In Germany, considering a eurozone minus Greece
The coalition government in Germany, the biggest contributor to the eurozone rescue fund, appears split over over a possible sovereign default for Greece.
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The FDP can count on the support of a number of parliamentarians from Merkel’s own party, and on the German public.Skip to next paragraph
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Seventy-six percent of Germans are against an expansion of the eurozone rescue fund, while only 18 percent are in favor, according to a poll commissioned by the public broadcaster ZDF.
Germany is the biggest contributor to the rescue fund, it already accounts for 123 billion euros ($168 billion) of the 440 billion euros ($602 billion) of EFSF guarantee commitments. Parliament will vote on increasing this amount to 230 billion euros ($314 billion) – two thirds of the entire German budget.
Meanwhile German media report that Finance Minister Wolfgang Schäuble is working on two scenarios for a Greek default. One has Greece still in the eurozone, while the other assumes the reintroduction of the Greek drachma. Current eurozone regulations do not provide for this option and officials were keen to stress that this was just a thought experiment.
“The eurozone treaty does not foresee a country leaving the common currency,” chancellery spokesman Steffen Seibert told reporters. Merkel has repeatedly spoken of her conviction that the eurozone as a political project was vital to stability in Europe and should be preserved at all costs.
But it’s not just German politics that has added to the debate about a Greek default – news out of Athens don’t help either.
The recession in Greece is worse than expected, figures released in recent days suggest. The Greek economy is not just shrinking by 3.8 percent this year as forecast in May, but by more than 5 percent. Representatives of the so-called troika – European Central Bank, EU, and International Monetary Fund – last week found a gap of 1.7 billion euros ($2.3 billion) in the Greek budget. And of the 50 billion euros ($68 billion) the government hoped to raise by selling state assets, only 400 million have materialized so far.
On Wednesday, Merkel and French President Nicolas Sarkozy will urge Greek Prime Minister in a telephone conference to increase his efforts in solving the crisis. But given the lack of progress, Merkel’s argument that Greece would need more time to get its debt problem under control does not convince critics that a default can ultimately be prevented.
“The politicians have tried pretty much everything to help Greece out of this predicament,” says Hanno Beck, economics professor at Pforzheim University. “Now they realize it didn’t work, so they just bow to the inevitable.”
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