IEP Lunch Debate with Gunther Krichbaum, MP: “Greece — What happens now?”
In the IEP lunch debate of 30 June 2015 at the Representation of the State of Saxony-Anhalt to the Federation, Gunther Krichbaum, member of the German Bundestag and chairman of the Bundestag’s Committee on the Affairs of the European Union, asked the question “Greece – How does it proceed?”. Dr. Michael Schneider, State Secretary for Federal and European Affairs, as well as envoy of the state of Sachsen-Anhalt to the Federation, offered opening remarks. Dr. Mathias Jopp, Director of the Institut für Europäische Politik, moderated the discussion.
The lunch debate took place against the backdrop of the expiration of the second bailout programme as well as the coming referendum in Greece, in which its citizens will vote to accept or decline the creditors’ savings measures in exchange for aid funds. With a look back onto the circumstances of the Euro’s introduction in Greece, as well as the effects of the financial crisis, Krichbaum led into the difficulties of the Greek debt crisis. According to Krichbaum, Greece should be considered a special case due to its inadequate absorption of aid from the Cohesion Fund in past years, as well as its lack of readiness to reform in the present crisis. Regrettably, he said, Greece did not make efficient use of the cost advantage provided by the aid payments, but rather “gobbled it up” through supplementary benefit programmes like the thirteen month pension. The breakdown of cooperation with the Troika and the increasing willingness of the Greek government to go its own way in the end would lead to the exceptional situation where a developed country could not pay its dues to the IMF. Even the planned Greek referendum is highly questionable, Krichbaum said, because the Greek voters—their government having already turned down the suggestions of the lender countries—are not voting between meaningful alternatives. In the best case scenario, the results of the referendum could be interpreted as an acceptance or a rejection of the Euro.
In the second part of his lecture, Krichbaum pointed to the possible consequences of a Greek insolvency, which could bring along with it a lapse of public salaries and pensions, the possible introduction of a new state currency and a serious inflation shock. Greece would not be able to count on additional emergency loans from the ECB’s Emergency Liquidity Assistance (ELA). Particularly problematic would be the introduction of a new state currency, because Greece is neither an exporter nor a classic agricultural producer, with the consequence that imported products such as oil, cars, replacement parts etc. could all become more expensive by the factor of the currency’s devaluation. The Greek economy would then be denied access to credit, which would result in a wave of bankruptcies of such a magnitude as has never before been seen.
For Europe, said Krichbaum, the greatest danger is of, at most, a psychological nature; there would be no need to fear a contagion effect. First, he says there is reason to believe that, because of the strong engagement of Greek banks in countries such as Romania, Bulgaria and Serbia, investors might lose confidence in the local subsidiaries of Greek credit institutes, although these actually act independently. Contagion effects are, however, manageable due to the limited number of private creditors. A further danger for Europe could be that it loses its credibility due to its too limited ability to assert itself. It would therefore be in the interest of the EU to maintain its own principles and precepts and in so doing minimize the risks of speculative attacks.
In the long term it depends above all else on the will of the Greek government to allow reforms, such as those that were recently implemented in Latvia. Additionally, Greece would require a functioning state infrastructure, which would enable the collection of taxes and the efficient distribution of financial resources. Of particular need for reform is, according to Krichbaum, the current tax caps, which continue to favor top earners. In this context, he regretted that Greece has yet to make use of numerous offers of assistance from other member states, for example, to improve its municipal and tax policy.
In the lively discussion with the public that followed, the opportunity arose to talk about present strategies of the discussion partners, possible scenarios for Greece and Europe, as well as the instruments used to combat the crisis. The question of whether Angela Merkel’s past statement, “If the Euro fails, then Europe fails”, could be reasonably applied to an exit of Greece from the Eurozone was denied by Krichbaum, who said that it was a matter of a crisis in one single country of the Eurozone, and not a crisis of the entire currency union itself, and that the Euro constitutes, as it did before, a stable currency instrument. How exactly a Greek exit from the Eurozone would work remained an open question, due to the unclear EU legal situation. What is clear is that there exists a rule by which a country might leave the entire European Union, but that no such rule exists for leaving the Eurozone. Whether as a parallel or a primary currency, the Euro will, for a start, continue as a means of payment in Greece, according to Krichbaum. He set the question of how a fragile Greece might be dealt with in an extreme scenario against the likelihood that Europe would, in such a case, be compelled to provide humanitarian aid to prevent what he referred to as a Greek “drifting away” from Europe. In this scenario, however, the sovereignty of the Greek state should not be impinged upon. Should it come to further negotiations over relief measures, the consent of the German Bundestag would also be required due to the intergovernmental character of the rescue packages.
By Juliane Giesen and Hunter Hampton