If the Euro area decides after all to lend Greece another 53 Billion euros that they can’t pay back, we need to ask what was the crisis for? Why close the banks, undermine asset values, put Greek people into more misery and cut the output and tax revenues of the Greek economy? Why seek to change the Greek government and then lose a referendum when the Greeks called the Euro area’s bluff? And if Greece agrees to the austerity it rejected, why did they put themselves through the pain and cuts of the last few weeks, when they could have volunteered for austerity earlier to release more cash?
Extend more loans and pretend that you will get your money back has been acting as a policy for years. It has become a lazy habit which the markets and the borrowers like. Once again as Homer nods Mrs Merkel looks the other way. The aim may be to defer the continuing Greek crisis for 3 years to her successor.It will then be even more difficult and costly to resolve.
If by any chance Germany this time stands up for honest money and says No to those who want to give Greece a loan which will one day become a gift, then the remodelling of the Euro can begin. Fewer members with decent finances would be a more sensible proposition, doing less damage to the economies locked into it.
It is unlikely the cost of a further bail out for 3 years will be as little as Euro 53 billion. Some forecasts say there will be extra money from the IMF on top. They also need to factor in the costs of bringing the Greek banks back to life. I can’t see how they will get away with less than an extra Euro 100 billion to reopen, strengthen and make liquid the banks and offer Greece some spending money for the next three years. Then there would be presumably at least Euro 100 bn of debt cancellation or easier terms to a similar value on top of that.
If Germany is wavering and thinking of giving in again to Greek demands, at least they should offer far less money for a shorter time period, and expect to see progress on the Greek reforms before they offer yet more money and a longer period of support.The problem is, the medicine Germany thinks the Greeks need is still the opposite of what the Greeks believe they need. The underlying tensions remain. It is difficult to see how sacking more public sector employees can work unless the private sector economy has the cash, credit and exchange rate to allow it to grow and create more jobs than the public sector destroys.
The Greek economy must be weaker now than when the rows began earlier this year, making recovery more difficult. Kicking cans down the road is more problematic if the people kicking want to go in opposite directions.