Greece slugs it out with creditors, Germany reaps the multi-billion-euro reward

Greece has finally reached a deal on a bailout with its international creditors. According to the Greek government, this will total around 85 billion euros over three years, in exchange for a long list of budgetary adjustments and reforms. The deal will see Greek banks immediately receiving 10 billion euros, and they are due to be fully recapitalised by the end of this year. 

German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras share a podium following talks at the Chancellery in Berlin March 23, 2015. Reuters/Hannibal Hanschke

For the international creditors, this could be the beginning of the end of negotiations, but in Greece the deals and wrangling will continue.

Parliament will now need to approve these measures, and are reportedly due to vote on the substance of the agreement on Wednesday. Greek Prime Minister, Alexis Tsipras, will be hoping that gives him enough time to get his own MPs on board with the deal.

Despite the Syriza party’s, albeit narrow, majority he has been relying on the support of members of opposition parties to get bills passed parliament.

Economist Vicky Pryce told RFI “there’s going to be quite tough negotiations ahead” and “it’s not going to be an easy passage”. Speaking from London she said “when I was in Greece last week, there were rumours that elections might be held quite quickly so that Tsipras can consolidate his position.”

Germany has been at the front line of the talks and as the biggest eurozone economy will have to act as an underwriter of much of the Greek debt - to the dismay of many Germans.

Yet a report has been released showing that Germany has actually benefited, rather substantially, from the Greek debt crisis.

Dr Reint Gropp, President of the Halle Institute for Economic Research and author of that report, told RFI “this is a classic flight-to-safety effect”, whereby in unstable times investors become more risk averse and opt for a ‘safe bet’ financially.

Gropp believes this, and other variables have yielded €100bn more to Germany, an estimate he says is conservative. Comparatively the German exposure to the Greek crisis is thought to be around €90bn, meaning that even if Greece completely defaulted on its debts, by Gropps’ calculations Germany would still be a net beneficiary.

Harald Schultz from the IFO Institute's Centre for Economic Studies in Munich doubts that this is just due to Greece’s debt crisis and says it doesn’t necessarily benefit the German population, telling RFI the low interest rates are punishing Germen savers.

Much of the German press has been quite critical of the bailout talks and the government’s attempts to keep Greece in the Euro, so the discovery that these economic benefits seem to outweigh the costs should be welcomed by those worrying about the effects of this new deal on Germany’s state finances.