This is not just a Greek problem

Through the words spoken by its finance minister, Wolfgang Schäuble, the German government has just admitted that Greece will require a third bailout, even though Chancellor Angela Merkel has hastened to point out — in the midst of her re-election campaign — that no final decision will be taken until 2014. This is the German government’s attempt to defuse the controversy arising from a recent report by the Bundesbank. Besides underlining the fact that there is no way that Greece can stay afloat without a third rescue package, Germany’s central bank also criticized the role of the troika (the IMF, the European Commission and the European Central Bank) for bowing to political pressure.

The fact is that the Greek economy has now been stuck in recession for five years. The unemployment rate stands at 28 percent and there are no prospects of any significant growth in the immediate future. But neither Berlin nor Brussels is willing to open up a debate over the possible need for another restructuring of Greek debt, an option that, for now, they are rejecting. The prolonged period of negotiations over the second bailout, which included a haircut for private investors, sunk the markets into a period of deep uncertainty. And any new restructuring of Greece’s debts would directly affect European countries due to their participation in the previous bailouts.

Indeed, the tensions produced by a new round of negotiations with Greece could have a negative impact on other vulnerable euro-economies, with Spain and Italy at the top of that list. It would be a grave mistake to think that the euro zone is now out of danger. The buoyant state of the markets stands in marked contrast to the instability of one year ago, but neither the foundations of the most damaged economies nor their financial sectors can be described as anything approaching normality. It is vital to offer guarantees on the projects that have already been agreed upon, such as the move toward banking union, but also to take decisions in order to avert the danger of economic stagnation, particularly in Europe’s southern nations.

Press for action

Instead of merely expressing pride over having avoided making any fresh appeals for assistance, Spain’s authorities should continue to press for action, particularly to guarantee the breaking of the link between the country’s public finances and the still-vulnerable banking sector. It is important to acknowledge that, without the requisite support, it is difficult for an economy such as Spain’s to significantly reduce its financial imbalances and make a rapid return to the kind of growth that will alleviate the misery being experienced by a large proportion of the population.