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Merkel Pays A House Call In Athens But Has Nothing To Dispense

Chancellor Merkel's house call to Greece does not help Greeks take their medicine.
By Amiel Ungar
First Publish: 10/10/2012, 3:42 AM

Merkel with Greek Pm Samaras
Merkel with Greek Pm Samaras
Reuters

The visit to Athens by German Chancellor Angela Merkel that required extraordinary security measures, given the hatred that Merkel inspires among many Greeks, was reminiscent of John F. Kennedy's visit to West Berlin after East Germany had erected the Berlin wall -  with Soviet backing. Kennedy, making the best of a bad situation, declared himself "a Berliner", but the wall stayed until the collapse of what was known as the German Democratic Republic.

Perhaps the German Chancellor, herself a former citizen of East Germany, felt that she could somehow assuage Greek resentment over the austerity being imposed on their country if she paid a personal visit and told the Greeks that she sympathized with their pain, but that it was in their best interest, She hoped that remaining part of the Euro bloc would be adequate consolation.

The German Chancellor's wiggle room is extremely limited, as she faces a general election next year against her former finance minister and the German electorate is in no mood to be bountiful towards Athens - particularly as the Greek crisis has lingered for 2 1/2 years.

In fact, Greece received an ultimatum that it would have to show further progress on budget cuts and privatization before it received the next installment of the bailout funding of €31.5 billion. Without that assistance, Greece will soon run out of money.

The elephant in the room is the contraction of the Greek economy as a result of the austerity. Pursuantly, the debt to the GDP ratio of 120 projected for 2020, under the recovery plan, appears increasingly unrealistic, In fact, the ratio is projected to grow rather than contract.

This will set the stage for a European decision on whether to provide the Greeks with more assistance upfront or in the form of more generous repayment terms. The alternative is a Greek default and its repercussions for the entire Eurozone.