Little Left to Cut: Lower Interest Rates Won't Help Greece

[unhappycamper]

http://www.spiegel.de/international/europe/an-interest-rate-cut-will-do-little-to-solve-greek-budget-trouble-a-923281.html



Graffiti in Athens: The Greek government is expected to have a budget shortfall of €11 billion over the next two years.

Little Left to Cut: Lower Interest Rates Won't Help Greece
An Analysis by David Böcking
September 19, 2013 – 04:53 PM

Compared with the Social Democratic Party's chancellor candidate Peer Steinbrück, the conservatives have sailed through the election campaign with relatively few problems. The closest the Christian Democratic Union (CDU) came to a real snafu was when Finance Minister Wolfgang Schäuble admitted in August for the first time that Greece would require further financial aid.

The admission immediately gave rise to the question of where this money is supposed to come from given that the German government has already categorically rejected the possibility of another debt haircut for Athens. The governor of the state of Hesse, Volker Bouffier, likewise a member of the CDU, offered an answer shortly after Schäuble's appearance, suggesting that the maturity on loans to Greece could be extended and interest rates lowered.

At first glance, reducing interest rates appears to be a reasonable idea. The Greeks would be given more time and room to maneuver and donor countries like Germany wouldn't lose any of the money they lent to Athens. But if you take a closer look, it's not such a great deal. A lowering of interest rates wouldn't have a major influence on Greece and it could also prove costly for creditors, just as a haircut would be. The problem is that interest rates are already so low that only certain elements could be reduced at all.

At best, a reduction of interest rates could save Greece a few hundred million euros a year -- far too little to cover the country's anticipated budget shortfalls. The International Monetary Fund (IMF) is estimating a total of €11 billion in financing shortfalls during the next two years.

[dipsydoodle]

1. As you said -

with interest rates already low the impact of a rate reduction would be of little significance.