Totting up a Greek Götterdämmerung | FT Alphaville

Totting up a Greek Götterdämmerung

A billion here, a billion there, and soon you’re talking real money, as a US Senator once (possibly) said. For Bundesbanker Axel Weber, however, you’re mostly talking a giant headache, as numbers fly over what rescuing Greece will actually cost Europe.

According to the WSJ, Weber now has the price of a Greek rescue at €80bn — a good €35bn more than the current Eurozone rescue plan has called for:

Greece may require financial assistance of as much as €80 billion ($107.92 billion) to escape its debt crisis and avoid default, Bundesbank President Axel Weber told a group of German lawmakers Monday, according to a person familiar with the matter…

Mr. Weber, a member of the European Central Bank’s governing council and a leading candidate to succeed Jean-Claude Trichet as ECB president next year, told the legislators that Greece’s situation was worsening and that “the numbers are changing all the time,” according to the person. A Bundesbank spokesman declined to comment.

For context, Weber has led the hawkish case on how much help (if any) Berlin should give Athens. A Weber raid on the merits of the latest EU-IMF loan deal helped set off April’s spike in Greek debt costs, as the Telegraph reported.

And for additional context, €80bn would be a fairly conservative take on long-term costs for Greece, depending on the time-frame Weber had in mind. Peter Boone and Simon Johnson have argued that rescue “means making available around 180bn euros – i.e., the full amount of refinancing that Greece needs” for the first few years.

Which all makes perfect sense — Axel Weber’s twin jobs are to protect fiscal discipline in Germany and the Eurozone. It’s just that his comments, coming now, might increase the German chorus against ‘Transferunion’ to Die Walküre-sized proportions. A bit of an execution risk for any rescue loan, we fear, just at the moment it might be needed.

Indeed, Handelsblatt cast doubt on the basic legal case for help on Tuesday, let alone whether or not the numbers are right. As the paper reported (translation ours):

Griechenland-Nothilfe verstößt gegen EU-Recht
Greece’s emergency relief is contrary to EU law

A recent report by the Centre for European Policy (CEP) has come to the conclusion that bilateral loans constitute a breach of law. “A bail-out of bilateral loans in Germany or another Member State is illegal under EU law,” says the study by Thiemo Jeck and Bert van Roosebeke, which has been made available to Handelsblatt. Germany must lend to Greece only to market conditions: “Loans to a politically defined interest rate that is lower than the market conditions are an illegal subsidy,” the researchers write.

The CEP (English site here) doesn’t appear to be politically partisan or anti-European, although the study is also biting on the fiscal moral hazard it says is in the Greek deal.

Litigation against the Greek rescue could eventually go up to the European Court of Justice, as the Frankfurter Allgemeine explores in this piece (auf Deutsch), although it’s hard to tell in advance how a legal challenge would interrupt the activation of the Greek rescue in the short term. It’s also not clear how German resistance would hold up if it transpires how much German banks could be on the hook for a Greek default.

Still, in between these Teutonic troubles and the Greek finance minister’s, er, economy with the truth over austerity, activating a Greek rescue is in itself looking fraught, not just paying for the rescue once it’s been started.

And, as Anousha Sakoui and Kerin Hope write in Tuesday’s FT, at least one Plan B in lieu of a loan black-hole — the restructuring of Greek debt — would require medium term confidence in order to be set up.

Not a lot of room for manoeuvre, then. And Unfälle do happen.

Related links:
The end of the euro – FT Alphaville
Bored with Greece? BNP Paribas is too – FT Alphaville