EUROPEAN UNION | 14.05.2010

Ackermann interview sparks debate on Greek rescue

CEO Ackermann says Greece is unlikely to pay its debt

Deutsche Bank CEO Josef Ackermann told German public television that he doubted Greece could pay off its debt. This set off a new debate about whether the Greek bailout will work - and the future of the euro.

Deutsche Bank CEO Josef Ackermann walked a narrow line Thursday when he expressed his doubts on public broadcaster ZDF that Greece will be able to pay down its debts despite a 110 billion euro ($138 billion) international rescue package.

Ackermann was more optimistic about the success chances of a separate 750 billion euro fund intended to aid faltering economies in Spain and Italy.

"I have my doubts about whether Greece is really in a position to step up its efforts," Ackermann said in the ZDF interview.

The rescue package is in part a political maneuver intended to show European resolve to secure its joint currency and maintain solidarity.

The current financial rescue gives Greece temporary liquidity

Chancellor Angela Merkel said Thursday as Polish Prime Minister Donald Tusk was awarded the Charlemagne Prize for promoting European understanding that the European Union is facing an "existential" crisis.

"If the euro fails, it's not just the currency that fails, but Europe and the idea of European unification," she said, adding that if the crisis can be overcome, "Europe will be stronger than ever before."

While Ackermann said on ZDF the European Union is sure to lose the money it invests in Greece, he emphasized the necessity of avoiding a Greek bankruptcy. That would lead to a "kind of meltdown" and would "very certainly affect other countries," he said.

Tricky situation

According to Friedrich Heinemann of the Centre for European Economic Research in Mannheim, Ackermann found himself in a tricky situation. He needed to act as a public figure capable of drumming up support and, at the same time, protect his creditability.

Greece will unlikely be able to pay off its nearly 300 billion euro debt, but the rescue package will enable it to hold out for a few more years, according to Heinemann.

"In the end, there will be a restructuring of Greece's debt… but in the meantime before that happens, other countries will make such progress that the danger of a meltdown will no longer exist," he told Deutsche Welle. "This means maybe in 2012 a restructuring of Greece's debt can be undertaken without shock waves being triggered."

Euro-skepticism

But other economists are less optimistic about the future of the common European currency.

Economist Joachim Starbatty is skeptical about the future of the euro

Joachim Starbatty, professor emeritus of economics at the University of Tubingen, said Greece should end its use of the euro. Instead, the country should return to its former currency, the drachma, and devalue it based on market factors, he said.

"Solidarity doesn't mean that we should all sink into this swamp of debt,” Starbatty told Deutsche Welle. “Solidarity means each country should have an opportunity to ascend again economically."

If Greece were to use a devalued drachma, the favorable exchange rate would make its exports more competitive and its tourism industry more attractive, according to Starbatty.

"It is the only possible solution; they don't have solid economic ground under their feet anymore," he said. "I'm advocating a solution with which a long-term future for Greece and Europe can be secured. The politicians are sticking their heads in the sand and believe they can make debts disappear by creating new debts."

Problem only delayed

In contrast to Starbatty, Heinemann believes Deutsche Bank CEO Ackermann was correct to say the euro does have a future.

The crisis has led to violent demonstrations in Greece

"Ackermann is right," Heinemann said. "Every expert who looks at the situation will come to the conclusion that the subsidies will bridge Greece's liquidity problem, but not solve the insolvency problem. But keep in mind that these troubled nations states have an enormous desire to reduce their expenditures, and at the moment the global economy is playing along."

Asgar Belke, of the German Institute of Economic Research in Berlin, said while Ackermann's speech was "practical and adept," Greek debt is sure to present more problems in the future. The country's savings ratio is low, he said, and its ability to collect taxes owed is insufficient.

"I think in the future we'll find ourselves confronted with the same problem, and then we'll have to pay again," Belke told Deutsche Welle.

Author: Gerhard Schneibel
Editor: John Blau/dw