The World From Berlin Germans 'Irresponsible' to Think Aloud About Greek Default

Greece outlined fresh budget cuts this weekend, but some members of the German government in Berlin are nonetheless speaking openly about the possibility of a Greek default and the country's departure from the euro. German media commentators say doubts about Athens' reform pledges are justified, but that an insolvency is far riskier than providing loans. 
Greek Prime Minister George Papandreou (R), flanked by Finance Minister Evangelos Venizelos, outlining new budhet cuts on Sunday.

Greek Prime Minister George Papandreou (R), flanked by Finance Minister Evangelos Venizelos, outlining new budhet cuts on Sunday.


Greek Prime Minister George Papandreou held another speech on Saturday vowing to forge ahead with budget cuts and structural reforms to qualify for the continued payout of aid from its euro-zone partners and the International Monetary Fund (IMF). His government followed up the pledge on Sunday by introducing a new tax on real estate to raise about €2 billion ($2.7 billion) by the end of this year to help meet the 2011 budget deficit target, estimated at around 8.1 percent of gross domestic product. The government also announced plans to speed up privatizations and lay off public-sector workers.

"We decided to fight the battle to avoid a disaster for the country and its people and to stay in the euro," Papandreou said in his annual economic speech at a trade fair in the northern city of Thessaloniki. "Any delay and wavering is dangerous for the country." Outside, more than 20,000 protesters gathered to demonstrate against cuts. Police fired tear gas at youths smashing shop windows and setting fires on the main shopping streets.

German media commentators say Papandreou has held such firebrand speeches before, and then failed to deliver on his promises. The budget goals Greece agreed with the European Union, the European Central Bank and the IMF look increasingly out of reach because the Greek recession is worse than expected. The government revised its 2011 GDP forecast to a decline by 5.3 percent from an earlier projection of a 3.8 percent fall.

Doubts over Next Loan Tranche

Greece's failure to keep up the pace of reforms has cast doubt on the payout of the next loan tranche of €8 billion from the first Greek bailout package agreed last year. If it doesn't get that tranche, the country will be bankrupt by the end of the month.

Until now, Chancellor Angela Merkel's center-right coalition has maintained that it wants to prevent a Greek default and keep the country in the euro zone. But members of the government, frustrated by Greece's lack of progress and keenly aware that German voters are increasingly alarmed at the prospect of footing the bill for the euro crisis, have started to call that line into question.

The vice chancellor and economy minister, Philipp Rösler, leader of the pro-business Free Democrats, broke ranks with the government in a guest commentary for conservative newspaper Die Welt on Monday in which he said: "To stabilize the euro, there can no longer be any taboos. That includes, if necessary, an orderly bankruptcy of Greece, if the required instruments are available."

SPIEGEL reported that German finance ministry officials were preparing for the possibility of a default  by Greece and working through scenarios including the reintroduction of the drachma.

Horst Seehofer, the leader of the Christian Social Union, the Bavarian sister party to Merkel's conservative Christian Democratic Union, said the possibility of Greece leaving the euro zone should no longer be ruled out. Asked if an exit from the euro zone was a possibility, he told German public broadcaster ZDF on Sunday night: "If the Greeks do not succeed, despite all their efforts, then you cannot rule out considering this."

The CSU leadership is due to approve a draft motion on Monday stating that euro member states that fail to adhere to budget discipline rules and get the euro zone into trouble "must expect to have to leave the monetary union." The motion is due to be put to the vote at the CSU's annual party congress in October.

German media commentators show little faith in Papandreou's latest pledges to forge ahead with budget cuts. But some warn that a Greek default and exit from the euro zone harbors major risks for other struggling nations in the currency bloc -- and that German government politicians are exacerbating the crisis by openly talking about a default and a euro exit just to satisfy domestic public opinion.

Shares on European stock markets continued to fall on Monday on fears about the euro crisis, with the DAX down 3 percent in morning trade.

The center-left Süddeutsche Zeitung writes:

"Papandreou promised a Titanic struggle. Athens, he vowed, would meet all its obligations. He held a blood, sweat and tears speech over the weekend. It wasn't his first. One hears these speeches, one sees Papandreou, an evidently honest politician who is really making an effort, and one wants to believe him. But one hardly dares to anymore. One has often heard the words, and they were rarely followed by deeds."

"The prime minister has made enormous cuts, but only in those areas where cutbacks were easy: pensioners and private sector employees. The hesitant Papandreou has barely delivered on the structural reforms that are more important in the long term."

"Now Papandreou has again promised that everything will be different. It will probably be his last chance. But does he really want to share the fate of the Titans? They fought their big battle against Zeus. They lost and were sent down into the underworld."

The conservative Die Welt writes:

"The most recent budget and economic figures from Athens have dashed the remaining hopes that a rescue of Greece might succeed. The confidence of Europeans in the will of the Greek government and population to turn things around has reached a new nadir. Vice Chancellor Rösler is the second German government member to declare that a Greek insolvency is no longer taboo. He did this at a time when the Greeks with their delaying tactics are giving the wealthy Europeans the impression that their efforts are slackening because they are confident of being bailed out by taxpayers in Hamburg, Munich or Paris. The German government has given a clear signal countering this: One can't and shouldn't rely on that. The limit has been reached."

"Europe is a gift. We Germans in particular have much to thank the continent for: reconciliation, peace, growth and unification. But precisely because this is the case, we mustn't accept the Greeks' lack of solidity and solidarity without being able to threaten them with eviction from the euro zone if necessary. This pressure isn't anti-European, it is pro-European."

The Financial Times Deutschland writes:

"It is not very helpful if German government members start thinking out loud about a Greek insolvency. Finance Minister Wolfgang Schäuble or Philipp Rösler are free to draw up plans for all eventualities. But it is irresponsible if the vice chancellor, motivated by domestic political factors, goes public with them. Even those members of the coalition who are skeptical about efforts to rescue Greece should have realized by now that such debates produce exactly the opposite of stability in the euro zone."

"Until now the official line of the German government has been to prevent a Greek bankruptcy. That was right and remains so. Even if there are valid arguments for a sensible rescheduling of Greek debt -- at the moment the consequences of an orderly or disorderly insolvency would be more dangerous and more expensive than any loan paid out to the Greeks could be. The risk of contagion for other euro countries is too great. The institutions that could permit an orderly insolvency -- like the European Stability Mechanism -- are only now being set up. The supposed solution of a Greek default would trigger the next downward spiral. Europe can afford to finance Greece for a few more years. The Titanic struggle of the Greeks is a struggle affecting all other euro countries."

David Crossland
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