Greece's debt woes, Germany's gain?

World
Europe

By CGTN’s Natalie Carney

The European Union approved a third bailout package for debt-riddled Greece in June, just in time for it to meet major debt repayments and avert another default. But one of Germany’s main opposition parties has raised concerns that interest made on these loans is not going to the right place.

Germany, along with other European Union states and the International Monetary Fund, has been helping struggling Greece stay afloat since 2010. Through loans and bonds, Athens has since received 248 billion euros (about 294 billion US dollars), 30 percent of which has come from Berlin.

Greece’s bailout came with conditions. Athens has to pay back this money – with interest – earnings to the tune of 1.34 billion euros (about 1.59 billion dollars) Berlin has held onto.

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Although it is not illegal for Germany to hold onto these profits, in 2012 Eurozone states decided to pay out all interest from the bond purchases to Greece. But when its second bailout package expired in 2015, revenues from interest were no longer transferred out of the account.

“There were doubts whether Greece would continue with the reforms and fulfill the conditions imposed in this bailout program, so these funds have been withheld and transferred to a special fund of the Euro group,” Gerhard Illing, Economics Professor of Ludwig Maximilians University.

This has fuelled sharp criticism from Germany’s Greens Party. Manuel Sarrazin, the Party’s European Union expert, called on Germany’s Finance Minister, Wolfgang Schäuble to send the money to Greece. But Schäuble said he is reluctant to let that money go arguing that, with inflation, deferring interest payments would eventually end up costing Greece’s creditors.

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“Legally Germany has the right to keep these interest payments and also at the same time you need to take into account that Germany already provided lots of funds, so it is not making a profit,” said Illing. “But of course you can debate whether it’s morally justified and there are different views in Germany and all over the world.”

Athens appears to be on a positive course. The EU recommended Greece be removed from the Excessive Deficit Procedure (EDP) blacklist, which would allow Athens greater leeway in managing its finances.

“My conviction, I’ve repeated it often, but we are there now, is that Greece can now turn the page of austerity to open a new chapter of growth and employment,” said Pierre Moscovici, Economy Commissioner of the EU.

Yet the sustainability of their economic reforms is still in doubt, so a third bailout package was approved in June, which includes the profits from interest. But it is still unclear what will happen to the interest from previous years.

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