By MARCUS WALKER, WILLIAM BOSTON and ANDREAS KISSLER
Germany's finance minister issued an unusually blunt warning that the euro zone might refuse to grant Greece a fresh bailout, pushing Athens into default unless it persuades Europe it can overhaul its state and economy.
"Greece needs to decide," Wolfgang Schäuble said in an interview with The Wall Street Journal, when asked whether the euro zone would grant or withhold the second bailout package for the country since 2010, expected to be in excess of €130 billion ($172 billion).
Europe is "prepared to support Greece" with the new loan package, Mr. Schäuble said, but he warned: "Unless Greece implements the necessary decisions and doesn't just announce them…there's no amount of money that can solve the problem."
The remarks came as German officials last week floated the radical idea of appointing a European "budget commissioner" with veto powers over Greece's spending, partially suspending Greece's national sovereignty over its budget, in return for aid.
"Perhaps we and our partners must look into ways to assist Greece in this difficult task in an even closer manner," Mr. Schäuble said, alluding to the German oversight proposal.
Germany's proposal met with skepticism from other European policy makers and got an angry response from Athens. In a statement on Sunday, Greek Finance Minister Evangelos Venizelos said "bigger nations" shouldn't force Greece to confront a "dilemma of 'economic assistance or national dignity.' "
Greece's deteriorating finances and ever-growing funding needs are leading to renewed political tensions in the euro zone that threaten to reignite the region's debt crisis, which has shown tentative signs of stabilizing so far this year.
In Germany and other northern European creditor countries, frustration is rising with Greece's perceived failure to get a grip on public spending, improve tax collection or free up its economy. Many lawmakers in German Chancellor Angela Merkel's conservative-led coalition are unhappy about risking billions more on financially stricken Greece.
Berlin officials say their proposal for more-intrusive controls over Greece's budget is one of several ideas being discussed, and that they are flexible about the specifics—but that something needs to be done about Greece's slow compliance with the terms of its international aid.
Ms. Merkel is expected to discuss stronger enforcement of Greece's reform measures with Greek Prime Minister Lucas Papademos in Brussels on Monday, when European leaders gather for a summit whose official agenda is how to improve economic growth in the 17-nation euro area.
Greece's fiscal mess is increasingly taking center stage again, however, in a sign of how the euro zone has gone around in circles since the crisis began in Athens in late 2009.
Stubbornly high budget deficits mean that Greece is struggling to restore its solvency, despite an expected deal with bondholders that could reduce its private-sector debt by up to €100 billion. Many economists say euro-zone governments and the European Central Bank will also eventually have to forgive some of what Greece owes them.
Mr. Schäuble declined to rule that out, saying "we must see what the whole package will look like," and that the independent central bank would make its own decision.
The euro zone must decide by March whether to proceed with the second bailout deal for Greece, which some European officials say will require closer to €145 billion in international loans than the €130 billion agreed on in principle late last year.
The alternative—a full-blown default by Greece on its debts in late March—could spark another round of panic in European government bond markets, threatening the access to credit of other euro members with rising debts, including Spain and Italy.
Fear of such contagion is the main reason Germany and other creditors view further aid for Greece as the lesser evil. But Berlin officials are growing exasperated with Greece's political parties, which are seen as only half-heartedly behind the country's painful reform program, and with a Greek public administration that has failed to turn reforms into reality.
Mr. Schäuble, a 69-year-old conservative and the second-most powerful member of Germany's government after Ms. Merkel, is known as both a staunch believer in the euro and a steely guardian of Germany's purse. In the interview, he defended Germany's handling of the euro-zone crisis against recent international criticism.
At last week's World Economic Forum in Davos, Switzerland, top global policy makers and business leaders called for Germany to relax its drive for pan-European austerity, do more to support growth, and build a bigger financial safety net to reassure markets struggling euro-zone governments will stay liquid.
Mr. Schäuble insisted Germany is taking the best possible steps to support economic growth in Europe's biggest economy, and rejected calls for a significantly bigger euro-zone bailout fund.
"In the euro zone, we will regain the trust we have lost only through steady policies," rather than constantly revising decisions, Mr. Schäuble said. Germany's cautious, step-by-step response to the euro-zone "isn't that unsuccessful," he said, pointing to the relative financial calm in Europe since Christmas.
But while some analysts have suggested lately that the worst of the euro crisis might be over, Mr. Schäuble said it's "too early to sound the all-clear," given the continuing uncertainties in Greece and other struggling euro members.
Dismissing the idea that Berlin should pursue a more-expansionary fiscal policy to support the euro-zone economy, Mr. Schäuble said last year's 3% economic growth in Germany showed that careful budget consolidation is more effective.
"I don't know how it's best done in America, but in Germany it works like this: If you want more private demand, you have to take people's angst away," he said.
Many German consumers are anxious about rising public debt and its implications for the state's ability to pay for pensions and health care in an aging society. Mr. Schäuble cited the research of U.S. economists Kenneth Rogoff and Carmen Reinhart, who have argued high public debt is a drag on economic growth.
Germany's economy has stalled this winter after two years of solid growth, however, adding to criticism of the government's austerity focus. Mr. Schäuble said the slowdown is temporary. "A recession looks quite different from what's happening in Germany right now," he said.
No amount can solve the debt problem facing Greece and other debt- stricken EMU members. Neither a "budget commissioner" nor a "fiscal pact" can deliver way out from the economic, currency, fiscal and banking crisis. Without considerable increase in real growth EMU is never able to survive.
In addition, the ability of debt cuts by means of orderly restructuring resolutions in the next 3 years is dependent of the total EMU sovereign bond reimbursements and of the share of EU/EMU general governments (including ECB/IMF holdings) for bail-outs on the one and of the share of foreign creditors for bail-ins possibilities , abilities and capabilities on the other side. The higher the exposure of the foreign private sector the higher in the mid-term the propability of default/exit of PIIGS or even the collapse of the common currency , the monetary union and the whole european banking system.
Now it is really the time for Mr. Schäuble and other responsible european policy and law makers to say more about the true figures and amounts behind the tragi-comic scenes of the european debt theatre in order to establish transparency and confidence in european markets.
The Greeks have shown resolute avoidance of doing the difficult matters that would put their government on firm financial ground because of what the short term damage would be to their current standard of living. They have fudged and faked financial data to give the other Europeans that warm and fuzzy feeling that they were truly responsible partners and deserving to be members of the EU--and the EU has gone along with the farce.
The truth is the Greeks do not want to change their behavior and will game the system as long as possible to keep this little scheme going. The only time they blinked was when the former PM broke the news of the referendum and the EU members revolted.
To get their pound of flesh out of the Greeks, the EU will need to station battalions of auditors (honest auditors at that) around Greece to know if the Greeks are keeping their promises and meter out the $'s with an eye dropper to keep them doing the right thing.
The downside of all this , though, is that the austerity measures will force the Greek economy to contract even further, making the likelihood of repayment even more difficult.
There is no easy way forward, even if the Greeks decide to be straight arrows for the first time in that last few centuries. They never qualified for EU status and their subsequent behavior confirms it. This herculean task of keeping the Greek economy afloat surely qualifies as a "fools errand".
The EU will continue to destabilize unless its nations begin to do what is in the best interest of all of them together. And hopefully this idea will soon gain traction because (let's face it) they’re all tied together anyway and each is currently unable to lift themselves out of crisis on their own.
But really, if we think about the big picture here, this is more then just a “Eurozone problem” because today our world is interconnected (like it or not). So in terms of the economy we should really be speaking about a “global economic crisis” rather than acting as if we can confine it to sectors. Because when all the markets are interconnected it is naïve, misleading, and ultimately continually detrimental to view the problems in Europe as solely "theirs" because a vast chain of cause and effect, involving the entire global economy, must be discounted in order to come to that perspective.
Global crises take global solutions. When all of the markets are interconnected it takes global cooperation in order to produce mutually beneficial results for everyone. And if the crisis doesn’t start to go away (and it looks as though this is indeed the case) we should begin seeing nations look seriously into the idea that what is truly lacking is global cooperation.
And that’s going to require nations, due to their vast interconnection, putting aside their own self benefit in favor of the world coming into some level of balance. Otherwise it now seems impossible, given the interconnection of all the economies, for one nation to profit in the long term at the expense of others.
"""The official said any decision to place Greece's budget process under increased European control would "have to be taken consensually with Greece" and cited the German proposal as "one idea among many under discussion.""""
Ths is already the cuspid of the German-French outrage!!
BY THE WAY: HOPEFULLY, NOW IT BECOMES CLEAR WHAT THE PROPOSED "FINANCE UNION" REALLY INTENDS!!!!!
These two countries, by promoting the EURO idea, out of greed to gain a captive market of the poorer southern countries, achieved their goal exporting to them until bankruptcy, but now instead to pay their share of guilt (of course Greece must cope with its own malfeasnace) , try to achieve a factual political dominance through economical control. submit their peoples (beginning with the Greek) to untolerable stress, without any possibility to reverse the situation short neither middle or long term, as no growth can be achieved under such conditions.
As for the control of the Greek finances: this would be at least a understandable request if the controller proposeed would have been the IMF:, but as the EUROZONE (i.e.Germany and France) is proposed, this is a transparent intent to attain Political-Economical control.
The Government of Greece is factually betraying its countriy accepting the Eurozone and private lender conditions to remain with the Euro. Even if leaving it, with the obvious hardships involved, these would be much less as leaving, defaulting, devaluating the substitutive drachma, becoming competitive, implementing, rationally the needed reforms without making impossible future growth and of course, as usual in such case, converting all the debt to long term at a minimal interest, if any (or at "normal" interest, but the principal at cents per Euro or Dollar)
As, even if not totally comparable, Argentina quite successfully did
AGAIN: DO YOU COUNTRY A FAVOR: GET RID OF THE EURO POISON!!
It;s really hard to follow some of the comments here. This is a a preset game. Bankers win, people loose. It happened in the US in 2008 with more to come, and it is happening in Europe now. Sure its easy to blame the borrower, Greece in this case, for many years of living beyond their means (like the US), which at some point comes to an end. But it is interesting that nobody thinks of the lenders who provided the loans to countries that could not pay them back in this case. In the sub prime meltdown, the majority of the blame was taken by the Countrywides of the world, (although we did let the CEO walk no pb). But here, everybody blames the country(ies), which is interesting. In all my life I have yet to see a bad loan originated by a good and diligent lender..
As for the Germans and their adult supervision proposal.......many nations have tried over the years, the outcome is always the same at the end of the day. I just hope that the people will at some point wake up, kick the bank appointed receiver (aka prime minister) out, and cry ???O? ????! once again.