Risky business

Germanyhas earned 400 million euros ($525 million) in the last two years through loans to Greece - that's the figure given by Evangelos Venizelos, chairman of the Greek social democratic PASOK party. The amount comes from the substantial interest on loans Germany has given Greece, he said.

"Nonsense," countered Jörg Kramer, chief economist at Germany's Commerzbank. "Of course Greece has paid interest, but the rate is extremely low and it in no way covers the real risks involved with providing these loans." Greece has received loans at subsidized rates, Krämer said. "So Germany has clearly not earned anything on the loans," he said. "Especially considering the fact that private investors forgave 100 million euros of Greek debt."

Still, even German Finance Minister Wolfgang Schäuble has indicated that Germany has received considerable interest on the loans it has provided to Greece.

A matter of definition

Krämer, however, begs to differ. "If Schäuble wants to depict the interest as earnings, then that's surely to pacify voters in Germany and to disguise the fact that the actual costs in helping out Greece are much, much higher."

The risks for Greece and its lenders are obvious. A new haircut is conceivable, which would hit the Eurozone and the European Central Bank hard. When asked about this possibility, the German finance minister prefers deferring to other sources.

"The International Monetary Fund, the European Central Bank and the European Commission assume that with the measures agreed upon, Greece will have a debt of 120.5 percent of GDP in the year 2020," Schäuble said. If that turns out to be the case, given where Greece stands right now, then the debt could be considered "sustainable" in 2020, he said.

Risky business

But the debt limit agreed to by Eurozone nations is 60 percent of gross domestic product. Not without reason, Krämer said. His scenario for Greece's high national debt is less optimistic: "Of course, there's a substantial risk that the international community will become frustrated and stop giving Greece fresh money," he said. Then it's possible "that Greece will no longer be able to service its debts."

German Finance Minister Schäuble won't discuss such a possibility. If he did, the public would understand it as a signal for Greece to exit the Eurozone. Instead, Schäuble indirectly refers to the possibility of new loan packages when the current scheme expires. "This scheme has a term of three years - that's the International Monetary Fund policy. So one cannot rule out that new requirements will arise after this term, that is, before 2020," he said. It's too early to speculate about that, he added - but of course he will later be able to say that he kept open the possibility of new loans.

A look to the future

For now, the magic words for Greece are "economic growth." If the economy were to pick up, the debts could be repaid. The Germans seem to be under the impression that this could be a matter of just a few years: Greeks only have to put their noses to the grindstone, reform their state and administration, fight corruption, and correctly fill out the forms for EU subsidies.

But even if they were to do all of that and also invest in sectors with a future, the problems would not be solved at once, warned Alexander Kritikos, director of research and board member of the German Institute for Economic Research (DIW). "If it becomes possible to finance innovations in Greece and put them into practice, then one can assume that the country will be in the position to generate enough state revenue in 10 or 15 years to pay these debts back."

Author: Panagiotis Kouparanis / als
Editor: Simon Bone