European Stability Mechanism chief Klaus Regling, speaking at Foundation of the International Charlemagne Prize in Aachen, welcomed the “impressive adjustment efforts” from the Greek government, and he stressed that decisions will be made on issues of possible further debt relief if the latest report is positive.
“If the government in Athens applies all the remaining reforms decisively, Greece can successfully emerge from the ESM program in August 2018,” he claimed during his speech and expressed confidence that Greece could also pay its maturities, provided the maturity times were sufficiently extended.
His comments – unsurprisingly, given Herr Regling’s previously expressed views on Greek debt relief- reflected the German government’s favoured argument that any reduction of the Greek debt might cost the German taxpayers some money.
However, in trying to convince his audience that Greece can manage to pay back all its unpayable debts, Regling, rather unfortunately, likened Greece to postwar Germany.
“Decades of experience in similarly difficult cases have shown that economies that have been weakened due to a crisis can fully pay off their bailout loans if the servicing payments are sufficiently prolonged and do not exceed a certain ratio to the economic growth of between 15 and 20 percent (of GDP)” he said.
“Can Greece ever repay all the borrowed money? My answer is “yes“, Herr Regling assured his audience, explaining that Germany has repaid the last instalment of its post-war debt only recently, in 2010 “in accordance with the 1953 London rescheduling agreement”.
Herr Regling, however, neglected to mention that the 1953 London agreement which rescheduled Germany’s debt, also included a generous 50% haircut of West Germany’s external debt, with Greece being one of the Signatory States.
Germany’s debt of DM 29.7 billion was thus reduced to DM 14.5 billion while repayment of the remaining debt was linked to Germany’s exports with the debt service/export ratio limited to a maximum of 3%.
And if that’s the offer, this is a deal that Greece could be happy to accept.