Merkel Ready For Greek Eurozone Exit

Merkel greeceGerman Chancellor Angela Merkel is prepared to let Greece leave the eurozone if Greeks elect a government that jettisons the country’s current austerity course, Germany’s Der Spiegel news weekly reported Saturday.

The report, which cited sources close to the German government, comes as polls show a radical leftist party leading the field three weeks ahead of a snap election in Greece.

Both Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble believe the euro zone has implemented enough reforms since the height of the regional crisis in 2012 to make a potential Greece exit manageable, Der Spiegel reported.

“The danger of contagion is limited because Portugal and Ireland are considered rehabilitated,” the weekly news magazine quoted one government source saying.

In addition, the European Stability Mechanism (ESM), the euro zone’s bailout fund, is an “effective” rescue mechanism and was now available, another source added. Major banks would be protected by the banking union.

The German government in Berlin could not be reached for comment.

It is still unclear how a euro zone member country could leave the euro and still remain in the European Union, but Der Spiegel quoted a “high-ranking currency expert” as saying that “resourceful lawyers” would be able to clarify.

According to the report, the German government considers a Greece exit almost unavoidable if the leftwing Syriza opposition party led by Alexis Tsipras wins an election set for Jan. 25.

The Greek election was called after lawmakers failed to elect a president last month. It pits Prime Minister Antonis Samaras’ conservative New Democracy party, which imposed unpopular budget cuts under Greece’s bailout deal, against Tsipras’ Syriza, who want to cancel austerity measures and a chunk of Greek debt.

Opinion polls show Syriza is holding a lead over New Democracy, although its margin has narrowed to about three percentage points in the run-up to the vote.

German Finance Minister Schaeuble has already warned Greece against straying from a path of economic reform, saying any new government would be held to the pledges made by the current Samaras government.

The recovery underway in other formerly problem economies such as Ireland and Portugal, establishment of a permanent eurozone bailout fund and creation of a banking union all bolstered Berlin’s belief that the contagion from a fresh Greek crisis would be limited, the report added.

 

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