Greek default now unavoidable, says former German finance minister

 

GERMANY SHOULD admit a Greek default is now a matter of “when” rather than “if”, according to former finance minister Peer Steinbrück.

Now a Social Democrat (SPD) backbencher, Mr Steinbrück called on the European Commission to accept the inevitable and organise a restructuring conference “on a lonely Greek island . . . without journalists”.

“We should no longer talk about the ‘if’ of restructuring and rather just the ‘how’ . . . I simply don’t understand the wait-and-see attitude of the [German] coalition,” said Mr Steinbrück.

“Everyone’s talking about the dangers of a restructuring but no one is talking about the dangers of continuing the status quo . . . of muddling through with a series of rescue packages: that could be more dangerous because it could lead to a disorderly state insolvency.”

Ahead of a second Greek bailout package, Mr Steinbrück said it was “purely a political decision” not to force losses on private owners of sovereign bonds.

In an interview with Ciceromagazine, appearing today, the 64-year-old suggested his finance minister successor, Wolfgang Schäuble, realised there was no way around a Greek restructuring.

In addition to the permanent European Stability Mechanism, he said Europe urgently needed a similar structure for Europe’s banks as a once-and-for-all solution to the euro zone crisis.

“We need such an instrument for orderly European bank insolvencies as an answer to the ‘too-big-to-fail’ problem,” said Mr Steinbrück.

Today’s interview is the clearest indication yet that Mr Steinbrück wants the party nomination to stand against Chancellor Angela Merkel in 2013. After helping the chancellor steer Germany through the early days of the credit crisis, Mr Steinbrück’s message is clear: after years of expensive Merkel sticking-plaster solutions, elect me for quick decisions to get Germany and the EU back on track.

Since entering opposition, Mr Steinbrück has made regular contributions to the debate on the euro zone crisis, such as a proposal for “euro bonds”. At the weekend, several newspapers carried reports that he had begun consulting with party grandees for the 2013 nomination.

He is not alone in his criticisms of the Berlin coalition: ex-Bundesbank president Axel Weber said it was time for the euro zone to “cut [its] losses and restart the system”.

“Ultimately, solving the Greek debt problem will have to deal with the outstanding, past amount of debt, and there are, unfortunately, only very limited options: either a default or partial haircuts or a guarantee for the outstanding amount of Greek debt,” Prof Weber told the Wall Street Journal.

“Governments have to decide which option they want to go for, but the current piecemeal approach of repeated aid programmes inevitably leads to the latter solution.”

His remarks come amid growing signs of euro zone rescue fatigue in Germany. A weekend poll found 71 per cent of Germans had “less”, “barely any” or “no trust whatsoever” in the single currency.