In Berlin, concerns have become widespread this week that, for first time since the start of the Greek crisis, German taxpayers may soon get stuck with a real bill for the debt disaster in Athens -- at least if, as many are suggesting, a second debt haircut is imminent. Were the Greek government to partially default on debt held by European public sector creditors, it would mean that Germany would have to write off some of the aid that has already been transferred to Greece.
It is a potentiality that has many in German parliament concerned, particularly those from parties that comprise Chancellor Angela Merkel's coalition government.
The situation is expected to come to a head on Tuesday, when euro-zone finance ministers meet in Brussels. A number of possible measures are to be discussed and it remains unclear if Greece's creditor countries will be able to reach agreement. German Finance Minister Wolfgang Schäuble of Merkel's conservative Christian Democratic Union (CDU) party, has so far rejected a debt haircut that would come at the expense of German taxpayers. But the messages from German leaders have also been conflicting. Germany's representative on the European Commission, Günther Oettinger, recently declared: "At the end of the day, we will not be able to avoid a debt haircut involving Greece's public creditors."
Schäuble and Merkel are trying to use other measures in order to buy time. Speculation has circulated in recent days over the possibility of interest rebates, which would come at the expense of creditors, or even interest-free loans for Greece. It would essentially be a cash gift to Athens that would come at the expense of the German federal budget and taxpayers. Currently, Germany is profiting from the emergency loans to Greece -- the interest rate Athens pays on the loans is far higher than the rate Germany must pay on sovereign bond sales. By the end of 2011, Athens had paid Germany some €380 million ($485 million) in interest payments. Should Berlin forgo such interest payments in the future?
The problem is growing more urgent. The two-year extension in the deadline for Greece to implement reforms as foreseen in the troika report released last week will create a new shortfall in the Greek budget of €33 billion. It is now up to the euro-zone finance ministers to decide how to close this gap.
Once a decision has been made, Merkel's government is expected to inform parliament in Berlin. But concerns are growing among parliamentarians from the CDU and its coalition partner, the business-friendly Free Democratic Party (FDP), that the government isn't being entirely honest and that it is playing down the risks. "There will probably be another agreement on new Greek aid," said Lars Lindemann, a member of parliament with the FDP. "But before we do that, we should put an end to this era of trying to hide the truth and instead be honest to the people and say: Yes, this is going to come out of our budget."
Faith Is Diminishing
The Greece problem has been exacerbated in recent days through the conflict between the European Union and the International Monetary Fund (IMF). At the core of the dispute is the question of whether Athens will be able to succeed in reducing its debt level to 120 percent of gross domestic product by 2020 from the current level of 177 percent. The IMF is pleading for debt forgiveness, whereas Schäuble is calling for a mix of other measures to be deployed. The German government's goal is clear: With 2013 being an election year in Germany, it wants to shield the budget from dangers associated with the euro crisis.
Wolfgang Bosbach, a member of the CDU who is also a critic of Merkel's euro bailout policies, is skeptical of the government's position. "If the position remains, 'Greece must stay in the euro under all circumstances, regardless what it costs,' then it will be harder and harder to believe that taxpayers will not ultimately be burdened." Klaus-Peter Willsch, also a member of parliament with the CDU, has calculated that Germany has already deployed €127.9 billion in Greek aid. "The amount that has already been paid out -- and not just approved -- is €93.67 billion. We will have to write off the majority of this money," he believes. Willsch has been calling for Greece to leave the euro zone for some time now. He sees the discussion over the interest rate Greece must pay as little more than "lost time."
Indeed, buying time seems to be the course Greece's creditors are likely to agree on. One measure being discussed is for Greece to obtain a loan from the permanent euro bailout fund, the European Stability Mechanism (ESM), in order to buy back some of its debt. The advantage is clear: These bonds are today only worth about one-quarter of their face value. The German Finance Ministry has calculated that this would be sufficient to reduce Athens' debt burden by up to €40 billion. But it would still just be limited relief given that Greece has racked up around €340 billion in sovereign debt. But a debt haircut could get very expensive for Germany.
Calls for a Special Budget for Euro Aid
CDU leaders are currently trying to keep the coalition government in line. "The German parliament is deeply involved in all European policy issues," said Stefan Müller, a leading parliamentarian from the Christian Social Union (CSU), the Bavarian sister party to Merkel's CDU. "It is our job to keep risks for German taxpayers as low as possible. That obviously also includes speaking openly and honestly about the existing risks."
Meanwhile, Norbert Barthle, the budget policy spokesman for conservatives in parliament, insisted: "We are being honest and are doing everything we can to prevent real costs for taxpayers." With the exception of financial transactions for the European Investment Bank (EIB) and ESM, he said he could identify no direct burdens for the German budget.
He noted that Germany planned to use part of its 2013 budget to increase the capital available to the EIB, the EU's investment arm, by €1.6 billion. Meanwhile, he said that the German share of ESM's capital stock of €80 billion will add up to €22 billion between now and 2014. In contrast to the billions in credit guarantees being provided for different euro bailout programs, those funds would be paid directly out of the German budget.
Many members of Germany's parliament, particularly those who do not follow the euro policies on a daily basis, are getting confused by their complexity. And many are now calling for greater transparency -- before the next bailout is necessary. "The Greek loan losses are already a reality, they just haven't been registered in the budget yet," said Frank Schäffler, a prominent critic of the euro with the FDP. "To try to disguise them using bookkeeping tricks is a violation of the principles of budgetary accuracy and clarity."
Indeed displeasure over how the government is dealing with the aid for Greece is spreading beyond the usual euro critics within Merkel's coalition. "(Finance Minister) Schäuble should really have to account for the aid to Greece and the euro crisis countries in a separate budget within the federal budget that is clearly recognizable. Few members of parliament would be in a position today to say how much money has already been made available and what, concretely, is still yet to come."