Monday late night the eurozone finance ministers, the International Monetary Fund and the European Central Bank agreed to release the next tranche of money to Greece after three weeks of negotiations.
Additional they agreed that the eurozone countries should lower the interest rates on their loans to Greece. This can lead to loss of taxpayers money, but it will not be a direct loss, and will definitely not be presented as direct subsidies to Greece’s survival.
Burden the already burdened
Ironically the new low interest rate on the loans to Greece will be a burden to eurozone member states in southern Europe – already burdened heavily by the economic crisis.
For two reasons. First – the other countries like Spain, Cypern and Portugal can now see Greece getting a lower rate on loans than they can get. Second – great parts of the Greek debt is owned by their neighbor countries, and now they will receive less money back from their loans.
Now, the Greek opposition complains that the country didn’t get any real haircut on their debt involving loss of taxpayers money in Germany and from the European Central Bank.
And one can understand them. Without any real haircut on the Greek debt, it will demand some kind of miracle for the country to create a budget surplus, and start paying of their debt in the amounts that the eurozone countries expect. Until they get a real haircut in their debt, they will only survive by paying off old loans and depend on new ones.
The partner eurozone countries knows it. And Germany know it.
But the German government is also aware that they will hold general elections in September next year. And it will be hard to argue to the German people that they have released direct payments to Greece.
So for this time, no real solution has been made for Greece, but German has succeded to avoid more Greek troubles before their general election, and then maybe a few years ahead they will be able public recognize that the current situation in Greece demands more than a lower interest rate. At that point a “grexit” will be at the top of the agenda again.
Until then the debt problems of southern Europe stays in southern Europe.
And Germany can continue building upon their strong economy.