The political landscape in Europe is such that German leaders are refusing to allow any debt restructuring because German banks hold majority of Greek debt. Allowing to do so would burden German tax payers. As Germany bears considerable clout in the EU, they usually get their way.
Politicians use such issue to benefit of their constituencies. This creates anger and makes the situation more difficult to fix.
This Economist article argues that lessons should be learned from past experiences of US banks and US foreign policy towards Latin American countries. Uruguay and Mexico are 2 examples mentioned. Even though the situation isn't identical to the Latin American examples, it can be strongly argued that debt restructuring is necessary. Expecting Greece to pay back the loans at the original interest rates and at the current deadlines would be extremely misguided and unfair.
3 comments:
This is unfortunate that Greece is still struggling with the foreign creditors. The Germans are reluctant to provide any form of monetary assistance to the Greeks just because Greece ran into financial troubles. Looks like Greece will suffer for a lack of growth in their country. My concern is that if the Germans were willing to provide assistance to Greece, it might further signal other countries like Portugal and Ireland (I don't know much about Ireland's situation) to request for more money from the Germans, which would be too much of a burden. EU needs to increase a stricter regulation on these countries regarding the debt level and inflation rate.
I think it is hard to solve the Greek problem over night. First of all, all of the EU members are bound together by the same monetary policy, thus, while the media constantly report about the Greek's weak economy, that problem has already transferred into other EU members. Second, sovereignty still play a major role as the Greek is not willing to fully open up for EU to intervene their economy. Therefore, the problem, though sounds simple, remains unsolved.
It looks like a new approach was needed to deal with Greek's debt problem and it has come to a point of talking about debt reconstruction, even defaulting. Definitely Germany can't bail out all the countries in trouble and I think setting EU rules stricter might prevent such happenings but something else is needed to help the countries that are in trouble right now.
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