11/02/2011 01:29 PM

The World from Berlin

Greek Exit From Euro Zone Just a 'Matter of Time'

Last week, it looked as though the euro had been saved. Now, in the wake of Greek Prime Minister Papandreou's announcement of a national referendum on the bailout package for his country, the common currency is even closer to the abyss. Still, say German commentators, it may have been the right move.

Despite its location on France's glamorous Cote d'Azur, Wednesday evening's meeting likely won't be a pleasant one for Giorgios Papandreou. The Greek prime minister is set to meet with German Chancellor Angela Merkel and French President Nicolas Sarkozy. None of them, one presumes, will be in the mood to enjoy their enchanting surroundings.

Leaders of the world's most powerful economies begin arriving on France's south coast on Wednesday night for the Thursday kick-off of this year's G-20 summit. Host Sarkozy had been hoping the gathering would focus on raising funds to boost the effectiveness of the euro backstop fund, the European Financial Stability Facility (EFSF), but the success of the meeting is now in doubt. Papandreou's announcement on Monday evening that he was planning to hold a referendum on the EU bailout package for his country has shocked and infuriated his would-be benefactors -- and sent global markets into yet another tailspin.

The news came less than a week after an all-night bargaining session in Brussels that resulted in an agreement to slash Greek debt by 50 percent, make a further €130 billion in loans available to the country and leverage the EFSF to €1 trillion. Markets immediately calmed and the euro began climbing against the dollar.

A Danger to the Euro

The Greek prime minister's announcement, however, quickly transformed the budding optimism into deep pessimism about the future of the common currency. Should Greek voters, frustrated by round after round of deep austerity measures, reject the bailout deal, it could result in an uncontrolled national bankruptcy. Markets will likely remain nervous until the results of the ballot are in -- meanwhile the euro will move even closer to the abyss.

As if to highlight the dangers, German banks on Wednesday announced they were postponing their acceptance of the Greek debt haircut until after the referendum. Without voluntary bank approval, Greece faces a disorderly bankruptcy which could accelerate contagion throughout the euro zone.

Papandreou's decision, said European Commissioner for Energy Günther Oettinger, "puts the euro in even greater danger."

Still, not everyone was completely repulsed by Papandreou's decision. After all, the Greeks are being asked to put up with severe belt-tightening measures and providing those austerity packages with even more democratic legitimacy could take the wind out of the sails of those who would protest them. The cabinet in Athens on Wednesday unanimously approved the referendum plan. It remains unclear exactly when the referendum might take place, but some officials hinted on Thursday that it could happen before the end of the year.

German commentators on Wednesday take a look at the impending referendum.

The Financial Times Deutschland writes:

"There are many who have, since Monday, been posing the impolite question: Has the Greek prime minister gone crazy? The answer is 'no.' Papandreou merely recognized that his back is to the wall as never before -- and that he will have just as much trouble selling last week's bailout package to the Greek public as he has the radical austerity path his government has followed. Greece's debt crisis has long since become a crisis of democracy. Given this situation, Papandreou decided to take the option of last resort."

"There is much to criticize: the lack of coordination with his European partners; the apparent lack of a real plan to present to his countrymen and women. Most of all, however, his apparent indifference to the collateral damage a negative vote would have for Europe and its common currency."

"It is a risky bet. If, however, Papandreou ... is able to convince his people of the correctness of his path, then the euro bailout efforts would be on much more stable ground than has been the case thus far."

The center-left Süddeutsche Zeitung writes:

"As tough as it sounds, Greek politics is no longer just the business of the Greeks alone. ... Greece's fate also determines that of the other 16 euro-zone members. And if it's true that the future of the European Union hangs on the euro, then the entire project is in jeopardy. The summits in Brussels last week were an expression of the responsibility that Europe is willing to take on for Greece. But where then is Greece's responsibility for Europe?"

"With his unilateral decision to hold a referendum, Papandreou has tossed Europe back into the uncertainty of the days before the EU summit. Worse still, while it was at least possible to take steps forward in the last few weeks, now a complete standstill looms. What further steps could possibly be taken when no one will know for weeks, or perhaps months, how much longer Greece will remain part of the euro?"

"Giorgios Papandreou has some hard months behind him. The courage and political resolution that he has shown so far deserve the highest respect. One can even understand that the prime minister finally wants some clarity, and not least to discipline the destructive opposition in his country. Therefore it wouldn't be just bitter irony if he were to lose in the parliamentary vote of confidence or later in the referendum. It could also be very expensive for Europe."

Conservative daily Die Welt writes:

"The Greek exit from the euro zone seems like only a matter of time. This doesn't mean an end to European solidarity. Greece will certainly need further support from its partners. But an exit would only be the very late acknowledgment of economic realities. Only with a national currency do the Greeks have any real chance of strengthening their competitiveness through currency devaluation."

"But even this radical step won't quiet the situation in Europe. The fear that Italy will also begin to tumble has long worried the financial markets.... Should debt-plagued Italy need to take shelter under the rescue fund, none of the EU resolutions made thus far would be adequate. Then the conflict between Germany and France over whether we're willing to give all we have to guarantee the indebted countries will start anew. And that would mean that measures successfully rejected so far by Chancellor Angela Merkel -- such as euro bonds or a bank license for the European rescue fund -- would be back on the table."

"The Greek prime minister is comparable to a Roulette player who bets everything on a single number. And unfortunately it seems like he's not the only gambler among Europe's politicians."

The center-right Frankfurter Allgemeine Zeitung writes:

"Papandreou, who could fall any day, is playing a game of 'all or nothing.' ... That could lead some Germans -- who may no longer feel represented by the unanimity of German political parties on European issues -- to question why Greeks are allowed to vote on the bailout package even as Germans aren't allowed to vote on whether they and their children want to shoulder billions for this purpose. That could clarify why the outrage over this news from Athens is so great in Berlin."

The left-leaning daily Die Tageszeitung writes:

"Predictions that the Greek voters will reject the debt haircut are too premature. Most know that their country would have been bankrupt in November without bailout measures. But they also know that the 'haircut' from Oct. 26 also won't protect them from being scalped in the end. It's clear to everyone that the rigorous austerity measures that are strangling their future prospects will continue."

"To mobilize the voters, Papandreou must emphasize what the EU debt haircut agreement has brought them -- the promise that their country won't be shut out of the euro zone. A return to the drachma is a nightmare scenario for two-thirds of the population. But even an affirmation in a referendum won't end the protests against the austerity measures. The prime minister's high-wire act will continue even if he's victorious."

Financial daily Handelsblatt writes:

"It would probably be best for the euro zone if Greek Prime Minister Papandreou lost the parliamentary vote of confidence at the end of this week. Then it would be clear that Greece would denounce its partners and the euro zone could concentrate on countries, like Ireland and Portugal, which are determined to contribute for their part of the rescue fund."

"Internally Greece is so divided that one can no longer be sure if the will for self-help survives. And a drowning person who throws the life preserver back can't be saved."

"The question is, however, whether there is still enough time to wait out the referendum, and whether, after the last two years of the Greek drama, another quarter of a year of uncertainty is imaginable. ... Euro-zone politicians have hardly any other choice but to avoid another months-long cliffhanger. That could be successful if the irresponsible conservative opposition is finally put under some serious pressure. Europe could turn the tables and begin a game of blackmail by threatening to take back the rescue aid if Greece doesn't quickly clear things up. But that would be risky too -- and it also means more waiting."

-- Charles Hawley and Kristen Allen


Related SPIEGEL ONLINE links:

All Rights Reserved
Reproduction only allowed with permission