Merkel Sees Greek Debt Relief Option as Banks Set to Open

Changes in Greece Are Pretty Cosmetic: Greene

German Chancellor Angela Merkel held out the prospect of limited debt relief as crisis-ravaged Greece prepares to reopen its banks three weeks after they were shut.

Merkel told German broadcaster ARD that she’s prepared to discuss the matter once Greece successfully completes the first round of a new bailout. While the remarks don’t go beyond pledges already made by euro-region governments, they signal that the topic could be considered by the end of the year. She ruled out any haircut on Greek debt.

“When the first successful assessment of the program being negotiated now is completed, exactly this question will be discussed,” Merkel said Sunday. “Not now, but then.”

Merkel’s comments come after a week that saw Greece pull back from the brink of financial collapse. While the bailout agreed upon last weekend has split the government of Prime Minister Alexis Tsipras, it also cleared the European Central Bank to inject more funds into the country’s financial system.

That will allow banks to reopen on Monday, although capital controls and limits on withdrawals remain in place. The daily cash withdrawal limit of 60 euros ($65) will be replaced by a weekly limit of 420 euros, while transfers abroad from Greek accounts remain banned. The Athens Stock Exchange will also stay closed, a spokeswoman said Sunday in a text message.

Further easing of repayment terms for Greek aid loans has been an option in euro-area negotiations since 2012. Ensuring that Greece’s debt is sustainable looms as one of the challenges when talks on the third bailout get under way.

Defends Schaeuble

Merkel defended Wolfgang Schaeuble, her finance minister, who breached a taboo last week by floating the idea of suspending Greece from the euro for five years. The proposal was meant to prevent a “catastrophic situation,” she said.

She deflected questions about a dispute with Schaeuble, who said in an interview with Der Spiegel published Saturday that the two had had differences. Schaeuble said he’d quit if he were to conclude that he no longer had a say in Merkel’s government, adding that he wasn’t considering such a move.

“I’ve received no such request for a resignation, and I don’t have any intention of continuing this discussion,” Merkel said. “We have work to do.”

That work was under way in Athens a week after an all-night summit in Brussels led Tsipras to agree to measures he once decried. On Friday, he announced plans to rebuild his government, dismissing cabinet members in his Syriza party who voted against the package in Greek parliament.

Sixty-four of the 300 lawmakers voted against the package, half from Syriza, including Yanis Varoufakis, who resigned as finance minister this month.

Elections Possible

“Tsipras runs the risk of losing control of his party,” George Pagoulatos, a professor at the Athens University of Economics and Business, said in e-mailed comments. “His cabinet reshuffle represents an effort to cement his coalition. It raises the probability of snap elections in early fall.”

Greece’s financial strain eased after the ECB approved emergency financing and the European Union completed plans for a bridge loan. The stopgap funding will shore up the Greek economy during talks on a full three-year rescue program worth as much as 86 billion euros.

Bailout talks need to move swiftly, Merkel said. She pledged to do “everything” to reach an agreement, adding that her government would act “firmly” to ensure Greece carries out reforms.

While giving a nod toward debt relief, Merkel said Greece’s wish to remain inside the euro rules out a “classic haircut, writing down 30 or 40 percent of the debt,” since it violates European law.

“This cannot happen in a currency union,” Merkel told ARD. “You can have it outside a currency union, but you can’t have it in a currency union.”

Read this next:

Before it's here, it's on the Bloomberg Terminal. LEARN MORE