Greece Will Lose 'Financial Aid' Without Austerity, German Bank Chief Warns

BERLIN -- The head of Germany's central bank is warning that there would be no basis for further financial aid to keep Greece afloat if the country backs off agreements with international creditors.

The comments by Bundesbank chief Jens Weidmann, who is also a member of the European Central Bank's governing council, came as Greek politicians, deeply divided over the value of austerity and reform measures that creditors demanded in exchange for rescue loans, flounder in efforts to form a new government.

"If Athens doesn't stand by its word, that is a democratic decision – but that means the basis for further financial aid falls away," Weidmann was quoted Saturday as telling the German daily Sueddeutsche Zeitung. "The donor countries also have to justify themselves to their population."

Bailing out countries such as Greece has been unpopular in Germany and other prosperous nations.

Asked about a possible Greek exit from the 17-nation euro, Weidmann said that "the consequences for Greece would be more serious than for the rest of the Eurozone."

"I think it is too simplistic to assume that the problems in Greece would be solved if the country leaves the Eurozone," he added. "An exit from the currency union would be historically unprecedented and linked with great uncertainty."

Since last Sunday's indecisive Greek election, German officials have insisted on the need for Athens to stick to its existing course, which has become hugely unpopular with Greek voters.

"There is no easy way for Greece," Finance Minister Wolfgang Schaeuble was quoted as saying in an interview with the Welt am Sonntag newspaper.

"We have gone to the limits of what the financial markets will believe from us – there is no better solution," he added. "Now Greece must show whether it has the strength to put together the necessary majorities for that. I can only hope that those responsible in Greece quickly understand that."

Schaeuble said that "if the Greeks have an idea for what more we can do to encourage growth, we can always talk about it and consider that." But he insisted that the main task is to make Greece competitive, and that means carrying through the already-agreed reform program – "otherwise, the country has no prospects."

Schaeuble already has suggested that the eurozone could deal with an abrupt exit by Greece.

"We cannot force any country to remain in the euro," he was quoted as saying. "Of course we do not want Greece to leave – that is very clear. But ... we would be a funny government if we did not prepare for all conceivable cases in order to be able to master them – even situations that would not be easy for Europe."

Comments

[pavementends42]

03:47 PM on 05/14/2012

"If you're failing, we won't help you unless you embrace ABSOLUTE failure."

[Peanut Santiago]

04:12 AM on 05/14/2012

Don't the Germans get it?

The people in several countries are sick of austerity and that the 1% who caused it go on their merry way.

When it is election time, the people are voting in politicians who are against austerity and indirectly telling the Germans they won't play by German rules anymore.

Either the Germans and other well off eurozone countries keep helping Greece (highly doubtful) OR the Greeks will leave or be kicked out of the eurozone.

-------------------------------------------------------------------------------------------------
The Germans do not get that the Greeks won't play ball by the German rules of the game.
And there seems to be NO way to negotiate a compromise.
I can guess the outcome will be that Greece will go back to its own currency.

[savantfool]

05:50 AM on 05/14/2012

"The Germans do not get that the Greeks won't play ball by the German rules of the game.
And there seems to be NO way to negotiate a compromise."

Now you seem in support of such behaviour. Good an example and lets see what you think:

Your neighbor Bob Loves spending money he does not have. He takes on 3 mortgages. He does not invest that money lets say to make the house look good so it sells tons better and actually lets him pay off the mortgage and gain a little profit for himself.
No...he buys a yacht. Hegives the money away for free for fun.
He is low on money and a debt needs to be paid off. His bank won't give him more so he knocks on your door and holds his hand out: I need to lend a little money.
You say: I can give it to you but you have to pay it back in 3 months when the debt is paid and you get the pay from your job.

Your answer is reasonable.

Instead what Bob does is reach inside your pocket, grab your money laughing and says: I won't pay you back like this. I mean...I need my money myself. Maybe someday....I'll give it back.

Is your Quote still reasonable?

[walkerhds]

09:44 AM on 05/14/2012

your example is a bit simplistic, and inaccurate. would you care to try again?

[Kai-HK]

09:55 PM on 05/13/2012

There is no aid to Greece, the aid is to German Banks who have lent to Greece. The best thing that could happen is or Greece to default, for the German Banks to take their loss, and for Greece to have to live within its means for the next few decades.

A default will cause the following:

a) Will penalize German, Italian, and French banks that lent to Greece and other profligate sovereigns. It will rightly punish them for not risk-weighting sovereign debt appropriately and it will teach them an important lesson to not expose themselves to the reckless borrowing of welfare states in the future.

b) Greece will get a respite from current debt requirements, but then it will be locked out of the international financing market. This will most likely cause their entire economy to collapse inward on itself, which is the natural end-state for welfare states. However, citizens will learn an important lesson that the problem with debt-financed socialism is that sooner or later you run out of other people’s money. They will learn to start embrace greater capitalist reform needed to propel the economy forward.

c) Supranational organization will rightly be seen for what they are epic welfare-state failures.

More capitalism, less socialism!

Kai

[Olympian2012]

02:48 AM on 05/14/2012

Good point. It seems very few people on this discussion don't understand the important role American capitalism has played in the history of our country. Our system is what makes America a special country as so many others have given in to the contraints of socialism. There's little freedom with socialism or the ability to improve one's life. America is built upon a strong tradition of freedom and capitalism plays a big role in that.

[Kai-HK]

03:24 AM on 05/14/2012

True That!

[cincinnati]

02:57 PM on 05/13/2012

Some reforms are obviously needed in the problem countries if not most of the West, etc....

It's unrealistic to think you can retire at 55 off of the public...

But part of the solution too is fair taxation of the Super Rich all over the world.
As Romney, one of the owner's of Facebook, etc. prove, it's fairly easy
to hide or shield your income and wealth. Singapore, various islands, etc.
make great profits and easy living off of these tricks to avoid taxes.

We need an annual wealth tax of say 3-5%....perhaps starting at $ 10 Million and over.

Earnings taxes tend to hurt newer and younger successful people.....who may not even
be worth all that much.

The Establishment on the other hand has plenty and will still live like Kings
even with helping their society a bit more......still nice homes, many nice car's,
trips, etc.....so what is the big deal ???

The Super Rich are laughing at the rest of us as we desperately try to
fix the societies THEY benefit from the most !....?!?!?

[Mark Cormier Arizona]

02:37 PM on 05/13/2012

I am glad to hear Germany is putting thier foot down....no spending changes, no loan.
I don't blame them.
Its time for Greece to wake up and realize the party is over...austerity is the only way out.
We are next, BTW.

[Peanut Santiago]

04:29 AM on 05/14/2012

Hope + Change = Hope 4 Change = 0

The oligarchs have bought and paid for the politicians who do their bidding.
Do not expect a big change in the economy from either candidate.

Just pick the candidate that you agree with more.....OR......who you think will do the least damage to the country.

There are times when I wonder when a lot of what goes on in national politics is just a dog and pony show for the voting masses.

That the real deals and agreements are made behind closed doors and the politicians put on an act to distract the public so they don't catch on.

Even if the governing styles of both parties are really different......I still see that when push comes to shove......the main difference is how much they bother to help ordinary Americans and how liberal or conservative they are socially.

[kanga573]

12:19 PM on 05/13/2012

They should have stuck to truly European nations. Greece is more like Turkey - not part of European cultlure.

[john262]

09:29 AM on 05/13/2012

Greece had massive problems before the austerity programs ever kicked in. Can you believe a nationwide retirement age of 55? Meanwhile Germany with a retirement age of 65 was thriving. Then eventually when Greece's house of cards came crashing down there was no good short term solution. If Greece had continued on it's free spending way things would be a lot worse by now and they would have left the Euro, probably dragging several other countries down with them.

Austerity is no magic bullet and it will take Greece years to recover if ever. But austerity is their only realistic choice.

[savantfool]

05:55 AM on 05/14/2012

And not just that retirement age. 13 month wage for work.

State funded disabledness that was never checked if true by the state.
Dead people still getting a pension from the state.

And it still goes on, besides that half the populace is cheating out of their taxes.

And now they wonder why the state is broke and why it's imploding while raging at countries that did not throw money into the fire? Just because those countries want securities for loans?

OH CRY ME A RIVER!

My Mum raised me like this: You don't have the money to buy this? You can't buy it. Want me to buy it? Earn it.
She gave me little tasks like helping change the bedding, dust the living room etc..

Greek people learned: close your eyes and make a wish and it will happen.-.

Well....welcome to the real world.

[MSROADKILL612]

04:47 AM on 05/13/2012

jeez - dunno - but this is gfc all over & bailouts dont work

its absurd to have a common currency w/o common rules

common borders have probably been hugely costly for workers in the west too

bail now

u make a bad bet - u problem investors

[Twohairydogs]

02:54 AM on 05/13/2012

Was there even a word of analysis about whether austerity is really working? The Germans delude themselves. Perhaps the Eurozone can stand Greece leaving the family but what happens when Spain, Portugal, Italy and the rest of the domnos begin to fall?

[Allen Atkinson]

03:03 PM on 05/13/2012

We'll find out very soon, I believe.

[Peanut Santiago]

04:31 AM on 05/14/2012

Yea.

[Dh Barr]

08:23 PM on 05/13/2012

I don't think there has been much of an analysis done on austerity measures for the simple reason that 90% of the measures really haven't kicked in. Most of the measures agreed to were over a 10 year period, and the whole thing collapsed in Year 1.
When I look at France and watch them blow off austerity because of the horrible calamity caused by people retiring at 62 instead of 60, I know they really are not serious about getting their public spending under control.

[HMDMSR]

01:07 AM on 05/13/2012

The Greek Tragedy and the European Crisis, Made in Germany
by Heiner Flassbeck

http://mrzine.monthlyreview.org/2010/flassbeck130310.html

[Michael GE]

02:08 AM on 05/13/2012

Great source. *irony on* not at all biased *irony off*. Flassbeck was Staatssekretär (probably best translated as Under- Secretary) in Germany for a brief period when (then Social Democrat) Lafontaine was Finance Minister and F. was his trusted confidant. He (had to) left office with Lafontaine. Lafontaine always was considered to be part of the leftmost wing of the Social Democrat Party and is today (after he left the Social Democrats) a leading figurehead of "The Left" ... an assembly of extreme leftists of all shades founded around the core of the once former ruling party of Eastern Germany.

Citing him as a source is almost this >< close to citing Margot Honecker.

[AlanBannacheck]

11:56 PM on 05/12/2012

Doesn't Germany remember the The Treaty of Versaillies? Now they are pretty much destroying Greece in the same type of way. Austerity isn't fair because the majority of Greeks weren't playing the casino called the banks.

[Michael GE]

12:29 AM on 05/13/2012

So, Germany should just give money to the elites of PASOK and ND party ... as much as the two of them ask for? Have the Greek parliament take a vote what Germany should just transfer (ofc, interest free and ofc without asking)? Because it's so unfair to ask them: "Hey, why exactly do you need an army as large as ours (but with 4 times the number of tanks)? - Although you are just 11mn people while we are more 7 times that many?"
How can one dare to ask them to save money! After all, they are all sovereign! The German parliament, on the other hand, is not sovereign at all ... they should listen to the demands of real sovereign people.

[AlanBannacheck]

07:09 AM on 05/13/2012

All I'm pointing out is after world war 1, Germany was sentenced to an economic death. Austerity in Greece will also be the death of their economy. How can they not take that into consideration?

[Michael GE]

01:45 AM on 05/13/2012

"Austerity isn't fair because the majority of Greeks weren't playing the casino called the banks."

But the majority of Germans was?

[Twohairydogs]

02:58 AM on 05/13/2012

You don't think Germans weren't in there pushing loans like everybody else? How many Mercedes were sold in Greece? Who financed the Olympic games? Sometimes you lose at the casino.

[AlanBannacheck]

07:04 AM on 05/13/2012

That's not my point. Do to "plateau oil", the whole growth is good happenstance of the 20th century is an impossibility, or will be soon. Modern society is dependent on growth. Greece may be the first ro fall, but Germany will surely follow in their footsteps

[Andy49]

11:03 PM on 05/12/2012

I think the Greeks have already figured that out and have thrown the German attempt to destroy the economies of all of Europe,except their own, over board.

[Stewart Goss]

09:17 AM on 05/13/2012

Wow. Bailing someone out is destroying them? Talk about adding insult to injury.

[walkerhds]

12:28 PM on 05/14/2012

depends on the terms of the "bail out".

[wanderer12]

10:42 PM on 05/12/2012

Germany takes the position that the World Bank, and behind it the US, took vis a vis the Latin American debt crisis. Did no one live through that period. Loan defaults, forced austerity, privatization programs. All of which did not work very well. Once the LA countries had enough and sad hasta la vista they began to recover and now are better off. Greece will benefit by regaining control of their currency and monetary policy. The EU works for some but not all.

[DrObvious]

09:57 PM on 05/12/2012

Foolishness.   With austerity, the euro falls.   Even Germans will be hurt.

[Dh Barr]

08:31 PM on 05/13/2012

The Euro is falling now due to the uncertainty. In Germany, the early retirement age is 65, and full retirement comes at 67. Try telling the German taxpayer that he needs to subsidize Greece because they won't take on the "severe austerity" of telling their people that they cannot take early retirement at 55.

[Stanley Bonk]

09:53 PM on 05/12/2012

I think Greece should drop the other shoe and exit the European Union, for their own sakes. How on earth is is possible for a prime minister to govern a nation with a constant chorus of German bankers shrieking austerity in his ear every minute of the day? Admittedly much of the difficulty of the Greek economy is self-generated, but the EU bankers haven't done them any favors, either.
i say be done with it already and leave the EU and go back to the drachma. Let it float against other world currencies. Sure it will devalue a bunch, but what of it? Devalued drachmas in people's pockets are a lot better than not having any Euros in their pockets. It will all sort itself out in time.