World View: Germany’s Government Blocks Debt Relief for Greece, Despite Austerity Measures

Athens and the EU and IMF have been deadlocked over reforms for months amid disagreements on debt relief and budget targets for Greece

This morning’s key headlines from GenerationalDynamics.com

  • Greece’s parliament raises taxes, cuts pensions to satisfy lenders
  • Germany’s government blocks debt relief for Greece, despite new austerity measures

Greece’s parliament raises taxes, cuts pensions to satisfy lenders

Germany's finance minister Wolfgang Schäuble is blocking further debt relief for Greece (Reuters)
Germany’s finance minister Wolfgang Schäuble is blocking further debt relief for Greece (Reuters)

We reported in February that after passing one harsh austerity measure after another, Greece may refuse to pass another one, and Greece might actually leave the eurozone this time.

However, Greece’s parliament has now passed an omnibus austerity bill in order to meet requirements the lending institutions – the European Central Bank (ECB), the European Commission (EC), and the International Monetary Fund(IMF). Greece faces a €7.5 billion debt repayment in July, and needs to borrow additional money in order to make that debt repayment.

The terms of the bill include the following:

  • Income tax increases will generate revenues of €1.9 billion.
  • Pensions will be cut up to 18%, saving €2.3 billion.
  • Asset sales: Sale of stakes in railways, Thessaloniki port, Athens International Airport, Hellenic Petroleum and real estate assets, to generate €4.22 billion in 2017-18.

Greece once had an extremely generous pension system. Retirement was possible from as early as the age of 55 after 30 years of work. Public sector employees and women with young children could retire several years earlier. Today, the standard retirement age is 67, and incomes have fallen 40% over the last seven years of crisis.

Under the new bill, there will be some relief measures, contingent on meeting fiscal targets, including benefits for low-income groups, support for rental costs up to 1,000 euros annually, increased benefits for parents with children, and subsidies for child care and lower costs for medicines. Kathimerini and Euro News and Kathimerini

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Germany’s government blocks debt relief for Greece, despite new austerity measures

Monday’s meeting of the Eurogroup of eurozone finance ministers failed to reach an agreement on further debt relief for Greece, despite the harsh new austerity measures adopted by Greece’s parliament.

The main purpose of the talks was to get the IMF to join in the bailout. The IMF does not want to provide any more bailout money because it believes that Greece’s debt is unsustainable, unless the Eurogroup agrees to give Greece more debt relief.

Germany’s irascible Finance Minister Wolfgang Schäuble won’t agree to release new bailout funds to Greece, unless the IMF participates. But with German elections approaching, Schäuble also won’t agree to further debt relief for Greece.

Germany’s government is split. For months, Foreign Minister Sigmar Gabriel has criticized Schäuble’s tough stance on Greece.

Schäuble is in Germany’s conservative Christian Democratic Union party. Gabriel is in Germany’s Social Democrat party. Gabriel is demanding that debt relief for Greece “must not fail due to German resistance.” However, the Germany parliament needs to approve bailout negotiations, and Schäuble responded to Gabriel on Monday:

In Germany, we have a legal framework for parliamentary involvement… which is sometimes overlooked, including by members of the German government.

The next meeting will occur in three weeks. An agreement must be reached in time to lend Greece the next tranche of loans to that Greece can make its €7.5 billion debt repayment in July. If Greece fails to make that payment, then it is in default.

This looks like it has all the makings of another major Greek debt crisis, with several all-night meetings in a row, and with agreement finally reached at 5 am on the last possible day to avoid bankruptcy. However, some reports indicate that the Europeans are really sick and tired of those awful crisis weekends, and so they may be motivated to reach an agreement more quickly. Kathimerini and Politico (EU) and Bloomberg

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KEYS: Generational Dynamics, Greece, Grexit, European Central Bank, ECB, European Commission, EC, International Monetary Fund, IMF, Thessaloniki, Germany, Wolfgang Schäuble, Sigmar Gabriel
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