Belfast Telegraph

Germany must ease misery for a pliant Greece

By Liam Clarke

The figures are all but incomprehensible. Greece is edging towards another €85bn (£60bn) three-year agreement to keep it in the eurozone and avert bankruptcy.

How can a country of 11 million people handle this mountain of debt at a time when its books aren't balancing? The answer is simple - it can't. There will have to be a measure of debt forgiveness at some point.

Equally, the Syriza Government had to show willingness to pay back debt, not just repudiate it, before people would get serious with it.

Anyone who visited Greece within the last 20 years or so will have been struck by the large numbers of VWs, Audis and other German motors on the road.

That is where a lot of money loaned to Greek banks by the Germans ended up - financing the purchase of German goods.

It stands to reason that if one country has a balance of payments deficit, like Greece, then somewhere else must have a surplus by selling the goods it is producing into it.

In some ways, this is like regions of the UK; some are subsidised by the centre, but those are the areas that send young people to work in the centre and consume the goods they produce.

Greece, like Ireland and Spain, built up its debts because it was let into the euro without the necessary economic reforms. That was a political decision, but the economic effect was that the slower countries economically could get cheap credit as if they were Germany or Finland.

With their own currencies they would have had to devalue; in the euro it looked as if they could borrow their way out of trouble.

Instead, there were property booms in Ireland and Spain, while Greece continued to run an inefficient administration characterised by cronyism.

Germany has done well out of the euro project all the way along and would suffer greatly if it collapsed. With Greece pumped up by debt it provided a market for German goods; with Greece in trouble capital is seeking a safe home in the German banks, which have saved €100bn (£70bn/ $109bn) as a result, according to the German IWH institute.

This is despite the fact that Germany's "contingent liabilities", the amount it has guaranteed to private sector bodies, is 145% of GDP compared to 17% in the case of Greece.

Of course, the German public wouldn't just give an open chequebook to Greece at a time when it was making no concrete proposals to pay, or to restructure its inefficient economy. Germans have memories of the cost of reunification, when billions were paid into the east forcing the economy into decline.

Now, however, that the Greeks are making the effort, it is in everyone's interest to get the country up and running again. Austerity is not the key to doing that, though fiscal responsibility is important.

The real key is reorganising the economy, with more jobs in the private sector.

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