A Greek exit from the euro would pose a “significantly smaller” risk of contagion to the rest of the currency area than two years ago before Greece asked for aid, two lawmakers from Chancellor Angela Merkel’s party said.
“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 shockwave to the financial system,” Michael Meister, deputy parliamentary caucus leader for Merkel’s Christian Democratic Union, said in a phone interview today. “I think the scale of the threat from Greece has diminished.”
Meister’s comments are the second time in as many days a senior CDU lawmaker called into question Greece’s future in the euro zone, potentially undermining Merkel as she leads Europe’s efforts to keep the 17-member euro area intact. With the debt crisis now in its third year, Merkel will join CDU lawmakers at a two-day meeting beginning tomorrow in the northern German port city of Kiel for policy talks focused on the economy.
Greece will have 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, Michael Fuchs, another deputy CDU floor leader, said in an interview yesterday.
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. 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, who also coordinates economic policy for the CDU caucus in the lower house of parliament, or Bundestag. Talk of contagion from Greece would be “right if we’re talking about two years ago.”
The comments by Merkel allies break a taboo of the CDU leadership by airing sentiment that Greece must leave the euro it can’t fulfill the terms for aid. Merkel’s Bavarian sister party, the Christian Social Union, last week reinforced its position that member states unwilling or unable to commit to necessary reforms should be given the chance to exit the euro area.
Merkel said at a joint press conference Jan. 9 with French President Nicolas Sarkozy that they would ensure no country leaves the euro, while urging Greece to finish negotiations for a debt writedown with creditors as soon as possible to win its next tranche of aid.
With Greece a “special case,” the crisis can be tamed if the region’s other 16 states fulfill “conditionality” tied to rescue proposals, which “means sustaining stringent budget consolidation,” said Meister, who is the CDU’s parliamentary finance spokesman.
Spain and Italy have shouldered “liquidity problems but are fundamentally solvent,” he said. Italy sold 12 billion euros ($15.3 billion) of Treasury bills today at a rate of 2.735 percent, the lowest paid on one-year debt at an auction since June and less than half the 5.952 percent offered at the last sale on Dec. 12.
“Greece is now really confronting the question of whether it can gain control of this crisis situation,” with the help of its euro-area partners, the European Commission and the International Monetary Fund, Meister said. “The effects of a failure to succeed are significantly smaller today in my view compared to what would have happened in the spring of 2010.”
Fuchs, who also contradicted Merkel’s support for a financial-transaction tax among euro-area members, said his prediction of a Greek exit from the single currency is a matter of arithmetic.
Merkel too “is capable of calculation,” he said. “She studied physics. And to study physics you need mathematics as well.”