Germany's Merkel meets Greece PM over debt bailout tensions
German Chancellor Angela Merkel met Greece Prime Minister George Papandreou in Berlin today in an attempt to calm debt bailout tensions between Europe's economic powerhouse and the heavily indebted Mediterranean country.
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Reopening World War II wounds
Germany’s refusal to offer financial assistance prompted Greek Deputy Prime Minister Theodoros Pangalos to allege that Greece is still owed reparations for German occupation during World War II. Greek protesters in Athens, marching the streets to protest wage cuts instituted as a cost-saving measure, have used swastikas to protest German refusal to help.
These actions have been perceived as insults here, and the war of words has escalated drastically in the last week.
"Greece has a labor force that is the most undisciplined in the world," says Rodrigo Delgado Aguilera, an international economist at the Chatham House in London. "They have been pampered for decades."
That has caused contempt among Germans, who take great pride in their culture of disciplined work and efficiency. And it has made any talk of a German bailout politically toxic for Merkel.
Uncertainty bad for the euro zone
Despite the success of a $6.83 billion Greek bond auction Thursday, says Aguilera, Germany’s refusal to publicly back Greece has allowed for uncertainty about the strength of the euro to fester and has prolonged the euro’s slide in value.
Aguilera added that without assistance, the crisis in Greece will get worse. Greece needs to pay tens of billions of dollars in amortization payments to lenders in April. Without a guarantee, Aguilera said he is doubtful there is enough confidence in Greece to be able to raise the money necessary to make the payments, and that Greece can go bankrupt trying to pay them.
"The Germans have been [refusing to back Greece] for a long time to counter some of the moral hazard" of setting the precedent of bailing out other EU members, Aguilera said. "I’m not sure they can go on much longer. I understand why the game was played at first, but now it’s not helping."