Nothing captures Germany’s anger and frustration with Greece better than the story – if you can call it that – in Tuesday’s Bild, the mass-circulation German tabloid. “Goodbye, euro. Bild gives the drachma back to the bankrupt Greeks.” Beneath the headline is a picture of a well-dressed, bespectacled young man, presumably German, handing a wad of drachmas – a defunct currency – to a rather frightened-looking, middle-aged Greek lady. The message is brutally clear: we Germans don’t want to share the same money as you lot. Drop out of the eurozone and leave us alone.
Does Bild speak for the entire German nation and, specifically, for German policymakers? Clearly not. But here and there in government circles the sentiments are shared. Consider the remarks of Jürgen Koppelin, a budget expert in the liberal Free Democratic party, which is part of Germany’s coalition government. It cannot be ruled out, he said on Tuesday, that “Greece would have to leave the eurozone for a time… The Greek currency could be depreciated. That could even help them with exports.”
The irresponsibility of these comments is mind-boggling. Exporting more products would no doubt help Greece’s economy in the medium and long term. But what we are seeing is an emergency in which Greece has effectively been shut out of the bond markets. The yield on two-year Greek government bonds hit 16.22 per cent on Tuesday, and the 10-year bond yield hit 9.77 per cent. This tells you that the markets have no faith that Greece can meet its refinancing needs without massive external assistance. Even the roughly €45bn promised by Greece’s 15 eurozone partners and the International Monetary Fund will not be enough.
The choice is simple. Either Greece gets a much bigger loan package, or it restructures its debt, dealing a shock – but not a fatal shock – to the European banking system. But as the Bild story and Koppelin’s remarks make clear, the political conditions for extra financial help from Germany just do not exist.
So what is the answer? One possibility is that policymakers agree to extend the maturity of Greek debt – say, for five years – thereby giving Greece’s socialist government a breathing space to implement its austerity programme and structural reforms. Everyone would get their money back, but later on. Another option is to bite the bullet, restructure the debt and make Greece’s creditors take a loss – on the understanding that any further delays would just make matters worse for them.
There is a third avenue open, too. This is that the financial assistance from the eurozone and the IMF is topped up by aid from other countries. For China, with its gigantic foreign exchange reserves, it would be a drop in the ocean. Russia, historically a good friend of Greece because of their shared cultural and religious heritage, could also help.
It would be a demoralising experience for the eurozone, demonstrating the emptiness of its claims to world economic strength. But right now there are no pleasant choices left.