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EUROZONE

Juncker: Greek exit manageable, but it’ll hurt

Eurozone finance ministers' group chief Jean-Claude Juncker told a German broadcaster on Tuesday that a Greek exit from the eurozone would be "manageable" but not "desirable."

Juncker: Greek exit manageable, but it'll hurt
Photo: DPA

“The way things look now, it would be a manageable process,” he told Germany’s WDR public broadcaster, according to a transcript on the government website of Luxembourg, where Juncker is prime minister.

“That’s not to say it would be a desirable occurrence because it would be linked to considerable risks, above all for the average person in Greece.”

Germany, as the biggest EU funder of Greece’s rescue packages, would stand to lose the most from a messy Greek euro exit and default on its bailout loans.

Asked whether Greece could, in theory, drop out of the 17-nation single currency bloc in two days’ time, Juncker denied that would happen, adding: “In any case not before the end of autumn, and not even then.”

Struggling with a fifth year of continuous recession, Greece has fallen behind in the implementation of structural reforms that are part of the EU-IMF bailout packages which are keeping its economy afloat.

Back-to-back elections in May and June resulted in a two-month political deadlock that got the country’s reform programme off track, amid mounting international pressure.

German Economy Minister Philipp Rösler in late July voiced serious doubts about whether debt-mired Greece would be able to stay in the eurozone, saying the “horror” of a potential exit had worn off.

Rösler said that Athens’ partners would wait for the progress report from the troika of Greek creditors – the European Union, International Monetary Fund and the European Central Bank.

“Nevertheless I have to say I am more than sceptical,” said Rösler, who is also head of the pro-business Free Democrats (FDP), junior partners in Chancellor Angela Merkel’s centre-right coalition government.

Juncker, who is due to visit Greece on August 22, also said that many in Germany, including some of the press, “talk about Greece in a way as if the people were not worthy of respect. That’s not the case.”

Some Greek newspapers, meanwhile, treat German Chancellor Angela Merkel “as if she were the successor of the Nazis,” he said calling for members of the eurozone to be careful in their dealings with each other.

The Greek government has to cut €11.5 billion off expenditure over the next two years in order to unlock the next instalment of its €130 billion bailout package – the second for the cash-strapped country in two years.

But Greek Finance Minister Yannis Stournaras said Tuesday that the country’s coalition government had yet to agree on about one-third of the needed spending cuts for 2013 and 2014 and that negotiations would continue until the end of August.

The troika’s auditors are expected to return to Greece in September. Their report will determine whether the indebted country will receive the much-needed next tranche.

AFP/jcw

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ECONOMY

German cabinet agrees record levels of new debt for 2021

The German government agreed Wednesday to take on record borrowing this year to weather the economic blow of the coronavirus pandemic.

German cabinet agrees record levels of new debt for 2021
Finance Minister Olaf Scholz. credit: dpa | Kay Nietfeld

In budget adjustments signed off by Chancellor Angela Merkel’s cabinet, Europe’s largest economy will borrow a total €240.2 billion in 2021, a third more than initially planned.

The adjusted budget, which will see Berlin break its taboo on new debt for the third year in a row, still has to be approved by parliament.

“We have decided to suspend the debt brake once again, and I think that’s justified,” Merkel told the Bundestag lower house, adding that the budget was “measured” despite “more insecurity” than usual.

“We are taking the right measures to manage the economic and financial effects of the pandemic,” added Finance Minister Olaf Scholz.

After maintaining a budget surplus for the last decade, the economic slump caused by the pandemic has forced Berlin to take on €370 billion in new debt in 2020 and 2021, with an extra €85.1 billion planned for 2022.

With the country facing a dangerous third wave and shutdown measures extended into April, Germany’s recovery has proved slower than expected this year.

Having originally planned to halt borrowing in 2022, the government is now aiming to return to its golden rule of fiscal discipline a year later, with only €8.3 billion of new debt in 2023.

The so-called “debt brake” is a rule enshrined in the constitution which forbids the government from borrowing more than 0.35 percent of gross domestic product (GDP) in a year.

READ ALSO: Merkel admits Easter coronavirus shutdown plan her ‘mistake alone’

Germany smashed the taboo in 2020 and 2021 as it scrambled to shield businesses and workers from the economic hit of the coronavirus.

The state has already paid out more than 114 billion euros of financial support to businesses since the beginning of the pandemic in the form of guaranteed loans, direct aid and shorter-hours work schemes.

Yet according to a report published by the German Economic Institute on Wednesday, the crisis has still cost the German economy 250 billion euros so far.

Extended restrictions

Hopes of a recovery this year have been dashed with entire sectors of the economy idled for months and the government revising down its 2021 growth forecast to three percent in January.

As a third wave of the pandemic tears through Europe, Germany extended shutdown measures by another several weeks at a marathon meeting between Merkel and state premiers on Monday.

Though plans for a strict five-day lockdown over Easter were scrapped Wednesday, businesses such as non-essential shops, leisure facilities and cultural venues will still remain largely closed until at least April 18.

In a report published Monday, the Bundesbank central bank predicted that restrictions would see economic output “contract markedly” in the first quarter of 2021.

The measures have also been met with growing frustration from business organisations, with the German Commerce Association warning that 120,000 shops could be forced to close if the measures continue to drag on.

The issue of taking on new debt, meanwhile, has also sparked heated political debate ahead of a September general election.

In January, Merkel’s chief of staff Helge Braun caused a major ruckus within his own CDU party when he suggested that the rule on fiscal discipline should be lifted for several years to come.

SEE ALSO: ‘We have finances well under control’: Germany takes on less debt than expected in 2020

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