Reform in Greece is for the good of all Europe

(republished from an article published on on July 29 2015).

By Dr Peter Ammon, Germany’s Ambassador to the UK.

Dr Peter Ammon
Dr Peter Ammon

Greece is going through difficult times. But proven economic reforms can create a Europe strong enough to meet challenges from Ukraine to Islamic State.

Judging by the flood of comments that followed the recent European summit on Greece, a modern Greek drama is unfolding in which a small but proud nation, the motherland of democracy, is being subjected to senseless austerity by cold-hearted bureaucrats and penny-pinching foreign politicians. These comments have rather puzzled me.

A few days ago, the German parliament gave its approval to negotiations on a new financial assistance package for Greece worth up to €86bn (£60bn). Germany’s share will be a bit more than a quarter, or the equivalent of roughly €500 per household. That is big money and it’s on top of the €215bn that Greece has already had under the first and second assistance packages in 2010 and 2012. Greece has received assistance equivalent to more than its entire annual GDP – which dwarfs, for example, the Marshall plan. All eurozone countries will contribute, despite some of them having per-capita incomes significantly below Greece’s. This is a broad act of European solidarity.

What matters is to put Greece back on its feet and to restore trust.
Yes, the Greek people are going through difficult times. The scenes of pensioners queuing at cash machines to withdraw part of their monthly pensions have touched us all. But there is a significant need for reform. Those who lament the Greeks’ plight seem to overlook the majority’s desire for their government to do what is necessary to stay in the eurozone. The outcome of the European summit, agreed by all 19 eurozone members, paves the way for Greece to do just that.

In return for European solidarity, it has to take responsibility for implementing necessary reforms. Improving its tax system, stopping the wealthy dodging taxes, as well as bringing Greece’s pension system closer to European standards does not seem to be grossly excessive. Last week, the Greek parliament agreed to the first steps in this process.

Reducing Greece’s debt cannot be done by means of a classic debt haircut, which is explicitly forbidden under EU rules. We cannot just bend our rules and treaties until they are no longer worth anything. However, further extending terms and reducing interest rates is an option once the new programme has been successfully reviewed. Greece already enjoys record-low interest rates and the bulk of interest payments has been deferred several years. What matters is to put Greece back on its feet and to restore trust.

This economic medicine has worked elsewhere. The global financial crisis and the debt crisis forced other European countries to engage in serious reforms of their economies. Ireland, Spain and Portugal have been through a tough process, but have turned the corner and returned to the path of economic growth – Ireland and Spain are both expected to grow faster this year than the UK and Germany.

Germany itself has, over the past 12 years, implemented reforms enabling us to recover from a situation where we were dubbed “the sick man of Europe” and to get through the global financial crisis much quicker than others. These reforms ranged from introducing more flexibility in labour markets to pension changes that addressed the implications of an ageing population for our welfare system. It has paid off: Germany is showing steady growth again, with rising real wages in the past few years.

All this is part of a wider picture. Our goal is for Europe to emerge from the debt crisis stronger than when it went into it. There is a strong and compelling reason for this: we have to look beyond Europe’s borders. If we want to retain our economic competitiveness – the foundation of our prosperity – in the face of emerging global competitors such as China and India, we have to put our house in order. I observe that the UK is equally taking steps to bring its deficit down and boost its competitiveness.

Only a strong Europe will be able to address the huge challenges we face, from the conflict in Ukraine to the horrors of Islamic State and the dramatic refugee crisis in North Africa and the Mediterranean. No country can rise to these challenges alone. For us in Germany, the European project has always been about more than just economics. Solidarity with Greece will help us to build a more solid Europe.

Dr Peter Ammon is Ambassador of the Federal Republic of Germany to the United Kingdom.

The original article can be seen here.