Euro-Zone Exit Scenarios Germany Plans for Possible Greek Default


Part 3: Growing Calls in Germany for Greek Exit

While most of the peripheral countries are on the road to improvement, Greece threatens to slide into bankruptcy. Germany's coalition government of Chancellor Merkel's conservatives and the pro-business Free Democratic Party (FDP) has little sympathy for Athens' plight, because a Greek bankruptcy would also help to rectify some domestic political disagreements. Berlin's tough stance is primarily intended to make it easier for those CDU and FDP parliamentarians who see Greece as a bottomless pit to support the government's line in a key vote in the German parliament, the Bundestag, on reforming the EFSF on Sept. 29.

Senior CDU politician Peter Altmaier has already started referring to the near-bankrupt country as if it were separate from the rest of the euro zone. "Greece is an absolutely special case," says Altmaier. "No other country is in such a mess."

'The Greeks Have to Withdraw'

The approach could work. Some members of the German parliament who voted against the EFSF reforms in a test vote at the beginning of last week have now changed their minds.

"We need the new instruments for the EFSF, especially in the case of a Greek bankruptcy," says Georg Nüsslein, an economic policy spokesman for the conservative Christian Social Union (CSU), the CDU's Bavarian sister party. Nüsslein believes that the EFSF reform is inevitable, as is Greece's departure from the euro zone. "The Greeks have to withdraw," he says. "They can't get back on their feet while they are in the euro zone."

Many members of the coalition parties now share his opinion. Volker Bouffier, the governor of the western state of Hesse and deputy CDU chairman, argues that an option which would allow the Greeks to withdraw from the euro zone should be created as quickly as possible. "If the Greek government's austerity and reform efforts are not successful, we will also have to ask ourselves whether we need new rules to enable a euro-zone country to withdraw from the monetary union," he says.

In a meeting of CSU parliamentarians last Monday, German Interior Minister Hans-Peter Friedrich, who belongs to the CSU, also argued that this would be the best way for Greece to solve its problems. FDP financial expert Hermann Otto Solms has been calling for such an option for Greece for some time. If Greece does not fulfill the bailout's conditions, says Solms, "it might be better if the country withdrew from the euro zone."

FDP Opposition Could Derail Rescue Efforts

One thing seems virtually certain: The turmoil will not be ending anytime soon. On the contrary, the Bundestag has to vote on the creation of the permanent European Stability Mechanism (ESM), which is to replace the EFSF in 2013, by December at the latest. It will be another test for Merkel's parliamentary majority.

Opponents of efforts to rescue the euro within the FDP are already preparing for a battle over the upcoming decision. Before the Bundestag votes on the ESM, the FDP intends to poll its roughly 66,000 members on the issue. "The discussion within the FDP over further bailout measures for over-indebted countries in Europe is an important political question that requires a broad discussion in the FDP," reads a letter that was delivered to FDP General Secretary Christian Lindner last Friday afternoon.

The signers of the letter included both the indefatigable euroskeptic Frank Schäffler and Burkhard Hirsch, a veteran FDP politician.

If one-third of party members take part in the poll and the majority votes against the ESM, this will be the party's official position. If that happens, it will put an end to the CDU/CSU-FDP coalition's efforts to save the euro -- and to the coalition itself.


Translated from the German by Christopher Sultan

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Eleos 09/12/2011
The lasting lesson from this debacle is that for some reason politicians pretend not to see the obvious. A knock on the head is not sufficient to induce candour, unless it is followed with a slap across the face and a punch in the stomach. Readers comments throughout Europe have been predicting the Greek default and subsequent exit from the Eurozone for months, but in the corridors of power lukewarm denial has alternated with strenuous denial. What is the reason? Is it that having to smile and lie to get elected it is not easy to give up the practice; or is it simple cowardice when face to face with even more dishonest colleagues from lands where integrity is ridiculed as a weakness; or fear of being hauled before some tribunal on charges of discrimination, or for alleged "hate crimes", if they acknowledge that stereotypes going back to the Middle Ages have more truth in them than all the postwar political rhetoric?
PHOEVOS 09/13/2011
2. Only Stupidity to Blame
Forgive me for stating the obvious, but German officials are upset only because their deeply amateurish austerity plan has failed with a thud. Your claim that a Greek exit is the only option is beyond ridiculous. Greece, like any other country in its place, needs temporary access to cheap credit in the order of 2-3%. Once it can stand on its own feet then it can repair its economy and such temporary measures will no longer be needed. You can accomplish reasonable credit costs via a Eurobond or a unique mechanism to provide Greece with the appropriate cost of funds needed. German responsibility in ruining the Greek economy is undeniable and instead you need to put the blame on ignorant politicians and your unbelievable obstructionism. Talking about children that they need discipline! Shame on you!
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