Bailout for Greece just a ‘last resort,’ Germany says

A bailout for debt-laden Greece remains a "last resort" and an agreement by eurozone finance ministers on the modalities of possible assistance is hypothetical, Germany said on Monday.

Bailout for Greece just a 'last resort,' Germany says
Photo: DPA

“Greece has itself clearly let it be known that the time for an ‘ultima ratio’ has not yet been reached,” Chancellor Angela Merkel’s spokesman Christoph Steegmans told a regular briefing in Berlin. “The fact that a fire extinguisher has been mounted on the wall does not mean that it will be used.”

Michael Offer, a German finance ministry spokesman, added: “Most fire extinguishers just get refilled after one or two years and nothing happens.”

Steegmans said that any bailout would not be automatic following Sunday’s talks, but that it would first have to be agreed at an EU summit.

Finance ministers from the 16 countries using the euro single currency agreed in a conference call on Sunday on the details of a possible aid package to Greece worth €30 billion this year.

Europe’s biggest economy Germany would provide in theory around €8.4 billion, but according to Offer, there is strong opposition among voters to any bailout for Greece.

Several German newspapers on Monday attacked Merkel over Sunday’s agreement, with the Handelsblatt business daily saying that Berlin’s tough position was now “history.”

Berlin also defended the interest rate of around five percent agreed on any three-year loan to Greece – well below the rates that Athens currently pays when it borrows on capital markets.

“It is still well above Germany’s refinancing rate, and clearly higher than that of all eurozone member states. It would also be much higher than on any IMF loan,” Offer said. “If you look at Greece, then the average rate of interest in the past few months has been around 5.5 percent, for three-year bonds anyway. This confirms that the interest rate of roundabout five percent is roughly at market level.”

He added that Germany “of course shared the opinion of Mr. (Luxembourg Prime Minister Jean-Claude) Juncker, who said this morning that the rate of interest was not subsidised.”

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The Euro celebrates its 20th anniversary

The euro on Saturday marked 20 years since people began to use the single European currency, overcoming initial doubts, price concerns and a debt crisis to spread across the region.

The Euro celebrates its 20th anniversary
The Euro is projected onto the walls of the European Central Bank in Brussels. Photo: Daniel Rolund/AFP

European Commission chief Ursula von der Leyen called the euro “a true symbol for the strength of Europe” while European Central Bank President Christine Lagarde described it as “a beacon of stability and solidity around the world”.

Euro banknotes and coins came into circulation in 12 countries on January 1, 2002, greeted by a mix of enthusiasm and scepticism from citizens who had to trade in their Deutsche marks, French francs, pesetas and liras.

The euro is now used by 340 million people in 19 nations, from Ireland to Germany to Slovakia. Bulgaria, Croatia and Romania are next in line to join the eurozone — though people are divided over the benefits of abandoning their national currencies.

European Council President Charles Michel argued it was necessary to leverage the euro to back up the EU’s goals of fighting climate change and leading on digital innovation. He added that it was “vital” work on a banking union and a capital markets
union be completed.

The idea of creating the euro first emerged in the 1970s as a way to deepen European integration, make trade simpler between member nations and give the continent a currency to compete with the mighty US dollar.

Officials credit the euro with helping Europe avoid economic catastrophe during the coronavirus pandemic.

“Clearly, Europe and the euro have become inseparable,” Lagarde wrote in a blog post. “For young Europeans… it must be almost impossible to imagine Europe without it.”

In the euro’s initial days, consumers were concerned it caused prices to rise as countries converted to the new currency. Though some products — such as coffee at cafes — slightly increased as businesses rounded up their conversions, official statistics have shown that the euro has brought more stable inflation.

Dearer goods have not increased in price, and even dropped in some cases. Nevertheless, the belief that the euro has made everything more expensive persists.

New look

The red, blue and orange banknotes were designed to look the same everywhere, with illustrations of generic Gothic, Romanesque and Renaissance architecture to ensure no country was represented over the others.

In December, the ECB said the bills were ready for a makeover, announcing a design and consultation process with help from the public. A decision is expected in 2024.

“After 20 years, it’s time to review the look of our banknotes to make them more relatable to Europeans of all ages and backgrounds,” Lagarde said.

Euro banknotes are “here to stay”, she said, although the ECB is also considering creating a digital euro in step with other central banks around the globe.

While the dollar still reigns supreme across the globe, the euro is now the world’s second most-used currency, accounting for 20 percent of global foreign exchange reserves compared to 60 percent for the US greenback.

Von der Leyen, in a video statement, said: “We are the biggest player in the world trade and nearly half of this trade takes place in euros.”

‘Valuable lessons’

The eurozone faced an existential threat a decade ago when it was rocked by a debt crisis that began in Greece and spread to other countries. Greece, Ireland, Portugal, Spain and Cyprus were saved through bailouts in return for austerity measures, and the euro stepped back from the brink.

Members of the Eurogroup of finance ministers said in a joint article they learned “valuable lessons” from that experience that enabled their euro-using nations to swiftly respond to fall-out from the coronavirus pandemic.

As the Covid crisis savaged economies, EU countries rolled out huge stimulus programmes while the ECB deployed a huge bond-buying scheme to keep borrowing costs low.

Yanis Varoufakis, now leader of the DiEM 25 party who resigned as Greek finance minister during the debt crisis, remains a sharp critic of the euro. Varoufakis told the Democracy in Europe Movement 25 website that the euro may seem to make sense in calm periods because borrowing costs are lower and there are no exchange rates.

But retaining a nation’s currency is like “automobile assurance,” he said, as people do not know its value until there is a road accident. In fact, he charged, the euro increases the risk of having an accident.