Greece for Puerto Rico? German finance minister jokes about trading ‘bankrupts’ with US

Pensioners wait in front of a National Bank branch to receive part of their pensions at an Athens neighborhood (Reuters / Yannis Behrakis)
As the US keeps pressing European governments to restructure Greek debt as part of the new bailout, the German Finance Minister has jokingly told his US counterpart to better advise the countries which owe debt repayments to Washington.

German Finance Minister Wolfgang Schauble made a jibe during the Bundesbank conference in Frankfurt, saying “we will take Puerto Rico into the eurozone if the US takes Greece into the dollar union.”

Schauble’s comments were met with laughter as he added that Jack Lew, the US secretary of the Treasury, “thought that was a joke.”

The pun exploits the potential domino effect that could engulf indebted nations, after Greece became the first developed country to default on international loan, after it failed to pay the IMF some €1,6 billion on June 30.

Almost simultaneously with the Greeks, the Puerto Rican government announced that it will too refuse to make good on its debts of $72 billion.

“Our public unpayable,” Gov. Alejandro García Padilla said late last month. “There is no other option. I would love to have an easier option. This is not politics, this is math.”

He said that the World Bank and International Monetary Fund analysis showed the “harsh reality” of the economic situation in the unincorporated US territory. The economic hardship of the 3.6 million nation stems from municipal bond debts, mostly held by US investors.

Padilla insisted that his government could not borrow money any longer to patch budget holes. The government also refused to place extra burden on the Puerto Ricans through tax increases and pension cuts.

Creditors must now “share the sacrifices” Padilla said referring to Washington, as Puerto Rico is subject to the Commerce and Territorial Clause of the Constitution of the United States and, therefore, is restricted on how it can engage with other nations.

The situation in Puerto Rico is so bad that its debt per capita amounts to $15,637 which is 10 times higher than the average debt per capita of the 50 states, according to Moody’s. Taking into account the island’s pension liabilities and debt of public enterprises, its debt-to-GDP ratio will be about 150%, according Goldman Sachs. The Caribbean island must set aside about $93 million each month to pay its general-obligation bonds.

READ MORE: ‘National responsibility’: Greek MPs bless bailout deal seen by creditors as ‘positive’

Unable to reverse the worrying trend in its satellite, Washington continues to pressure Europe to restructure Greek debt, despite its own failure to help San Juan.

“In the next few days what we’ll see is [whether] the parties come together and build enough trust that Greece will take the actions that it needs to take so that Europe will restructure the debt in a way that is more sustainable,” Lew said earlier this week.

“I certainly have ideas about how you can do that,” he added. “But it’s… a lot to do in a short period of time and I’ve said over and over again that the risk of an accident goes up dramatically when you create more of these kind of life and death deadlines.”

Replying to Lew’s remarks, on Thursday German Finance Minister said, the United States has “no idea what it means to be in a monetary union.”

“In the case of sovereign debts, the European treaties exclude a debt cut. That is a breach of the bailout clause in primary European law,” he reminded his US counterpart.

As the fate of Greece in the eurozone is being decided, the country’s parliament backed a debt restructuring condition that Athens submitted to the Eurogroup late Thursday night. Meanwhile sources close to negotiations were saying that Greece’s international creditors reviewed the proposals and considered it a good basis for a new bailout.