HARDLINE German minister Wolfgang Schaeuble has warned the only way Greece’s loans can be written off is through the country leaving the eurozone, as the debt crisis once again blows up
Angela Merkel’s finance chief ruled out cutting the amount of money owed by the struggling Mediterranean state in an interview on German television.
He insisted creditors must keep the pressure on Greece to meet the strict terms of its bailout programme or kick it out of the single currency.
Markets reacted with alarm after the minister raised the prospect of a Grexit.
Germany is Greece’s biggest eurozone creditor and wants to claw back all the money it lent to stop Athens collapsing into bankruptcy amid the financial crisis.
But fellow creditor the International Monetary Fund (IMF) this week admitted Athens’ debt load is unsustainable.
In apparent response Mr Schaeuble told broadcaster ARD: “We can’t undertake a debt haircut for a member of the European single currency, it’s ruled out by the Lisbon Treaty.
“For that, Greece would have to exit the currency area.”
The IMF has said it will not take part in the next part of he bailout programme if debt reduction plans are not credible.
However, Mr Schaeuble insisted Athens must carry out biting austerity and economic reforms laid out under the rescue programme.
He said: “The pressure on Greece to undertake reforms must be maintained so that it becomes competitive, otherwise they can’t remain in the currency area.”
Investors have reacted with concern as tensions over the crisis continue to spiral.
Michael Hewson, chief market analyst at CMC Markets UK, said: “While one could argue that this sort of rhetoric is not particularly constructive when it comes to sorting out a solution to what has been a long running issue, it does also open a potential option for Greece if the current impasse continues.
“Definitely a case of be careful of what you wish for.”
The eurozone needs the IMF to take part in the programme in order for support from across the bloc or else the entire bailout could collapse.
Head of the eurogroup of finance ministers, Jeroen Dijsselbloem yesterday said: “The majority in parliament is very clear, that if the IMF will not take part or withdraws, then support for the program will be lost.”
The Dutch politician has also hit out the fund’s analysis of Greece and accused it of being overly pessimistic on the outlook for the country.
Ted Malloch: Greece would be better off outside the euro-zone
Donald Trump’s possible choice for US ambassador to the EU, Ted Malloch, is in favor of a Greek exit from the eurozone, which he believes is something that will happen at Athens’s request in a year or a year-and-a-half from now.
Speaking on Skai TV’s “Istories” (stories) program late Tuesday, Malloch said that “the problem… is who will manage that transition, and how, to avoid all the chaos and all the instability.” He admitted he did not know the answer to the question.
In the same interview, Malloch said the issue of a Greek euro exit had not been discussed with the president, the State Department or anyone at the Treasury, adding however that Trump himself about a year ago tweeted that the Greeks are wasting their time in the euro-zone.
You said that the other day in an interview with Bloomberg, and it has created quite a stir here. I don’t know how much you know about the Greek economy but it’s definitely not self-sufficient. We have to import even basic things like food in order to survive. How do you see Greece outside the euro-zone dealing with that situation?
Well, I think it’s maybe a necessity. I mean it’s a good question, why? To put the question “why” first, not “how.” I mean, if the [International Monetary Fund] will not participate in a new bailout that does not include substantial debt relief – and that’s what they are saying – then that more or less ensures a collision course with the eurozone creditors. Now we all know that that primarily pressures Germany, which remains opposed to any such actions, so I think it suggests that Greece might have to sever ties and do Grexit and exit the euro. So, that’s the first fact.
I think if you look at the reality, the situation is basically unfolding in a certain direction. What comes afterwards I think is a very interesting and important question; I think we have to face some facts, I mean the first one is that the harsh austerity programs have been a complete failure. I have traveled to Greece, met lots of Greek people, I have academic friends in Greece and they say that these austerity plans are really deeply hurting the Greek people and that the situation is simply unsustainable. So you might have to ask the question if what comes next could possibly be worse than what’s happening now.
But do you think that there is any chance that the US, given the circumstances, would ever finance Greek needs in the first couple of years, because there is definitely going to be a deficit in the beginning and, as you know, we also have security requirements, the neighborhood being what it is.
No, I think Greek-US relations are strong, could become stronger. I know some Greek economists who have even gone to leading think tanks in the US to discuss this topic and the question of dollarization; such a topic of course freaks out the Germans because they really don’t want to hear such ideas. I think what Greece badly needs, if we were to think of it economically – I am really putting in the economy side – is supply side reforms. It needs debt restructuring, it really needs debt relief, and I know people in Europe don’t want to hear that. These new plans have probably happened under the IMF or the World Bank and they need to reduce the debt overhanging and that means frankly something that people in Germany and elsewhere have not been able to accept, it means a haircut to the lenders and to the banks in Germany and probably, at least in my perspective, a return to the drachma. So the problem then is who will manage that transition, and how, to avoid all the chaos and all the instability. Very, very, major question I think on the immediate horizon.