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Greece Might Be Better Off Outside Eurozone, German Finance Minister Says Greece Might Be Better Off Outside Eurozone, German Finance Minister Says
(about 9 hours later)
BERLIN — Germany’s finance minister, Wolfgang Schäuble, suggested on Thursday that Greece might be better off leaving the euro, saying that a temporary exit from the common currency could give the country additional flexibility to reduce its crippling debt load. BERLIN — Despite bitter opposition in many quarters to the austerity-first policies Germany has imposed on Europe’s poorer nations, Chancellor Angela Merkel’s government has hung on to its role as champion of integration on the Continent through deft use of diplomacy and the country’s economic clout.
It was the second time this week that Mr. Schäuble has raised the idea in public. His statement, in a radio interview, came just hours after the Greek Parliament reluctantly approved a package of economic policy changes, demanded by Germany and other creditors, intended to allow Greece to remain in the eurozone and to qualify for a new round of bailout financing. But in negotiating a new deal this week to bail out Greece, Germany displayed what many Europeans saw as a harder, more selfish edge, demanding painful measures from Athens and resisting any firm commitment to granting Greece relief from its crippling debt. And that perception was fueled on Thursday when the German finance minister, Wolfgang Schäuble, suggested that Greece would get its best shot at a substantial cut in its debt only if it was willing to give up membership in the European common currency.
Mr. Schäuble’s statements, a day before the German legislature is expected to approve negotiations on the new Greek bailout, highlighted the continuing debate in Germany about the best path toward resolving the crisis. Mr. Schäuble stressed that he was not pushing the Greeks to take any particular course and that in any case he was only talking about a temporary exit from the euro. But coming a day before German lawmakers are to give the go-ahead to negotiate the details of the bailout package for Athens, his remarks were evidence of a continuing deep ambivalence among conservatives in Germany about the costs of keeping Greece in the currency zone and a greater willingness to question whether the goal of “ever-closer union” in Europe should be reassessed.
It also gave further credence to assertions by some Greek officials that Mr. Schäuble wanted Greece out of the eurozone all along, and underscored the divisions in Europe and beyond over whether Greece can recover from its long economic crisis without a substantial reduction in its debt. Many in Germany still support the idea that keeping Greece in the eurozone is important for the future of the European Union, and German lawmakers are expected to support the new bailout plan, agreed to by European leaders early Monday after a contentious weekend of negotiations, when it comes up for a vote in Berlin on Friday.
Mr. Schäuble emphasized that he would still support the new bailout plan, agreed to by European leaders early Monday after a contentious weekend of negotiations, when it comes up for a vote in Berlin on Friday. But he said that Greece’s debt is too high, and that the eurozone’s rules of membership would not permit debt forgiveness of the sort that many economists say Greece needs. But Mr. Schäuble’s reminder that another option exists — the second time he had raised the idea this week — came at a time when close partners like France are expressing greater willingness to help Greece and some Germans are uneasy that their finance minister’s handling of the situation has hurt their reputation in Europe and around the world.
“We have not said that we will impose this,” Mr. Schäuble said in an interview with Deutschlandfunk radio on Thursday when asked about allowing Greece to take a time out from the eurozone. “We can’t, we don’t want to, and no one has suggested it. But it would perhaps be the better way for Greece.” Critics of the German-led austerity policies have called for boycotts of German products and have suggested that Ms. Merkel and Mr. Schäuble had unjustifiably humiliated Greece and its prime minister, Alexis Tsipras. Italy’s prime minister, Matteo Renzi, said of the German stance over the weekend, “Enough is enough.”
He added, “Greece is in a very difficult situation.” Speaking in Berlin after meeting with members of the center-left Social Democratic Party, Jeroen Dijsselbloem of the Netherlands, who serves as the leader of the eurozone finance ministers, criticized Mr. Schäuble for raising the suggestion of a Greek exit. “If you reach an agreement after such long and hard talks, you have to stand behind it,” Mr. Dijsselbloem said. “And that goes for all sides.”
Mr. Schäuble emphasized that no one was trying to push Greece in one direction or another, but he underlined that forgiving some of Greece’s public debt of more than 300 billion euros, or about $330 billion, is not compatible with membership in the eurozone. He also questioned whether the package that Greece is seeking would be enough to bring the country’s financial situation back into a manageable position. But within Germany, there is still strong backing for being tough on Greece, or even seeing it leave the euro rather than undermine the common currency’s chances of thriving in the future. Mr. Schäuble made his remarks in a radio interview hours after the Greek Parliament voted reluctantly to approve the first set of austerity measures demanded by its European creditors in return for a chance to negotiate the new bailout package, its third in five years. And his remarks came as some Greek officials asserted that he has been in favor of Greece leaving the euro all along.
The new bailout package would provide aid of up to €86 billion over three years, as well as an economic stimulus package for Greece. In return, Greece must put in place a broad series of policy changes, including higher taxes, pension cuts and other steps intended to promote economic growth and to help the government meet its debt payments. “It is beginning to look like a very dirty game that he is playing,” Johannes Kahrs, a Social Democratic lawmaker, said of Mr. Schäuble.
The package provides for further discussions about addressing the sustainability of Greece’s debt, but it is vague about what the European creditors might be willing to accept. Germany, which has said that adhering to the conditions of the bailout should allow Greece to meet it debt obligations in full, has ruled out any outright debt forgiveness. But it has left the door open to discussions about extending repayment periods or reducing interest rates. Mr. Schäuble emphasized that no one was trying to dictate to Greece how it should proceed, but he made a case that forgiving a substantial amount of Greece’s public debt of more than 300 billion euros, or about $330 billion, is not compatible with membership in the eurozone.
France, among other countries, has been pressing for a substantial reduction in Greece’s debt repayments, as has the International Monetary Fund, which said this week that its participation in the bailout plan would be dependent on Germany and the other creditors accepting a larger restructuring of Greek debt than they have been open to so far. “We have not said that we will impose this, we can’t, we don’t want to, and no one has suggested it, but it would perhaps be the better way for Greece,” Mr. Schäuble said in the interview with Deutschlandfunk radio on Thursday when asked about allowing Greece to take a time out from the eurozone.
Mr. Schäuble signaled on Thursday that it might be difficult to reduce the burden of the debt payments sufficiently without some debt forgiveness — a step that he said could not be taken while Greece is a member of the common currency area. He also questioned whether the package that Greece was seeking would be enough to bring the country’s financial situation back into a manageable position.
“Nobody knows in the moment how it is supposed to happen without debt relief, but everyone knows that debt relief is not possible within the eurozone,” Mr. Schäuble said.
His position appeared to be based on European rules that are not interpreted as strictly by other nations, or by the International Monetary Fund, which called this week for deeper debt relief for Greece than Europe has so far been willing to consider. European rules for membership in the euro, such as those governing budget deficits, are routinely skirted or broken.
Mr. Schäuble’s hard-line views on austerity and debt are not limited to him, or even to Germany. Much of Eastern Europe as well as a number of conservative northern countries share his view that Greece has been profligate and should be granted further aid only under the strictest conditions.
But more than anyone, Mr. Schäuble has come to embody the consensus that has helped shape European economic policy for years: that the path to sustained economic recovery for financially troubled countries is to slash spending, raise taxes when necessary and win back the trust of bond markets and other investors by displaying commitment to fiscal prudence — even if that process imposes deep economic pain as it plays out. Supporters point to Ireland, Portugal and Spain as nations that have bounced back to varying degrees after austerity programs; critics point to Greece, which has remained an economic basket case.
Germany’s finance minister since the Greek crisis first erupted in 2010, Mr. Schäuble is known as resilient and forceful, with a Germanic embrace of the rules and a Nietzschean attitude of “That which does not kill us, makes us stronger.” He has held offices in four German governments, from Helmut Kohl’s chief of staff, to Ms. Merkel’s interior and finance minister. Even an attempt on his life in 1990 that left him using a wheelchair kept him from the political stage for less than a year.
Ms. Merkel has ruled out forgiving any of Greece’s debt but has left the door open to a new negotiation over extending the payment terms or reducing interest rates to help bring down Greece’s annual debt payments. But the I.M.F. and some other countries, including the United States, are pressing for Germany to lead Europe in doing more to help Greece.
“I think the I.M.F. raising the debt sustainability issue as clearly as they did, the United States making clear that sustainability had to be dealt with, was a helpful contribution to the conversation because without dealing with some form of debt restructuring, this problem will just come right back,” a senior United States Treasury official said on Thursday, as Treasury Secretary Jack Lew traveled through Europe.
Still, some conservative German lawmakers have indicated ahead of Friday’s vote that they hold reservations about whether they believe Greece fully meets the conditions required to tap assistance from the European Union’s bailout fund, much less qualifies for debt relief.
At a vote to extend the previous bailout package in February, a record number of dissenters from the chancellor’s conservative camp showed growing impatience with the anti-austerity government in Athens, with 29 voting against it. An additional 109 from the some 310 conservative lawmakers indicated they had reservations, although they went along with the vote.
Mr. Schäuble signaled on Thursday that it might be difficult to reduce the burden of Greece’s debt payments sufficiently without some debt forgiveness — a step that he said could not be taken while Greece is a member of the common currency area.
“The more difficult question will be to reach sustainability of the debt, whether a package that is large enough can be agreed upon without any debt reduction,” Mr. Schäuble said. “Then we are back in the situation that debt reduction is not allowed in the eurozone.”“The more difficult question will be to reach sustainability of the debt, whether a package that is large enough can be agreed upon without any debt reduction,” Mr. Schäuble said. “Then we are back in the situation that debt reduction is not allowed in the eurozone.”
There has long been an influential group of German economists who argue that Greece does not belong in the eurozone and that it would be better off using its own currency. In recent days, Mr. Schäuble appears to have come around to that way of thinking. Some analysts said the German finance minister’s discussion of a “temporary” exit from the eurozone for Greece was a veiled attempt to push it out of the 19-member currency union for good. Sony Kapoor, an analyst at Re-Define, a research organization, recalled Mr. Schäuble expressing similar thoughts back in 2012.
The most vocal of those advocating Greece’s exit may be Hans-Werner Sinn, president of the Ifo Institute in Munich, an influential economic research organization. In a statement on Tuesday, Mr. Sinn reiterated his longstanding argument that Greece should adopt its own currency, which it could devalue to make its export products and tourism industry more competitive. “The idea behind couching it in temporary terms is to make it sound less onerous and a bit more compliant with the legal situation,” Mr. Kapoor said. “There is nothing as permanent as a temporary divorce.”
“An exit is the only option,” Mr. Sinn said.