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German FinMin Concerned About Progress of Greek Bailout Plan and Future of Europe

o-v-soibleFor the umpteenth time, German Finance Minister Wolfgang Schaeuble is expressing deep concerns over the Greek government’s commitment to implement the full bailout program in a timely fashion.
The third bailout for Greece, agreed between the SYRIZA-led government and the country’s international creditors on August 2015, will unlock up to 86 billion euros in financing over the next three years. In turn, the Greek government has agreed to a series of highly unpopular and anti-growth measures, including sharp spending cuts and strict policy overhauls.
The new bailout agreement resolves Greece’s financing needs for the next three years but will clearly add further strains on the crippling Greek economy and will surely increase the debt as a percentage of GDP, which today stands at nearly 180% and is simply unsustainable. In Europe, the average country carries a debt which is about 95% as a percentage of GDP, while Germany’s debt in only 75%.
Be that as it may, the SYRIZA-led government felt that it had no option but to sign a new bailout agreement even though it had opposed the two previous ones agreed by the PASOK and New Democracy governments, respectively.
The first bailout program was signed in May 2010 by the Greek government under then Prime Minister George Papandreou on one hand, and the so-called Troika on the other.
The second one was agreed on February 2012 by then Prime Minister Antonis Samaras and the same international bodies.
With both bailout plans, the expectation was that the debt would decline as a percentage of GDP and that economic recovery would soon follow. Alas, none of this happened: Greece’s economy continued its free fall trajectory and the debt kept reaching ever higher levels, in spite of the fact that a major “haircut” took place in which as much as 100 billion debt was written off among private bond holders.
The signing of the third bailout plan did not include the IMF. While SYRIZA had made its wish known that it would prefer not to have the IMF included among Greece’s international creditors, the reason for the IMF’s decision not to commit itself to a third Greek bailout plan was its long-standing disagreement with Germany and other Eurozone officials over the sustainability of the Greek debt.
Still, Germany has insisted all along that any future financial support for Greece must include the IMF, and the lender’s chief, Christine Lagarde, has indicated that the decision on whether the IMF will participate in a third bailout for Greece won’t be made until the second quarter. Progress on pension reform would be key to any participation, but another critical issue is that of debt sustainability.
In the light of all this, Schaeuble is most keen to see quick progress on the implementation of the bailout program by the Greek government. Hence his latest concerns about the Greek government’s commitment to reforms. Germany needs the IMF in the effort to provide financial support to bankrupt Greece not only because of the organization’s expertise in managing structural adjustment programs for indebted nations, but also because the IMF’s participation adds legitimacy to Germany’s pursued strategy in the Eurozone.
At this point, however, it is also clear that Germany has more things to worry about than Greece’s determination to implement the full bailout program. The refugee crisis is dividing Europe and the continuous inflow of immigrants and refugees into the continent is causing all sort of problems for European governments, including the one in Greece. The Schengen agreement appears to be in danger of fraying, and it is virtually impossible to forecast how things will turn out if it is cancelled.
In the meantime, anti-immigration feelings seem to be spreading like wildfire across Europe, making it most likely for extreme political ideas and movements to flourish and possibly bring the European integration project of the last 50 years to an end.

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