German Skepticism Undermines Greek Reform
Even as hundreds of thousands of German tourists head south for their holidays on the front line beaches of the euro zone crisis, the politicians and commentators left behind are indulging in an orgy of speculation about whether Greece can long last as a full participant in the common currency.
Markus Söder, finance minister of Bavaria, on Thursday joined a chorus of voices from Germany’s wealthiest federal state to declare his belief that Athens would be forced to leave the euro zone.
“In the end we must get to the point where Greece will have to leave,” he said in a television interview. “A euro zone is only going to be internationally stable in the long term if it is made up of strong partners, and not always with weak ones.”
His interview coincided with an alarming prediction by Ifo, the Munich-based economic institute, that a Greek insolvency would cost Germany82 billion euros ($128.59 billion) if it quit the euro zone, and even more—88.7 billion euros—if it remained a full member.
Hans-Werner Sinn, head of the institute, has long argued that Greece would be better off outside the monetary union.
Lüder Gerken, director of the Freiburg-based Center for European Policy, a market liberal think-tank, is another leading economist who believes Greece should pull out, although he does not think it possible to be precise about the cost.
He admits it would be painful for Germany, but thinks “the danger of a domino effectis rather small”.
“It might be seen as a sign of the strength of the euro zone,” he told the FT, that a country unable to abide by its commitments would have to leave.
Mr. Söder, who is a rising star in the Bavaria-based Christian Social Union, the conservative sister party to Chancellor Angela Merkel’s Christian Democratic Union, said a Greek exit would be absolutely possible to cope with.
His high-profile interview on ZDF, the public broadcaster, was merely the latest in a series of alarming statements made by middle-ranking German politiciansover the past week, causing Antonis Samaras, Greek prime minister, to complain bitterly about irresponsible foreign officials undermining his efforts at reform.
The main target of his attack appeared to be Philipp Rösler, the German economy minister, vice-chancellor and leader of the liberal Free Democratic party in the Center-right coalition headed by Ms Merkel.
He started the debate when he declared in a pre-holiday television interview last weekend that a Greek exit no longer terrified him. He was “very skeptical” about the success of the current Greek rescue program.
At the same time, Alexander Dobrindt, secretary-general of the CSU, proposed that Greece ought to start paying half its civil servants in drachma—the former national currency—to prepare for a “soft landing” outside the euro zone.
The sudden revival of German speculation about a Greek exit was compounded by a report in Der Spiegel, the weekly magazine, suggesting that the International Monetary Fund was no longer willing to extend more loans to Athens. The report has never been confirmed, but it has entered the German debate as a fact.
Another article, in the Süddeutsche Zeitung, quoted unnamed government officials as saying it was “inconceivable that Angela Merkel will ask the German Bundestag once again for a third aid package for Greece”.
Mr. Rösler has been attacked as “unprofessional”, even in his own party, for his careless comments on Greece. The opposition Social Democrats called on Ms Merkel to sack him as her vice-chancellor.
The official line from Wolfgang Schäuble, finance minister, is that Germany will take no position towards the Greek situation until it has received the report of the “troika” of officials—from the IMF, the European Commission and the European Central Bank —in early September. The inspectors arrived in Athens on Tuesday.
Yet the political assessment—that there would be no support in the Bundestag for a third Greek rescue package—is widely shared. Volker Kauder, leader of the CDU/CSU parliamentary group, said as much on Monday. So did Horst Seehofer, CSU leader in Bavaria.
In the end, German policy will be decided by Ms Merkel and Mr. Schäuble. By the time they return from their holidays, however, their room for maneuver within the coalition may be extremely narrow.