ATHENS – After backing Greece to the hilt for nearly two years, and additionally ensuring the support of her country, which contributes the most to an ongoing attempt by international lenders to save Greece, German Chancellor Angela Merkel now says she’s unsure if the debt-wracked country can be saved no matter how much money is poured into it.  Merkel told the British newspaper The Guardian and five other leading European newspapers in an interview that two years of $152 billion in rescue money from the Troika of the European Union-International Monetary Fund-European Central Bank and attached austerity measures have failed the right Greece, which is sinking in $460 billion in debt. She said that Greece – starting its fifth year of recession – shows no signs of recovering.
Calling Greece a “special case,” Merkel said that, “Despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilize the situation.” She spoke ahead of a critical EU Summit on Jan. 30, where she said she will try to get support for a fiscal compact treaty that will allow the EU to fine countries who break deficit rules – which is just about all of them – and give the European Court of Justice the power to examine the budgets of the 17 countries in the Eurozone who use the euro as a currency and set legally binding debt ceilings. That is now 3 percent, while Greece’s deficit is still at 10 percent. “There would be no point in promising more and more money without tackling the causes of the crisis,” Merkel said.
“Amid all the billions in financial assistance and rescue packages, we Germans also need to watch that we don’t run out of steam. After all, our capacities aren’t infinite, and overstretching ourselves wouldn’t help us or the EU as a whole. We will only be able to strengthen our common currency if we co-ordinate our policies more closely and are prepared to gradually give up more powers to the EU. If we make loads of promises about debt reduction and sound budgeting, those need to be things that can be enforced or brought to court in the future. The point of the fiscal compact, after all, is to make it possible to check on those commitments. That means giving our (European) institutions more monitoring rights -– and more bite,” she said.
There is growing tension in the fight to save Greece, which is trying to secure a second bailout, for $169 billion, and write off as much as 70 percent of what it owes lenders. The Troika wants banks and investors to take the hit, but the European Central Bank says it doesn’t want to take any losses while imposing them on others. A senior member of Merkel’s government rejected the idea of the ECB taking losses on its Greek holdings, although the IMF says it should. “I can’t imagine that European politicians would allow third parties to make such an indecent claim on our central bank,” Michael Meister, the deputy floor leader for Merkel’s Christian Democrats and the party’s ranking finance spokesman, said today in an interview, as reported by Bloomberg news agency.  “That contradicts our philosophy.”
The second bailout is being held up while Greece negotiates a so-called Private Sector Involvement (PSI) deal with its debt holders, but tension is building as well in the Greek coalition government headed by former ECB Vice-President Lucas Papademos, who is trying to keep hold on a shaky group that includes holdover ministers from the former PASOK Socialist rulers as well as their bitter rivals, the conservative New Democracy party and the far Right-Wing LAOS. New Democracy leader Antonis Samaras agreed to the coalition on the condition that elections would be held soon, but those have been pushed back from their original Feb. 23 date while the government talks with lenders. Samaras now says he won’t accept a date later than April 8 – Palm Sunday, and the week before Easter. Samaras told Reuters he expects a PSI deal to be completed by March 5, but the talks have dragged on for weeks with no progress. Samaras said he believes Greece, with an 18.2 percent unemployment rate and with more than 100,000 businesses closing, is in a depression, not a recession.
Samaras’ co-operation is critical as the Troika is demanding that all Greek parties agree to the terms of the loans, including more austerity measures as part of the second loan package that was agreed upon in July of 2011, but whose terms have changed since then. “As soon as the new loan agreement is settled and the overall Greek debt is considered sustainable again we must go on with new elections,” he said in an interview. “The bond swap is expected to be over by March 5, so we can have elections on April 8. There is not a moment to spare.” Samaras has not given his backing for some of the conditions the Troika wants, such as mass layoffs, and said the country needs to become competitive if it is to survive.
“This is not a cyclical recession anymore. This is a long-term depression which is unprecedented in Greece, as well as in Europe. Unless we do something about it, we will get deeper in the crisis, not out of it,” he said. Samaras, who would be Prime Minister in a New Democracy government, said drastic salary cuts and tax hikes, without privatizations and reforms, are making it difficult for the deficit to dip below 10 percent of GDP, and recession is now projected to last another two years, instead of one.
“Greece needs a strong medicine, but the one administered was the wrong one since it did not allow for any recovery,” Samaras said. “What we need to do now is reduce tax rates and implement structural changes so as to speed up deficit cutting and recovery.” Samaras, an economist who took over New Democracy after its crushing election defeat in 2009 in the wake of the debt crisis, said the problem with the current policies, agreed upon with the EU and the IMF in exchange for funds to keep Greece afloat, was that they neglected recovery.
“We entered a vicious cycle where more tax hikes and more income cuts produced more recession, which in turn generated more deficits, which in turn made necessary more austerity measures,” he said. “We want to break this deadlock.” He said he would continue to back the Papademos government’s efforts to clinch a new bailout deal, and measures such as structural reforms and efforts to fight chronic tax evasion and bureaucracy, but has reservations. “We fully support targeted measures to eliminate distortions and rigidities from goods markets, the labor markets, capital markets and so on,” he said. “But at the same time, we insist that measures to fight the recession are desperately needed in Greece. Otherwise, whatever else we do is becoming an exercise in futility.” New Democracy had about 30 percent of the vote in recent polls, compared to only 14 percent for PASOK, which is sinking faster than the Greek economy.
But that margin means New Democracy would have to form another coalition government, as it wouldn’t have a majority in the Parliament, or call another election. “I believe that, in Greece, coalition governments are by definition and by construction weak and fragile,” he said. “I tell you they cannot last long. Greece needs a strong government backed by a strong popular mandate to streamline fiscal problems, change the structure of the Greek economy, and once again establish social cohesion.”