Eurozone 'wants Greece to stay' but countries plan for 'Grexit'

May 24, 2012
Tim Edwards

German central bank says a Greek exit would be manageable and eurozone countries are drawing up contingency plans

AFP/Getty Images

GERMANY'S central bank has joined calls for Greece to be forced out of the euro if the debt crisis comes to a head. The news comes as it emerged that eurozone countries had been advised to draw up their own plans to cope with a 'Grexit' from the single currency.

The fresh pressure on Greece coincided with an informal summit last night, attended by leaders of the 27 European Union members, at which the pro-growth countries appeared to be gaining the upper hand in the argument with pro-austerity Germany as to how to deal with the interminable eurozone debt crisis.

Germany's Bundesbank has said Greece's ejection from the euro would pose  "considerable but manageable" challenges, The Daily Telegraph reports. "When the Eurosystem provided Greece with large amounts of liquidity, it trusted that the programmes would be implemented and thereby ultimately assumed considerable risks," said the bank. "In the light of the current situation, it should not significantly increase these risks." The Telegraph notes that the message to Greece is that "Germany will not submit to blackmail from populist politicians in Athens". Alexis Tsipras, leader of the newly popular left-wing Syriza grouping who has said he wants to renegotiate the terms of his country's bail-out, is clearly the target of the Bundesbank's warning.

The Eurogroup Working Group - experts who advise the single currency finance ministers - have "agreed that each eurozone country should prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro", The Independent reports. Athens has angrily denied the claims and the European Commission said: "We are not preparing such a plan, though we are ready to face any eventuality." European Council president Herman Van Rompuy, speaking at last night's summit, gave some reassurance to Athens, saying: "We want Greece to remain in the euro area while respecting its commitments."

The new French president Francois Hollande insisted at last night's EU summit that 'eurobonds' should be issued to save the single currency.
Eurobonds would mean the pooling of debt by all eurozone countries so that all single currency members could borrow money at an interest rate of about 4 per cent. While this would be highly attractive to struggling peripheral members of the eurozone, it would be hard to swallow for Germany, which is currently borrowing at record low rates because of its safe haven status.

Chancellor Angela Merkel argued that eurobonds are illegal under current EU law and the German constitution. "The [EU] treaties forbid taking on a mutual liability. That includes in our opinion also eurobonds. They are not a contribution to foster growth in the eurozone," she said.

However, the idea of eurobonds is gaining currency, so to speak.
"Merkel appeared rather isolated," observes The Guardian, "while Hollande enjoyed the discreet support of the Spanish and Italian governments as well as of the European Commission."

David Cameron has been arguing that the eurozone should adopt pro-growth policies for some time now – and he did so again at the EU summit last night. However, following calls from the IMF this week for the UK to introduce "fiscal easing measures", it seems Cameron has decided to pursue growth policies closer to home, too. The Independent reports that the PM is to join his Lib Dem deputy prime minister Nick Clegg to urge the Treasury to fund infrastructure projects, house building and ensure more lending from banks to businesses.

 The Labour party would say the Coalition has finally caved in to pressure to introduce a 'Plan B' for the economy – as opposed to the 'Plan A' - austerity. The Independent says that some Liberal Democrats prefer to "see the change of emphasis as a 'Plan A plus'".

(Pictured, 1st row: European Council President Herman Van Rompuy, Cypriot President Demetris Christofias, Romanian President Traian Basescu and European Parliament President Martin Schulz 2nd row: Portuguese Prime Minister Pedro Passos Coelho, German Chancellor Angela Merkel and Finnish Prime Minister Jyrki Katainen)

Sign up for our daily newsletter

Disqus - noscript

Someone please tell that foolish Merkel that it will not be a Greek exit that will cause the collapse of the Eurozone. It will be the top heavy infrastructure of the Euro that rests on weak legs (weaker economies) and ends up crashing whoever is foolish to get below it. It is a system of master/slave in perpetuity. I pray Greece goes back to the drachma. The EU is a failed experiment, accept it and move on. There is no shame to say we screwed up but there is shame in blaming others. Merkel stop eating too much bradworst and try some suvlaki