Germany steps back from remarks on Greek debt

GERMANY HAS distanced itself from the comments of two advisory economists that a Greek debt restructuring is unavoidable.

Amid a growing German chorus over Greece, Chancellor Angela Merkel is facing talk of a rebellion within her own Christian Democrat (CDU) ranks as MPs threaten to vote against the permanent EU bailout fund (ESM).

Prof Lars Feld of the University of Freiburg, one of the “five wise men” who advise the chancellor, said: “I’m afraid that Greece won’t get out of this situation without some form of restructuring.”

He said a Greek restructuring would not necessarily have a disastrous effect because restructuring did not automatically mean losses for investors. Viable alternatives included extending loan lifespans or allowing loans be bought up by a European institution.

“Now it’s about making sure that markets see that will get involved if a country is indebted but that this will have to involve restructuring of private debt,” said Prof Feld, pointing out that investors were already expecting losses of 30 per cent.

Extending the lifespan of loans “might even work out a little cheaper” for investors, he added.

Leading German investors in Greece include two institutions in full or partial state ownership: property lender Hypo Real Estate and Commerzbank.

Asked about the views on the economic advisers, Chancellor Merkel’s spokesman said the German leader was “grateful” for their advice.

“On the other hand we have to make and stand by our decisions, something I think is an appropriate division of labour,” said Dr Christoph Steegmans. “I think we are well advised to bring confidence to the markets and not to erode trust through any kind of premature commentaries, thus we are cautious in such situations.”

Several German government politicians have conceded in private that, in the words of one, “Greece might not make it through the summer”.

Meanwhile one CDU backbencher has said “around 30 to 40” government MPs are opposed to the permanent ESM fund. “I wouldn’t rule out that the coalition will lack the necessary majority,” said Klaus-Peter Willsch.

Leading members of Dr Merkel’s coalition partner the liberal Free Democrats (FDP) have also come out against the ESM in its present form.

“Whether a country gets money from Germany – as in the case of Greece and Ireland – is decided by the Bundestag,” said Otto Fricke, FDP budget spokesman. He added that although the majority in Germany supported European projects it did not mean that a majority were in favour of all proposed financial aid projects.

The German leader let it be known through her spokesman that she was not overly concerned by growing reports of unrest in her CDU parliamentary party.