Merkel’s Lawmakers Say Greek Euro Exit Is Manageable as Party Leaders Meet
Lawmakers from Chancellor Angela Merkel’s party are stepping up pressure on Greece as it struggles to meet the terms of its second bailout, saying that a Greek exit from the euro region would be manageable.
The comments by senior members of Merkel’s Christian Democratic Union, made before a meeting of the CDU leadership that begins today, keep the focus on the Greek government as it strives to reach a debt-swap deal with private creditors that Merkel has said must be struck to win more aid. They are also a challenge to the chancellor’s public stance as she steers European efforts to keep the 17-member single euro area intact.
Such “threats” should be taken seriously, said Moritz Schularick, an economy professor at the John F Kennedy Institute of Berlin’s Free University. “The costs of rescuing the euro are so outrageous it’s no surprise that Merkel’s lawmakers are beating the drum on what’s at stake,” he said by phone. “At some point, a euro exit may become a real option. That wasn’t the case before.”
Michael Meister and Michael Fuchs, both Christian Democratic Union deputy parliamentary caucus leaders, called into question Greece’s future in the euro zone in separate interviews, saying that crisis-fighting bulwarks introduced since Greece tapped aid in 2010 have made contagion “significantly” less likely.
System ‘Shock Wave’
“The whole reason why we jumped into action wasn’t necessarily out of sympathy with Greece, but rather because we said that there could be a shock wave to the financial system,” Meister, the CDU parliamentary finance spokesman, said yesterday by phone. “I think the scale of the threat from Greece has diminished.”
That marks a contrast in tone from Merkel, who said at a joint press conference on Jan. 9 with French President Nicolas Sarkozy that they would ensure no country leaves the euro. At the same time, both leaders urged Greece to finish negotiations on the debt writedown with creditors as soon as possible, saying that the next aid tranche wouldn’t be paid without a resolution.
Greek Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos are due to meet again in Athens today with Charles Dallara, the managing director of the Washington-based Institute of International Finance, as talks on the debt swap enter their final stages, the Greek government said.
The IIF, which represents banks that hold Greek debt, said in an e-mailed statement after yesterday’s meeting in Athens that “some key areas remain unresolved,” and warned that “time for reaching an agreement is running short.”
Greece will have no other option than to exit the euro area as it struggles under a mountain of debt, unable to regain its competitiveness without having its own currency to devalue, said Fuchs, the CDU’s parliamentary economy spokesman.
For Greece, “the problem is not whether they are capable of paying their loans -- they will not, not at all, never,” Fuchs said by phone from his Berlin office on Jan. 11. Greece is still a “special case” and the other 16 euro members will resolve their debt problems and retain the currency, he said.
Fuchs dismissed the prospect that letting Greece go would trigger speculative attacks against indebted countries such as Spain or Italy. Italy is a “rich” country and banks would be able to withstand any contagion effect, said Fuchs. Talk of contagion from Greece would be “right if we’re talking about two years ago.”
The comments by Meister and Fuchs “are likely aimed at putting pressure on Greece to redouble its efforts to fulfil its pledges at a critical moment in the country’s efforts to secure new aid, and remind the government of the possible consequences of not doing so,” Thomas Costerg, an economist at Standard Chartered Bank in London, said by phone.
“This kind of brinkmanship is dangerous” since “it’s neither in the interests of Germany nor Greece to allow a euro exit,” he said. “The situation in markets is extremely fragile and the lawmakers underplay the risks of contagion.”
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