Greek Crisis Force Germany To Put Help For Unemployed On Hold

It’s probably not very popular to be Greek in Germany these days. A law to provide emergency funds to the long-term unemployed has to be put on hold in Germany for as long as Greece has not made a request for financial aid, the Financial Times Deutschland writes.

“We cannot allow the bankruptcy of a euro member state like Greece to turn into a second Lehman Brothers.”

Wolfgang Schauble

The Bundestag’s budget committee has already held hearing on this law – which became necessary due to a recent judgment by the constitutional court – and the idea is for the federal and state governments to co-finance hardship allowances for the long-term unemployed.

But since the Greek situation constitutes a budgetary risk, the government decided to put back all non-urgent legislation until there is more clarity.

The paper says that the government expects the Greek to make the call for aid very soon.

Papandreou Rules Out More Austerity

George Papandreou

Le Monde quotes Papandreou as saying that he would have no hesitation to call the EU/IMF loan, if the situation warranted such a decision.

His office also made clear, ahead of the talks with the IMF, that there would be no further fiscal measures this year.

Convincing the Greek public of its austerity package is getting desperate.

The Greek government spokesman George Farrier said that there is no question that austerity measures include a wage cut in the private sector.

Farrier says, according to Kathimerini, that the government’s measures and decisions for 2010 are plentiful and warned about creating a bad psychological state of Greek citizens, lashing out against those who discuss and comment wage cuts calling it ineffective and unethical.

Greece Needs More Than €30bn

According to Bloomberg News Axel Weber told German lawmakers in a private briefing that Greece may need more aid than €30bn.

The article cites two people present at the meeting with FDP lawmakers.

In this meeting Weber also expressed concern that parts of the Greek population don’t care or fail to appreciate the seriousness of the situation their debt-laden country faces.

The yield on Greek bonds, meanwhile, is rising to new record levels. The yield on the 10-year bond reached 7.76%.

Cannot Allow A Bankruptcy

Wolfgang Schauble, the German finance minister, has not been saying much, so far.

Wolfgang Schauble

He is one of the dovish members of the German government, and of the very few genuinely pro-European politicians in Germany today.

This is how he looks at the aid to Greece, he told Der Spiegel.

Schäuble: “We have experienced a financial crisis from which we in Europe must draw a clear lesson: We cannot allow the bankruptcy of a euro member state like Greece to turn into a second Lehman Brothers.”

DER SPIEGEL: You are exaggerating. In past years, it’s happened again and again that a country couldn’t pay its debts, and yet that hasn’t led to a collapse of the global financial system. Why should this be different in Greece’s case?

Schäuble: “Because Greece is a member of the European monetary union. Greece’s debts are all denominated in euros, but it isn’t clear who holds how much of those debts. For that reason, the consequences of a national bankruptcy would be incalculable. Greece is just as systemically important as a major bank.”

Call For German Tax Cuts

The Institute for International Economics has called for a €100bn tax cut according to Spiegel Online, but the politics of Germany is current moving in the opposite direction, as the CDU is now digging in on its position only to simplify the tax but with no tax cuts.

Finance minister Wolfgang Schauble is quoted as saying that the priority would be to alleviate the pressures on Germany’s cash-strapped municipalities.

Greece: Restructured

The FT writes in a detailed article that the Greek government is already considering the possibility of debt rescheduling later this year.

The IMF is expected to raise the issue in its talks with the Greek government. The article also says there is no a gradual perception by financial markets that Greece is headed for some form of debt restructuring.

Financial Times makes the point that there are various options available, from default towards forced haircuts and voluntary debt rescheduling, whereby investors can choose to increase their maturity of their debt in exchange for a higher yield – and the hope that this way they get paid back.

The rating agencies would consider anything that is not voluntary as a default.

Related by the Econotwist:

The Great Greek Soap Opera

Markets Still Don’t Trust Europe’s Greek Aid Pledge

Greece, Lehman And Geithner

Germany Forced To Accept Greek Bailout

Greece: Here’s The Deal (Well, sort of…)

Greek Crisis: Confusion And Paranoia

Euro Zone: More Fiscal Integration Or Not?

Here Comes Another Greek Bank Meltdown

“Greece Will Default”

Greek Debt Crisis Become Critical (Again)