Make Greece 'offer it can't refuse' to leave euro zone

Mon, Feb 27, 2012, 00:00

GREECE SHOULD be “made an offer it can’t refuse” to leave the euro zone, according to one of Chancellor Angela Merkel’s cabinet ministers, ahead of a vote today on Germany’s contribution to a second bailout.

With almost two-thirds of Germans opposed to further assistance to Athens, according to a new poll, interior minister Hans-Peter Friedrich suggested the EU should “create incentives for an exit” by Greece.

“Outside European monetary union, Greece’s chances of regenerating itself and becoming competitive are definitely better than if it remained inside the euro zone,” said Mr Friedrich to Der Spiegel, insisting he did “not mean that Greece should be kicked out” of the 17-nation bloc. Mr Friedrich’s remarks reflect widespread pessimism in Germany’s ruling coalition government that bailouts are the correct medicine.

Norbert Bärthle, budgetary spokesman in Dr Merkel’s Christian Democratic Union (CDU), conceded he “has certain doubts” that the bailout will have the desired effect of helping push Greek deficit to a sustainable level.

On Friday, finance minister Wolfgang Schäuble told sceptical MPs that a third Greek bailout could not be ruled out.

Despite the increasingly gloomy outlook for Greece among Berlin politicians, Dr Merkel is likely to get her government majority this morning for further bailout payments.

Her chief whip, Volker Kauder, dismissed talk of a revolt in his ranks yesterday, saying “we shouldn’t push anyone out” of the euro zone. “We have to ensure stability, it is up to everyone themselves to decide,” said Mr Kauder.

“We want to keep Greece in the euro zone, otherwise it would send a bad signal. We’re all aware of our responsibility and I’m sure tomorrow will go well.”

About a dozen government MPs are set to vote against Berlin’s participation in a second bailout in the Bundestag, where Dr Merkel’s coalition has a 19-seat majority.

A rebellion of 20 or more government MPs would be a political loss of face for the German leader. But the bailout is likely to be passed, with two of the three opposition parties in favour.

The opposition Social Democrats (SPD) attacked Mr Friedrich’s exit remarks as “irresponsible”, while the Green Party demanded that Dr Merkel put an end to this “chatter” about euro zone departures.

“If Greece leaves the euro zone it will have a domino effect that will, among other things, end up costing us jobs here,” said Renate Künast, Green Party parliamentary co-leader.

The remarks from Mr Friedrich – a member of the CDU’s Bavarian sister party, the Christian Social Union (CSU) – have been put down to nervousness ahead of next year’s Bavarian state elections. Munich’s Ifo economic institute joined the critical chorus yesterday, urging politicians to refashion the second bailout into a payoff for Greece to go. “It would be a more sensible way of spending €130 billion,” said Dr Kai Carstensen, Ifo chief economist.

Mr Schäuble prompted speculation on the fringe of the G20 meeting in Mexico that Germany may give up its opposition to boosting the volume of the euro zone bailout fund. He repeated his insistence that, in Berlin’s eyes, a solution to the euro zone crisis did not lie in “mutualising risk . . . nor starting up the printing presses”.

Then he added that Berlin would “reach our decision, as agreed by heads of government, during the month of March”.

Previously, German officials insisted that the volume of the permanent ESM bailout fund was adequate and did not require topping up with the remaining €24.4 billion in the temporary EFSF fund.

Senior G20 diplomats suggested Germany’s position is likely to change after today’s Berlin vote.