The Debt Crisis Europe Shudders Over Greece Disaster
Criticism of Germany's handling of the Greek debt crisis has been widespread in Europe this week.
Foto: Ralph Orlowski/ Getty ImagesWednesday marked the greatest day of tumult yet in the euro zone crisis : Greece's sovereign debt now has junk status, and credit ratings for Portugal and Spain have once again been downgraded. There appears to be no end in sight for the downward spiral.
And now it's Germany of all countries that has come under heavy criticism. Abroad, people are claiming that the German government is partially responsible for the mess. After all, it was Chancellor Angela Merkel who, in the run-up to an important regional election in Germany in May, has delayed the bailout for Greece, choosing to position herself instead as what other Europeans have come to disparagingly call "Madame Non." Financial aid for Greece? We'd rather not, the government's line has been -- and if we must in the end, then only under conditions set by Germany. Merkel only relented against her will after the crisis intensified last week with Athens' official request for aid.
The German government is expected to release its share of aid for the southern European country by the end of next week, but the messages coming out of Europe's biggest economy are still irritating Germany's partner countries. Indeed, a number of German politicians are still expressing their opposition to a deal in a very vocal manner. They argue that the country shouldn't be so quick in handing money over to Greece; many would prefer to see Athens declare bankruptcy.
"Amongst the 16 euro-zone member states, it has long been 15 to 1," says one Brussels source in a telling comment. In other words: The rest of Europe wants to help Greece quickly and in as uncomplicated a manner as possible -- it's Germany that is only slowly abandoning its opposition to a bailout.
But how is the crisis in Greece being viewed by other European countries? And to what degree is Merkel responsible for the current malaise? SPIEGEL ONLINE provides an overview from its journalists and correspondents.
France Wants 'Rapid, Resolute' Action
On Tuesday, thousands of grain farmers descended on Paris with as many as 1,300 tractors, bringing traffic to a standstill in the French capital in a protest against low food prices. Debate over calls to ban the burqa continued to dominate parliament, while the United Nations condemned the disastrous state of France's prisons. The biggest nail-biter here, though, was the Champions League football match between FC Bayern Munich and Olympique Lyon, which ended in humiliation for the French.
That just goes to show that the people of France are mostly interested in issues that are closer to home -- football, the work place and crime. Aid for debt-laden and cash-strapped Greece just isn't a focal point. Meanwhile the debate over Athens' economic mismanagement is taking place as a proxy controversy.
At the center of it is Germany's Angela Merkel. The French media have had a field day reporting on the chancellor's critical position on a Greek bailout. Some papers are characterizing her as "the iron lady," while others describe the chancellor as a spend-thrift mother figure who is showing an almost total lack of solidarity. French Finance Minister Christine Lagarde may have initially expressed understanding of Germany's position, but the French soon began to view Berlin's demands as draconian bossiness. Some observers have attributed Germany's reluctance to bail Greece out to the Germans' reputation for being thrifty, while others point to an important upcoming election in North Rhine-Westphalia which could see the chancellor's party lose its majority in Germany's upper legislative chamber, the Bundesrat.
Meanwhile, France itself is starting to move on the issue of a Greek bailout. After a lunch with European Commission President Jose Manuel Barroso on Tuesday, President Nicolas Sarkozy issued a joint statement expressing the urgency of taking "rapid and resolute" action against financial speculators targeting Greece in order to "ensure the stability of the euro zone."
During a trip to New York, Finance Minister Lagarde also criticized the "somewhat chaotic situation" in Greece. She added that "speed is necessary" in reaching a deal for Greece, "but we must all carry out our democratic processes." She added that a democratic debate over Greek aid was necessary in all euro-zone countries.
-- Stefan Simons in Paris
Italian Frustration over German Delays
In Italy, politicians, business leaders and economic experts are united in their support for assisting Greece. Rome is prepared to contribute €5.5 billion in state support to Athens, and an only mildly contested measure to appropriate these funds is being drafted.
For days, Italian sources have been criticizing Germany's behavior as "self-centered," "go-it-alone-ish" and "rigid." While at a summit of the World Bank in Washington last Friday, Italian Finance Minister Giulio Tremonti told RAI Italian public television: "If your neighbor's house is on fire and we have a fire extinguisher, the expedient thing to do is to use it so the flames don't leap to the neighbors' houses."
Tremonti also strongly criticized Chancellor Merkel's hesitation, saying that the time has come for great nations to show that they really are great nations "even when their house is nicer and bigger." He added, "I'm talking about Germany, in case you didn't get that."
At the moment, Italians don't seem to fear that their country will face a disaster like the one Greece has experienced. Granted, experts only expect the Italian economy to grow by 0.7 percent in 2010 -- or, in other words, half as much as is predicted for Germany. And, already in 2009, the country's budget deficit climbed to 5.5 percent of gross domestic product. But new state debt is still much lower in Italy than it is in Greece, Portugal and Great Britain.
Indeed, a number of factors would suggest that Italy will be able to steer clear of a debt crisis. For example, its budget policies have been rather conservative in recent years, Italian households have traditionally maintained high savings rates and the country seems to navigate its river of red ink with a certain degree of composure.
-- Fiona Ehlers in Rome
'Fear of Infection' in Spain
It was only a little mistake, but it had huge consequences. On Tuesday, Spain's National Statistics Institute (INE) unintentionally released an unemployment report early that soured the mood in the hard-hit country even more. The report stated that the number of jobless in the first quarter of 2010 had broken the 20 percent threshold.
Indeed, the whole week has been bleak. On Tuesday, the Standard & Poor's rating agency downgraded Portugal's creditworthiness by two notches and, on Wednesday, it lowered Spain's by one.
Spanish media sources are speaking loudly of "major alarm" and "fear of infection." After markets fell on Wednesday, the Spanish government -- which also currently holds the rotating European Union presidency -- hastily called for an emergency EU summit to be held on May 10.
But even the prospect of having another meeting of Europe's leaders has done little to lift the mood in Spain. As they see it, what really matters is Germany's help. Popular opinion holds that Merkel needs to put all of her provisos on the backburner and tackle the euro crisis immediately. "For each day that goes by without a genuine solution," warns El Pais, the country's newspaper of record, "saving Greece gets more expensive."
Despite this criticism of Germany, though, Spaniards are blaming their own government for the lion's share of their frustration. Speaking before parliament on Wednesday, Prime Minister José Luis Rodríguez Zapatero struck an upbeat tone, saying that the country had hit bottom and that the economy would soon bounce back. Indeed, Zapatero's mantra seems to be "Spain is not Greece" -- though he sometimes gives off the impression that he's not overly convinced of this himself.
Economists do not share the government's optimism. "There is a growing lack of trust that a pickup in the economy can put an end to financial problems if we don't act fast," warned Santiago Carbó, a professor of economics at the University of Granada and consultant to the Federal Reserve Bank of Chicago.
Economist Fernando Fernández also warns in the conservative Spanish daily ABC that "the storm will not blow over." Like many others, he is calling for significant reductions in public expenditures and fundamental reforms in the labor market. Given the country's high unemployment rate, politicians, unions and employers' groups have been discussing such reforms for weeks. And although they have stated that they hope to reach a compromise by the end of April, the belief that that deadline can be met has long been dismissed as fanciful.
-- Katharina Peters in Hamburg
In Portugal, the Only Good News Is on the Sports Pages
In Portugal, the only good news to be found is in the sports pages, where newspapers report that global soccer body FIFA has bumped the country up to third place in its ranking of national football teams. Everywhere else, the news is grim. Since the country's credit rating was lowered on Tuesday, Portugal has been in a state of shock, and hopes for a speedy economic recovery are dwindling.
Observers of the stock exchange in Lisbon are sensing a "mood of panic" after the country's leading index fell by more than 5 percent in a single hour on Tuesday. As many commentators see it, the downgrading has spawned a "hurricane."
What's next? That, at least, is the question on many people's minds. It was barely a month ago that Standard & Poor's had praised Portugal's stability and growth program and expressed its confidence that the plan would have "positive effects." But credit experts don't seem to see things that way any longer.
Still, Finance Minister Fernando Teixeira dos Santos is in a combative mood, saying that the country must fight back "against this attack of the markets" and that Portugal and Greece represent "two different realities." Be that as it may, Portugal is in a rather awkward situation since Prime Minister José Sócrates' ability to act in the crisis is hampered by the fact that he leads a minority government and is, therefore, dependent on the support of the opposition.
To add to the country's turmoil, employees of Portugal's railway and bus companies went on strike Tuesday to protest against an ongoing freeze on wages. Some fear the action could be only the beginning of a larger wave of strikes meant to turn the heat up on Sócrates.
Despite the additional pressure, though, the prime minister is sticking to his austerity plan, which includes measures to cut back on state-provided assistance, such as unemployment benefits, and increase taxes on those with higher-than-average incomes. The aim of the plan is to lower Portugal's record budget deficit of 9.4 percent of GDP to 8.5 percent in 2010.
On April 25, the anniversary of Portugal's 1974 revolution -- which ended the country's former dictatorship and paved the way for its future membership in the EU -- President Aníbal Cavaco Silva said: "Every day, the Portuguese ask themselves where their country is headed." In the speech, he urged the country to look to the sea again and contemplate the "possibilities it offers" as well as to make more investments in the creative industries.
The dominant opinion in Portugal continues to be that the best approach to the crisis is to grapple with its problems itself rather than waiting for help from others. In this vein, the country's Expresso daily writes: "It doesn't help to call Germany cheap. Doing so only wastes time and distracts our focus from what's most important." It adds that there needs to be an end to such "trifles."
-- Katharina Peters in Hamburg
Ireland Predicts It Can Ride Out Greek Crisis
With debt amounting to 14.3 percent of its GDP, Ireland had the largest budget deficit in 2009 of any EU country. The country's situation was close to as desperate as Greece's is now. To plug the holes in Ireland's budget, Irish Prime Minister Brian Cowen's government initiated a kill-or-cure remedy. If all goes according to plan, the annual spending deficit should sink to 4.9 percent by 2013. To achieve that goal, the country has implemented painful cuts -- government salaries were reduced by 20 percent, the retirement age was raised and social benefits were pared back.
The dramatic austerity measures received praise internationally, and the country averted bankruptcy -- for the time being. Since then, the country's finances have been so stable that Ireland will even participate in the rescue package for Greece. It is well known that Germany is concerned about the euro's stability and that it is setting high hurdles for providing Greece with aid, but the Irish have been reserved in criticizing Merkel.
With one of the biggest mountains of debt in the euro zone (77 percent of its GDP), the markets remain jittery about Ireland. As a consequence of the Greek crisis, Ireland has also seen the risk premiums on its government bonds rise in recent weeks -- as has happened all across the euro zone.
Still, the Irish government is providing assurances that it has everything under control. In Dublin, politicians believe the country can ride out the Greek crisis "with ease." New debts of €20 billion are planned for 2010, and two-thirds of that money has already been collected by the government. That's why, they emphasize, there's no need to worry.
-- Carsten Volkery in London
'Greece Today -- The UK After May 6'
Great Britain doesn't belong to the euro zone and is therefore able to follow the Greek rescue package from the sidelines. Many Brits are relieved that the United Kingdom didn't join the common currency, and the euroskeptics feel that the current crisis has vindicated a position they have held all along.
Still, the British have a reason to be concerned: Their budget deficit is nearly as large as Greece's, and the pound is not sufficiently protected against speculators. As the Greek crisis has shown, all European countries with high deficits have grabbed the markets' attention. Analysts warn that in the future investors will steer clear of high-deficit economies -- including the UK, where the budget deficit is currently more than 11 percent of GDP.
At present, Britain has no credible plan on the books to reduce the country's deficit. In the run-up to the national election on May 6, none of the major candidates want to press ahead with radical budget cuts. Gordon Brown's Labour government has only put forth a general goal of halving the UK's deficit within four years. Comparisons of the UK economy to Greece have been dismissed by Labour's Business Minister Peter Mandelson as "frankly ridiculous" -- and Mandelson points out that in contrast to Greece, the UK still maintains an AAA credit rating. The rating agencies, however, have already warned of a potential downgrade.
After the election, deep cuts in public spending are anticipated -- regardless of who wins. The Institute for Fiscal Studies has calculated that in each of the three major parties' platforms -- Labour, the Conservatives and the Liberal Democrats -- the parties have made campaign promises in the high tens of billions that cannot be offset within the budget. In the case of far-reaching budget cuts, Bob Crow, the head of the National Union of Rail, Maritime and Transport Workers, has already predicted strikes and unrest, as in Athens: "Greece today -- the UK after May 6."
-- Carsten Volkery in London
