The World from Berlin: Loose Talk on Greek Default Could 'Cost Billions'

Members of Angela Merkel's government have been openly discussing the possibility of a Greek bankruptcy, a debate the chancellor sought to quash on Tuesday. The statements made by her junior coalition partners have unsettled markets and could "cost billions," German commentators warn.

Merkel after meeting with the Prime Minister of Finland, Jyrki Katainen in Berlin Tuesday. Zoom
AP

Merkel after meeting with the Prime Minister of Finland, Jyrki Katainen in Berlin Tuesday.

Against the background of increased pressure from the United States for a more resolute approach to the euro debt crisis, German Chancellor Angela Merkel on Tuesday moved to crush speculation within her government about a possible Greek default.

The future of Europe is tied to the common currency, Merkel told the Berlin public radio station RBB. "For that reason everyone needs to weigh their words very carefully," she said. "What we don't need is disquiet on the financial markets. The uncertainties are already great enough."

Her comments were viewed as an indirect jab at Vice Chancellor and Economy Minister Philipp Rösler, who distanced himself from the government over the weekend with a newspaper commentary. In the piece for the conservative daily Die Welt, the leader of her junior coalition party, the increasingly unpopular pro-business Free Democrats (FDP), said "there can no longer be any taboos" in the debate over the euro crisis, including, if necessary, "an orderly bankruptcy of Greece, if the required instruments are available."

Merkels comments also appeared to be aimed at Bavarian Governor Horst Seehofer, who is the leader of the Christian Social Union (CSU), the sister party to the chancellor's conservative Christian Democratic Union (CDU). Seehofer has raised the possibility of a Greek exit from the euro zone in recent days.

Merkel's attempt to silence grumbling over Greece within her coalition came ahead of a Tuesday meeting with Finnish Prime Minister Jyrki Katainen. Helsinki has demanded extra guarantees from Greece in exchange for its approval of a second bailout package, but Berlin rejects special rules that would create an additional burden for other euro-zone nations.

Pressure From Obama

With the next meeting of European finance ministers set for Friday in the Polish city of Wroclaw, US President Barack Obama urged EU leaders to prove their commitment to resolving the issue in an interview with Spanish journalists published on Tuesday.

"It is difficult to coordinate and agree on a common path when you have so many countries with different policies and economic situations," Obama said, according to daily El Mundo's website. "In the end, the big countries in Europe, the leaders in Europe must meet and take a decision on how to coordinate monetary integration with more effective coordinated fiscal policy," he said, according to news agency EFE.

Concern about the global effects of the euro crisis is so great in the US that Treasury Secretary Timothy Geithner will also attend the EU finance ministers' meeting on Friday -- an unprecedented move on his part. Obama also pointed to the looming dangers posed by Spain and Italy. Rome inspired fresh alarm on Tuesday with a sharp rise in interest rates on government bonds floated in an auction that day. Even a report in the Financial Times saying that Italy had asked China to purchase billions worth of its government bonds failed to ease fears about massive public debt in the country.

Prime Minister Silvio Berlusconi, who was also scheduled to meet with European Commission President José Manuel Barroso on Tuesday afternoon, pledged that new austerity measures would be approved in Rome the next day. Meanwhile, market turmoil continued on Tuesday thanks to myriad uncertainties across the euro zone that also included fresh concerns about the stability of banks in France.

On Tuesday, German commentators set their sights on Greek default speculation among their own politicians, with some lamenting what they see as a dangerous indiscretion.

The center-right Frankfurter Allgemeine Zeitung writes:

"Is it possible to think about a European currency union without Greece? CSU party chief Horst Seehofer describes it as an 'ultima ratio,' or last resort, and FDP leader Philipp Rösler says he will no longer accept 'taboos' over the matter. Still, the attempt to increase latitude for euro-zone rule breakers raises strong legal concerns. The heads of the government coalition party groups in parliament have unanimously pointed out that it is not legally possible to exclude Greece. This is true in the sense that there are no provisions in the Maastricht Treaty for a country to leave the euro or to get kicked out -- it neither permits nor excludes it."

"But as one knows after one and a half years of euro bailouts, politicians themselves have not adhered to the (Maastricht) Treaty even on points where it is crystal clear … With EU treaties, one proceeds as they see fit. Incidentally, the Lisbon Treaty even envisions the possibility of a withdrawal from the EU."

The conservative Die Welt writes:

"Greece can't be saved any longer, and Portugal and Italy may not be either. Greece will soon have its debt rescheduled, and the German taxpayers will lose billions of euros through this. The rescuers need to finally take this step. The longer they wait, the more expensive it will get. And the more room there will be for politicians from the FDP and CSU, who have further destabilized the markets and stoked second thoughts about the euro zone with comments about a Greek exit that are motivated by domestic concerns. Such statements actually cost billions more and could lead to capital flight from Greece, making a solution even more difficult."

"The irritation over this rush forward is huge in Brussels. Still, there are very good reasons for a withdrawal -- from Athens' perspective too. But the result can't be conjured up. A withdrawal must be voluntary, decisive and implemented quickly. Only then will the operation succeed."

The center-right Berlin daily Berliner Zeitung writes:

"The euro crisis is a very delicate affair. The markets react to rumors and suggestions … Only those in the federal government don't seem to have grasped this fact. The economics minister waxes fantastic about Greece's possible insolvency. The labor minister casts a longing eye on the gold reserves in the problem countries. And all of this publicly."

"(For them), personal prominence is more important than the big picture. Sometimes that's the case in politics, though it's seldom pleasant. But when it comes to the euro, it is highly dangerous. Those who don't understand this and continue to blather on should aim for positions with less responsibility."

The left-leaning Die Tageszeitung writes:

"It's a bit late, but the German government has discovered that Greece is seriously broke after all. Thus it is consistent that the FDP and the CSU are considering a 'orderly bankruptcy'."

"But it's off-putting that the nationalistic undertones can't be ignored. Both parties create the impression that Greece would be getting punished if it were sent into insolvency -- and that Germany would somehow save money if the Greeks were left to go bust. But that is pure nonsense: A Greek bankruptcy would cost Germany billions. Because both directly and indirectly, Germany is one of Greece's biggest creditors."

"Unfortunately, the nationalistic tones from the conservatives and the FDP have not been without consequences. It obscured the actual conflict over resource distribution in Germany. The question was … who covers the costs? The German taxpayers or the banks?"

"The answer has become clear: It is mainly the taxpayers. The banks could only have taken on a large role if there had been euro bonds at the same time … But euro bonds are still out of the question for the FDP and CSU. The people will have to pay. And what a mistake. It could've been the banks."

The center-left Süddeutsche Zeitung writes:

"Throwing Greece out would be a disaster not only for Greece, but also for Germany and the rest of Europe. (Aside from the technical argument that the EU treaties don't allow the option of such an exclusion.)"

"Only the painstaking rescue remains. But no one should forget that the euro zone has not gifted Greece with hundreds of billions of euros, but provided the country with credit instead. The money will come back with interest if the financial restructuring is successful in the country. The euro-zone governments should have made it clear to the markets that they planned to keep Greece solvent until it becomes credit-worthy again. But such a position can only be credible if politicians -- those in Germany above all -- preserve calm and reason."

The financial daily Handelsblatt writes:

"Leaders of the CSU and FDP have been more open than ever about a 'debt haircut,' 'bankruptcy,' 'debt restructuring' or even a Greek exit from the common currency … The FDP in Berlin, which is fighting for its survival, is attempting a step in this direction, judging from their campaign posters, which read: 'Those who don't want euro bonds should vote FDP.'

"But the price for this is high. If the FDP no longer shares the chancellor's euro bailout policies unconditionally, they may have to leave the coalition government. A number of the party's officials fear this, but fear is known to be a bad counselor. Clearly the FDP will be forced to choose the lesser of two evils. Either they shape themselves as the voice of the skeptical majority in Germany and secure their survival as an opposition party, or they remain true to the chancellor and accept a continuation of their current performance with results of 2.5 to 3.5 percent in the federal election, which would banish them from the parliament ... and the government."

-- Kristen Allen

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