The structure of the Greek debt is mainly official; with public European entities, long-term payback periods and low interest rates. This is a transformation of the original debt that had private creditors, but they were rescued and had their debts transferred to their governments. Due to this, the real problem for Greece resides in the position of its creditors; for they consider that, even when the breakdown of the negotiations would deepen the Greek crisis, the systemic risks for the Eurozone and the European Union would now be less than what they might have been some years ago. The confrontation now is between the Greek and the German governments, the second one being the holder of the main part of the rescued private debt.

Germany is the biggest bilateral creditor. If neither Germany nor Greece are willing to move in order to arrive at an agreement, the new Greek game — having placed the debt of World War II on the negotiating table — forces Germany and the United States to speak out about what is happening with the 1953 agreement and why in 1990 the reparations payments considered in Article 5 Section 2 of the London 1952 Agreement were not considered. (See Greece: the Pending War Reparations). That was when Germany negotiated its pre and post war debt.

The Federal Republic of Germany made amends for the survivors and descendants of those who died in concentration camps, but not for Greece, Spain or Russia, which were occupied or attacked nations. Nonetheless, the reaction of the German Minister of Economy was to say that the Greek demand “[was] stupid.”^[i] The Minister now has to explain what happened to Article 5 Section 2 of the London Agreement after the reunification. Maybe his history was weak when he made the statement.

There is a signature collection campaign among academics that started in 2011 for Germany to pay war reparations to Greece that has already gathered more than 200,000 signatures (http://www.greece.org/blogs/wwii/); and, without a doubt, citizens around the world will create another campaign. What is on the table now is, on the one hand, German prestige, and, on the other, its stubbornness; meanwhile, Greece does not appear to have much to lose after the 25% drop of its GDP and 30% in salaries. Despite the decreased risk of financial contagion, a deepening of the current Greek crisis would confirm an extreme scarcity of liquidity. Given the political repercussions derived from the disagreement between the new Hellenic government and the European Union institutions, it would also evidence the instability of European cooperation. In order to minimize collateral effects, Greece will pay its debt to the International Monetary Fund (IMF) — the least of its problems and key to the American Treasury. A reduction of the European debt and an increase in the US, Russian or Chinese debt would change its negotiating position.

This background turns out conclusive for the current negotiations; for it reveals that the German purpose of Greece's rescue has been not to restore the prosperity of the Hellenic people, but to save its private banks. In this context, it is completely justified that the new government questions the conditions that have been imposed upon the countries; but has reacted with unilateral emergency decisions, such as the law to alleviate the humanitarian crisis which increased the tensions and put in check the possibility of an agreement to renew the European rescue package. Evidently, what Greece needs is not more loans but debt reduction. If it cannot afford 181% debt on GDP can it afford 200%? Can it afford more austerity if with 25% GDP contraction the debt index went from 131% to 181%? It needs a recovery policy now and debt reduction now.

Meanwhile, the only safe thing has been a brief respite given by the European Commission deciding to contribute with 2 billion Euros of the unspent European funds. This has the aim of identifying immediate projects that will allow economic growth; employment — especially among the youth —; and a fight against the humanitarian crisis in Greece, whose pockets of poverty have not stopped growing in the last five-year period of  reforms, cutouts, and the like. Time pressure has grown, forcing Alexis Tsipras' government to accelerate the details of the reforms that will assure unencumbered public finances in exchange for the possibility of new funds.^[ii] One step has been to remove Varoufakis from the negotiating team.

Finally, the possibility of Greece's outing of the Eurozone, alongside political and financial disturbance inside the country, is not a very feasible option, for it would be interpreted as an important defeat for European integration, especially after the arduous measures taken to keep the monetary union unhurt.  The reinstallation of the drachma would derive into a massive outflow of capital even with its mere announcement, an analogous situation to that of Ecuador and El Salvador, currently dollarized but whose progressive Governments believed in their day they could de-dollarize. Regarding debt, Greece has established a new game and Germany will have to explain why the 1953 agreement has not been respected. This will surely lead to an international arbitration such as the one they sought from Germany in 1970, and won. It was about WWI reparations. Meanwhile, regarding European integration, it is necessary for both sides to take the opportunity of formulating a cooperative strategy that will allow them to look into the European structure, and help identify and redeem the biases in the integration process in order to accomplish real progress into a more stable future for Europe as a whole. Today’s Greek debt problem will be a European problem when interest rates go up. And they will someday. All of Europe has more than 100% debt ratio.

Oscar Ugarteche: Peruvian economist; works at the Instituto de Investigaciones Económicas [Institute of Economic Research] at UNAM [National Autonomous University of Mexico], Mexico; Member of the SNI/Conacyt [National Council of Science and Technology];Coordinator of the Observatorio Económico de América Latina [Economic Observatory of Latin America] (OBELA) www.obela.org; president of ALAI www.alainet.org

Tesalia Valencia: Member of the OBELA project, IIEc-UNAM.

The original article was published in Spanish on April 13.  This translation is an updated version.

www.obela.org