Between 2010 and 2015 Germany profited from the ongoing Greek debt crisis to the sum of €100 billion, according to a new study. The billions consists of money saved by lower interest payments on funds the German government borrowed amid investor “flights to safety”.
The research published by the Halle Institute for Economic Research (IWH) shows that the Greek debt crisis resulted in a reduction in rates for bonds issued by Germany’s federal government to finance spending. This yielded interest savings of more than three per cent of Germany’s gross domestic product during the period 2010 to 2015.
The research showed that when investors identify crisis and turmoil in financial markets they typically seek a safe haven to stash their money in. Described as an “export champion” and “the eurozone’s effective paymaster” by AFP, the research shows Germany “disproportionately benefited” from that during the Greek debt crisis:
“Any time there was bad news about Greece, yields on German government bonds fell, and any time there was good news about Greece, German government bond yields rose.”
Events from which Germany benefited identified in the research included when Syriza’s victory in the general election became likely; when the new Tsipras government walked away from talks with the European Central Bank, European Union and International Monetary Fund; when the Greek government decided to hold a referendum on the bailout terms; and the subsequent result of that referendum.
The research states that Germany’s balanced budget was possible in large part only because of interest savings accrued the Greek debt crisis. The United States, France and the Netherlands also benefited from the same effect on their bonds, but to a lesser extent.
The effect of all this is twofold.
First, if Greece fails to pay back any of the money owed and ultimately defaults on all its debts, Germany will still come out in profit.
The reports suggests Germany’s share of the Greek bailout package amounts to no more than €90 billion so what it calls “the maximal uncertain and future costs of bailing out Greece to Germany” are in fact smaller than the €100 billion benefits already accrued. It concludes: “If Greece does pay or pays at least in part, the savings [to Germany] are substantial.”
Secondly, it casts light on elements of German policy throughout the Greek debt crisis which have already been highlighted by Greece’s former Finance Minister, Yanis Varoufakis.
If one looks for a motive for why Germany has not wanted to help Greece then the conclusions of the research provide that. Furthermore, they suggest Germany maintains a vested interest in not sorting the problem out any time soon.
Seeing how Varoufakis described the prospects for a third Greek bailout in his recent El Pais interview, it appears he agrees:
“This is a program designed to fail. And so it will fail. It’s not easy for an architect to build a solid building, but it’s easy for him or her to construct a building that will collapse. Anyone can do it. It was planned to fail, because, let’s face it: [German Finance Minister] Wolfgang Schäuble is not interested in an agreement that works. He categorically stated that he wanted to redesign the eurozone and part of that redesign is that Greece should be thrown out of the eurozone.”
Germany would probably not benefit long term from a complete collapse of Greece, but Varoufakis’ colourful description of how his country has been treated since 2010, “fiscal waterboarding”, suggests that maintaining the advantage to the German budget is possible:
“It is a precise, an accurate description of what has been happening for years now. What is waterboarding? You take a subject, you push his head in the water until he suffocates but, at some point, before death comes you stop. You pull the head out just in time, before asphyxiation is complete, you allow the subject to take a few deep breaths, and then you push the head again in the water. You repeat until he… confesses.
“Fiscal waterboarding, on the other hand, is obviously not physical, it’s fiscal. But the idea is the same and it is exactly what happened to successive Greek governments since 2010.”
Schäuble has repeatedly opposed a Greek debt write-down while pointing to his German government’s balanced budget. For so long as he can continue holding out against the former to the detriment of Greece, the prospects for the latter look good. As Varoufakis said of the recent bailout negotiations:
“This was nothing but a coup. In 1967 there were the tanks and in 2015 there were the banks.”