Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

The euro in crisis: Groping towards Grexit

Posted by hkarner - 15. Mai 2012

Date: 15-05-2012
Source: The Economist

EVEN in a grouping as fractious as the euro zone, tonight’s falling-out was remarkable. Jean-Claude Juncker, who presides over the zone’s finance ministers, lashed out at the many figures who have more or less openly threatened Greece with expulsion from the euro if it does not abide by its programme of economic reforms and austerity measures.

With Greece in deep political turmoil (some are even talking apocalyptically of civil war) after voters backed an incoherent constellation of anti-austerity parties, European central bankers and finance ministers have been warning Greece that its departure from the euro is inevitable if it does not abide by the terms of its bailout.

One of the bluntest warnings came from the president of the European Commission, José Manuel Barroso, who told Italy’s SkyTG24: “If a member of a club does not respect the rules, it’s better that it leaves the club—and this is true for any organisation or institution or any project.”

Mr Juncker, who is also Luxembourg’s prime minister, was having none of this. Speaking at the official press conference at the end of a five-hour meeting of euro-zone finance ministers, he let rip:

I made it perfectly clear that nobody was mentioning an exit of Greece from the euro area. I am strongly against. We are 17 member-states being co-owners of our common currency. I don’t envisage, not even for one second, Greece leaving the euro area. This is nonsense, this is propaganda. We have to respect Greek democracy. I’m against this way of dealing with Greece, [which consists] in provoking the Greek public opinion and giving advice and indications to the Greek sovereign. Greece has voted, we have to take into account the result. We do hope that a government will be formed in the next coming days or weeks and then we have to deal with that government. We don’t have to lecture Greece. But the Greek public, the Greek citizens, have to know that we agreed on a programme and this programme has to be implemented. But I don’t like the way of dealing with Greece, those that are threatening Greece day after day. This is not the way of dealing with partners, colleagues and friends and citizens in the European Union.

Mr Juncker’s comments are all the more striking given that, just next to him, Olli Rehn, the Finnish commissioner for economic and monetary affairs, delivered the now-standard warning to Greece about the danger of rejecting the bailout conditions set by the EU and IMF:

The EU-IMF programme is a very substantial expression of solidarity and support for Greece by the other 16 euro-area member-states. It is in fact a solidarity pact between the other 16 euro-area member-states and Greece, between the 16 parliaments and the Greek parliament. This is what Europe is about. But solidarity is a two-way street. It is a fact that calls for respect of commitments both by the 16 euro-area member-states and also by Greece and its government and parliament. Without a Greek commitment this solidarity pact won’t work, and this is the responsibility of Greek politicians in this very critical juncture. Hence the future of Greece and the welfare of its citizens lie more than ever on the shoulders of Greek politicians to keep their part of the solidarity pact.

One might conclude that Mr Juncker and Mr Rehn were playing good-cop, bad-cop with Greece. More likely, their comments reflect two factors. The first is that Mr Juncker feels free to speak out because he will step down as the group’s president (he recently criticised the behaviour of France and Germany). The second is that the euro zone is deeply divided about how to deal with the insubordination of Greek voters—and whether the euro zone can withstand the shock of a Greek departure from the currency union. Mr Juncker left open the possibility of renegotiating the Greek package “in exceptional circumstances”, but only once a new Greek government had been formed and had accepted the reform programme.

Officials such as Mr Rehn argue that, two years into the debt crisis, the euro zone is more prepared than ever for what is now known as “Grexit”, having raised its firewalls and started recapitalising vulnerable banks. The manifest fear in the markets, though, suggests that investors are far from convinced about the robustness of the system.

The signs are that nobody really wants a bust-up. Greek opinion polls suggest three-quarters of Greeks want to remain in the euro. And the euro zone can hardly relish the prospect of a Greek default and exit so soon after it agreed to a second bailout for Greece in March. Klaus Regling, head of the euro zone’s rescue fund, known as the European Financial Stability Facility, said the euro zone has lent Greece €108 billion ($139 billion) in the past two months alone.

At the very least, euro-zone countries will want to avoid a break-up before July 1st, when the more powerful permanent rescue fund, the European Stability Mechanism, comes into force. German sources said this could be used to recapitalise fragile Spanish banks as a means of preventing the spread of contagion. Intriguingly, Mr Juncker said that €1 billion that had been withheld from the latest tranche of bailout money in recent days would, after all, be paid out.

Greek parties seem to have convinced themselves that the euro zone is bluffing about ejecting their country. But Germany and others are determined to disabuse them. The recent menaces seem designed to achieve two goals: to exert pressure on Greeks to support more mainstream parties in a likely second round of elections, and to prepare markets for the likelihood of Greece’s departure if radicals are returned.

For now, attention turns to tonight’s much-awaited meeting in Berlin between the new French president, François Hollande, and Angela Merkel, the German chancellor. The discussion will focus on Mr Hollande’s call for a greater emphasis on stimulating growth (see my columns, here and here). But against a sharpening tone, his precise demands remain unclear. German ministers are worried he will press for a big stimulus, as well as for the mutualisation of debt through Eurobonds—as endorsed by a committee of the European Parliament.

Despite much talk of growth, on substance Mr Hollande did not seem to get much support from the Eurogroup; if anything, Mr Hollande may have to embark on austerity himself. Though Mr Juncker said Europe needs a thorough debate on growth, he read out a statement from ministers declaring that the current strategy for fiscal consolidation (ie, austerity) “remains appropriate”. Ministers praised two other rescued countries, Ireland and Portugal, for remaining “on track” with their adjustment programmes. And they were particularly effusive towards the Netherlands, whose parliament adopted a belt-tightening budget even after the government had fallen.

There was no sign of expected proposals from the European Commission to extend deadlines for some countries to reach their deficit targets. Nor did there seem to be much support for an Italian idea of excluding from the calculation of deficit targets some spending on “investment”.

One issue Mr Hollande and Mrs Merkel will have to discuss is who should replace Mr Juncker as head of the Eurogroup. The frontrunner is Wolfgang Schäuble, the German finance minister. But Mr Hollande may have misgivings about having a prominent German take over the job. After his performance tonight, Mr Juncker seems to have killed off the idea, favoured by some, that he would be asked to stay on.


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