be able to write off debt to the lenders – of which Germany is the biggest contributor – the same way it did to private investors when it imposed 74 percent losses on them.
With her party facing elections in September, Merkel stamped out any thought Greece might have had – supported by some analysts who said Greece’s debt is unsustainable – about walking away and letting taxpayers in the other 16 countries in the Eurozone pay the bill for generations of wild overspending in Greece.
While Greece hasn’t asked outright to be forgiven a big chunk of its debt to lenders, the notion has arisen from time to time as a kind of trial balloon to sound out the investors. Merkel and Schaeuble said they support continued aid to Greece on the condition of unrelenting austerity, although it has largely backfired and worsened Greece’s six-year recession and created a record 26.9 percent unemployment.
In an interview with the Maerkische Oderzeitung and Sudwest Presse, Merkel stressed that she did “not see” the possibility of a new haircut for Greek debt, emphasizing however that the German government supported Greece’s difficult economic reform effort.
She said that a second haircut for Greek debt would be a multi-billion-euro burden for Eurozone partners. She didn’t oppose private investors taking losses when they did although it nearly wiped out many small bondholders in the Greek Diaspora and destroyed Cyprus’ banking system and economy.
Schaeuble told the German mass daily Bild that last year’s write-down of Greek debt as “a one off” and wouldn’t happen again. “Whoever questions this must realize what they are doing,” he said. “No investor would put money into European state bonds,” he warned, adding that Eurozone finance ministers would next year examine the possibility of extending further aid to Greece.
Schaeuble added that the Greek economic reform program has been designed to allow Greece to begin servicing its debt independently by 2020. “Until then the government in Greece must honor its commitments. No one else can undertake Greece’s obligations,” Schaeuble said. “I know how hard it is for the people,” he added.
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