Thursday

11th Aug 2022

Euro area states could lose money on Greek loans

  • Analysts are increasingly betting on a restructuring of Greek debt (Photo: badcat777)

The prospect of euro area states making a financial loss on loans to Greece should not be ruled out say economists, despite statements to the contrary by European politicians.

Governments throughout the eurozone are currently preparing the legislative ground in order to channel funds to debt-ridden Greece, with reports the three-year lending package could reach as much as €120 billion.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

Part of the money will come from the IMF, an historic first in the history of the single currency, with details of the package expected to be wrapped up this weekend following talks in Athens.

On Thursday (29 April), German finance minister Wolfgang Schauble said the loans, to be charged at an interest rate of roughly five percent, would not hit the country's taxpayers in the long-run. "We hope that it doesn't cost anything at all, as this is not about tax money, it is about offering Greece a credit that makes it solvent again," he said.

A number of influential analysts think otherwise however, with talk on the possibility of Greece restructuring its debt at some point in the future gathering momentum.

A debt restructuring is likely to play an important role in helping Greece return to a sustainable growth path in the medium term says Fabian Zuleeg, chief economist with the European Policy Centre, a Brussels-based think-tank.

As a result, "it is a very, very real possibility" that creditors such as euro area governments would not receive the entirety of their loans back, he told EUobserver.

"The idea that Greece would be able to pay all of its debt is a heroic one," he says, adding that member states are aware of this but will push ahead in order to shore up the stability of a weakened eurozone.

Economists Jean Pisani-Ferry and Andre Sapir, both from the Brussels-based Bruegel think-tank, agree a debt restructuring is looking increasingly likely, arguing that Europe should prepare a framework for orderly negotiations rather than allowing a potentially chaotic squabble to break out.

"There are serious reasons to doubt that the country will be able to repay its debt entirely," they write in the Financial Times on Thursday. "Given the likelihood of debt restructuring down the road, it [the EU] should waste no time in designing a European debt resolution mechanism to help members with unsustainable debt to resolve it with creditors."

Germany

Diplomats in Brussels remained tight-lipped on the subject however, citing market sensitivities, but German media went to town on Thursday morning over the size of the funds likely to be transferred to Athens.

Tabloid newspaper Bild ran with the headline: "The Greeks want even more of our billions!" accompanying the title with the number "25,000,000,000 euro!" - the proportion of the bail-out they predict Germany will end up paying.

The weekly Die Zeit headlined its main Greek crisis story with: "Are the Greeks Potty?"

Speaking to journalists in Brussels, European economy commissioner Olli Rehn was at pains to stress that aid to Greece would impact positively on all euro area states and citizens.

"I want to underline that this exercise is done not only because of Greece, but for every Euro area member state and their citizens to safeguard financial stability in Europe and globally," he said.

European politicians have faced a growing chorus of criticism over their handling of Greece's debt crisis, with opposition politicians and analysts accusing the bloc of being slow to react.

Euro area leaders are likely to finally sign off on aid to Athens at a specially convened summit around the 10 May, one day after crucial regional elections in Germany. Chancellor Angela Merkel has appeared reluctant at times to throw her full support behind a Greek bail-out, with polls suggesting a bilateral transfer is unpopular with voters.

"It is unthinkable that we have to wait another two weeks before the mechanism to help Greece is set in motion," Liberal leader in the European Parliament Guy Verhofstadt said on Thursday. "The debt crisis is spreading and must be stopped now."

Portugal

Fears have increased this week that Portugal may be the next in line to suffer from market doubts, with the country receiving a fresh credit rating downgrade on Tuesday.

"I expect markets to focus on Portugal in the coming weeks," says Fabian Zuleeg. "The EU must send out a strong signal as part of the Greek package," he adds, indicating that this means letting markets know that Portugal could also potentially receive EU aid.

To date the commission has stressed that the severity of Greece's situation requires its own ad hoc mechanism, while a more permanent crisis mechanism would be set up to help other states which needed support in the future. Such a structure could take months or even years to set up, however.

Almost two-thirds of Europe in danger of drought

Data released by the European Drought Observatory show 60 percent of Europe and the United Kingdom is currently in a state of drought, with farming, homes and industry being affected. Drought conditions have also led to an increase in wildfires.

Droughts prompt calls to cut water use amid harvest fears

With the prolonged lack of rain and high temperatures, fears have emerged over water shortages and droughts decreasing crop yields — prompting calls to use less water and reuse urban wastewater for agricultural irrigation.

EU 'must tax pesticides' to cut use, expert warns

The European Commission put forward a new proposal to reduce pesticides in mid-June. But experts warn that it is based on weak rules, and that European agriculture is stuck in a "permanent pesticide-dependence."

Brazil pitches itself as answer to Ukraine war food shortages

Brazilian president Jair Bolsonaro is pitching his Latin American country as the answer to the world food crisis following the war in Ukraine. The traditional wheat importer has now exported three million tonnes of the grain so far in 2022.

Brazil pitches itself as answer to Ukraine war food shortages

Brazilian president Jair Bolsonaro is pitching his Latin American country as the answer to the world food crisis following the war in Ukraine. The traditional wheat importer has now exported three million tonnes of the grain so far in 2022.

Opinion

Exploiting the Ukraine crisis for Big Business

From food policy to climate change, corporate lobbyists are exploiting the Ukraine crisis to try to slash legislation that gets in the way of profit. But this is only making things worse.

News in Brief

  1. Sweden overtakes France as EU's top power exporter
  2. Italy's far-right star in European charm offensive
  3. Another migrant tragedy claims 50 lives in Greek waters
  4. Russia hits area near town with 120 rockets, says Ukraine
  5. UN expects more ships to get Ukrainian grain out
  6. Greece to end bailout-era oversight
  7. Denmark to train Ukrainian soldiers in urban warfare
  8. Russian helicopter flies into Estonia's airspace

Stakeholders' Highlights

  1. EFBWW – EFBH – FETBBConstruction workers can check wages and working conditions in 36 countries
  2. Nordic Council of MinistersNordic and Canadian ministers join forces to combat harmful content online
  3. European Centre for Press and Media FreedomEuropean Anti-SLAPP Conference 2022
  4. Nordic Council of MinistersNordic ministers write to EU about new food labelling
  5. Nordic Council of MinistersEmerging journalists from the Nordics and Canada report the facts of the climate crisis
  6. Council of the EUEU: new rules on corporate sustainability reporting

Latest News

  1. Russian coal embargo kicks in, as EU energy bills surge
  2. Only Western unity can end Iran hostage-diplomacy
  3. Kosovo PM warns of renewed conflict with Serbia
  4. EU Commission shrugs off Polish threats on rule-of-law
  5. EU urged to stop issuing tourist visas to Russians
  6. Russia puts EU in nuclear-energy paradox
  7. Almost two-thirds of Europe in danger of drought
  8. West needs to counter Russia in Africa, but how?

Join EUobserver

Support quality EU news

Join us