Germany rattled as taxpayer losses loom in Greece

 

By Ambrose Evans-Pritchard 7:46PM GMT 28 Oct 2012

The EU-IMF Troika of inspectors in Greece has called on European bodies and official creditors to write off a chunk of their loans, opening the way for first taxpayer losses since the sovereign debt crisis began.

Riot police clash with protesters during a recent 24-hour nationwide general strike in Athens Photo: AP Photo/Petros Giannakouris

A draft version of the Troika report obtained by Spiegel magazine said EMU governments and the European Central Bank must accept their share of losses in order to bring Greece’s public debt back to 120pc of GDP by 2020, deemed the sustainable level.

Greece must carry out a further 150 reforms, some involving a drastic loss of sovereignty. Troika payments will be held frozen in a special account under creditor control.

The Troika will have power to raise taxes automatically. There must be new laws to make it easier to fire workers and adjust the minumum wage.

In exchange, Greece should be given two extra years until 2016 to meet budget targets, costing up to €38bn.

German finance minister Wolfgang Schauble said over the weekend that taxpayer "haircuts" were unthinkable. "The question has very little to do with the reality in eurozone member states," he said.

Public sector losses are politically explosive in Germany. Chancellor Angela Merkel has told her own people that bail-out loans to southern Europe entail no risk, and have been profitable to date.

She would have to account for any losses to the Bundestag. This would poison debate on further loans for Portugal, Spain, Cyprus, or Slovenia. The fast-growing eurosceptic camp in Germany would claim vindication.

Until now all losses from debt restructuring in Greece have been concentrated on a diminishing pool of pension funds, insurers, and banks, which have suffered an implied `haircut’ of 75pc. They have been squeezed dry.

The ECB’s president chief Mario Draghi says the ECB cannot accept write-downs on its estimated €40bn holding of Greek debt since this would amount to illegal state financing, so the losses would fall on EMU governments and the bail-out fund (EFSF).

The International Monetary Fund has made it clear that it will no longer provide any money unless Greece is put on a sustainable course.

Separately, Mr Draghi told Spiegel that any purchases of European bonds -- meaning Spanish bonds, once Madrid requests a rescue -- will come under strict terms. "Unlimited does not mean uncontrolled," he said.

There will be no intervention unless bond spreads are "excessive". Any support will be switched off if states fail to comply with conditions. "Countries have to give up part of their sovereignty if we want to restore trust in the eurozone," he said. The comments have been seen as a warning to Madrid that a "bail-out lite" is not on offer.

Michael Fuchs, a key Bundestag ally of Chancellor Merkel, said "every single measure" of the Greek package must come under intrusive control.

"Tranches will paid out only when there is compliance, and not just in the Greek parliament, but also in the administration," he said.

Diplomats say there is an element of theatre in these demands. German politicians are trying to put a gloss of control on a crisis that has long since slipped out of their hands.

Yet the tone of language grates in Greece where president Karolos Papoulias warned creditors -- and Germany in particular -- not to push his country too far as it braces for a sixth year of deep depression. "We cannot ask more from the people," he said on Sunday.

In pointed language, Mr Papoulias said Europe had forgotten the debt owed to Greek fighters who pinned down Wehrmacht forces in mid-1941 long enough to delay the Nazi invasion of the Soviet Union. Some historians say the delay prevented the fall of Moscow.

Hans-Werner Sinn, head of Germany’s IFO Institute, said it is becoming cruel to keep Greece in EMU. "The austerity needed to restore wage and price competitiveness will break society first. We are sacrificing a generation of young people who cannot find work, and all in the name of the euro. It is irresponsible. A euro exit would offer hope at last," he said.

Dr Sinn said Europe should craft a controlled return to the drachma with help to shore up the Greek banking system and to provide trade credits. "There is no need for catastrophe scenarios," he said.

Russian president Vladimir Putin echoed the words, saying Greece would "have a way out" if it could return to the drachma and devalue.

Mr Putin said Europe had charged ahead prematurely with the euro project "for political reasons" and was now facing the consequences.

In Athens, police arrested Greek journalist Kostas Vaxevanis for breach of data protection laws after he revealed the names of 2000 wealthy Greeks with HSBC bank accounts in Switzerland.

Known as the `Lagarde list", it was given to the Greek authorities by Christine Lagarde in 2010 when she was French finance minister.

"Instead of arresting the tax evaders and the ministers who had the list in their hands, they’re trying to arrest the truth and freedom of the press," said Mr Vaxevanis.

Germany rattled as taxpayer losses loom in Greece - Telegraph