Greece, Germany discuss forty years of debt

Greek Prime Minister Kyriakos Mitsotakis is in Germany for talks with Chancellor Angela Merkel. Ties between the two countries are strained as Berlin insists that Athens continues to pay back billions of euros in bailout loans.

Greek Prime Minister Kyriakos Mitsotakis attends a joint statement with French President Emmanuel Macron (not seen) before a meeting at the Elysee Palace in Paris, France, August 22, 2019. REUTERS/Gonzalo Fuentes

Starting in 2010, the IMF, the European Central Bank and the European Commission extended bailout loans to Greece totaling some 289 billion euros – the biggest bailout in financial history.

The loans were intended to save the Greek economy from bankruptcy.

Under the deal hammered out with other eurozone states in June 2018, Greece is obliged to keep strict control over its public spending. The budget surplus, before interest payments, must not be less than 2.2 percent of GDP until the year 2060, the year that Greece is scheduled to have paid back all the debts.

Economic misery

Many in Greece have accused Germany of being the cause of the economic misery many live under as a result of the austerity program.

“This debt is not viable,” says Leonidas Vatikiotis, a Greek economist who teaches at the Open University of Cyprus.

“This sovereign debt is a time bomb, especially if there would be a new recession in the US and in Europe.

“We hear often that the Greek economy is progressing, that we have a growth of 2 percent. Be that as it may, all rating agencies give Greek bonds very low ratings. Greece has a record unemployment rate at around 17 percent of the labor force.

“All conditions cause a very unstable economic environment just one year after the end of the economic adjustment programs that Greece signed with the creditors."

Greece will have to repay debts until 2060 with an average of about 3 billion per year starting in 2022, peaking with 12 billion euro in 2052. Will Greece be able to pay everything back on schedule?

“Greece will pay. But it will pay at the expense of the welfare state. Social conditions are getting worse and worse every day."

Political credibility

The center-right government of Nea Demokratia will be more willing than its predecessors, lead by the left-wing Syriza party, to push through more austerity measures, chipping away at Greece’s social security system.

Vatikiotis thinks it is not likely that Germany – Greece’s biggest creditor - will agree on proposals to soften the conditions of debt repayment.

The English language version of Greek daily newspaper Ekathimerini reports that Mitsotakis had said that the primary surplus target that Greece has to implement as part of its post-bailout commitments (maintaining a surplus of at least 2.2 percent of GDP) is “particularly high,” but that the government first wants to gain “political credibility” and then discuss the issue with creditors.”

Angela Merkel played down Greece’s plight. Indicating that she has more trust in Nea Demokratia's promises to continue Greece's austerity program.