The Germans say Greek default would mean huge risk, but the issue is being debated quietly
CRUNCH TIME. “The Greeks understand that it’s not five minutes to midnight but 30 seconds to midnight,” says Luxembourg’s finance minister Luc Frieden.
The whole of Europe awaits the outcome of fevered politicking this weekend as the Greek parliament prepares to vote on a drastic new austerity plan. At stake is a €130 billion loan package in the country’s second bailout, the possibility of an explosive default and the country’s membership of the euro.
The dynamic has changed in many ways since Europe embarked on the first, unsuccessful bailout two years ago. Back then, EU leaders would tolerate no talk of any country leaving the currency. But Germany and France broke the taboo last autumn, and the question won’t go away.
After a bruising encounter on Thursday with his EU peers, Greek finance minister Evangelos Venizelos said his country must now decide whether to accept the pain and stay in the euro. “If we see the salvation and future of the country in the euro area, in Europe, we have to do whatever we have to do to get the programme approved.” Right now in Brussels, the betting suggests Greek leaders will be able to muster a parliamentary majority and find an additional €325 million in cutbacks.
The big question remains whether they and the administration they run are capable of delivering swingeing reforms for many years to come. Confidence in Greece is at such a low ebb that any further laxity on that front would raise questions over the country’s continued membership of the euro.
There is, of course, no legal mechanism to leave the currency, and lawyers say the only option may be to leave the EU outright. Yet laws can be rewritten. In official circles the saying goes that it should be no stretch for a political system capable of adopting the same currency in 17 countries to reintroduce another currency in one of them.
The big concern is the threat of a contagion impact on other euro zone weaklings, as markets sense blood and topple them one by one, like dominos. It doesn’t matter that Ireland’s recovery prospects are better than those of fellow bailout recipient Portugal. Any departures, no matter what steps are taken to minimise the fallout, would be risky.
Still, officials in certain euro zone countries believe the authorities are slowly gaining the power to fight against contagion. This is rooted in confidence in Italy’s technocratic government and the newly elected Spanish government, and faith in the European Central Bank’s efforts to prop up frail countries and the banking system.
The absence of contagion as Athens dilly-dallied during the ongoing talks on the second bailout is seen to have weakened the hand of Greek negotiators. Moreover, it strengthened the hand of the fiscal hardliners in Europe as they pressed for deeper and deeper cuts from Greece.
Still, it’s another thing to say Europe is now willing to pull the plug on Greece if the second bailout goes awry. If the chatter suggests some powerful figures in Germany are willing to do just that straight away, high-level political sources stress that there are many strains to the debate in Berlin.
The official position of the Merkel administration remains that any default would present incalculable risk and would, therefore, not be in the interests of Germany, Greece or Europe.
In the background, however, the debate is under way. Neelie Kroes, an EU Commission vice-president, declared in a Dutch paper this week that the euro zone could survive a Greek departure.
While the commission said her remarks had been misinterpreted, Ms Kroes said there was no error in the original reportage. "Let's be clear," she wrote on Twitter. " Volkskrantdid not misinterpret me, others who didn't read full interview may have. Important distinction."
There will be more of this.