(Updates with comment from Merkel’s spokesman Seibert in sixth paragraph, German government adviser Feld in 11th.)
Sept. 12 (Bloomberg) -- German Chancellor Angela Merkel’s government lurched into open conflict over tackling the debt crisis, as Merkel called for Greece to get more time and her coalition allies suggested it may need to default and leave the euro area.
The deepening divisions underscore Merkel’s challenge of keeping her three-party coalition united behind bailout aid for Greece as she seeks to prevent a breakup of the euro while prodding Europe toward more joint economic and fiscal policies. A state election in Berlin on Sept. 18, the last of seven this year that have seen the coalition parties punished amid bailout fatigue, further adds to the political pressure.
“To stabilize the euro in the short term there can’t be any taboos,” Philipp Roesler, the vice chancellor and economy minister who heads Merkel’s Free Democratic coalition partner, said in an op-ed published in Die Welt newspaper today and e- mailed by his party. “That ultimately includes Greece’s orderly insolvency, if the necessary instruments are available.”
Roesler’s comments contrasted with Merkel’s message in an interview published in the Tagesspiegel newspaper in which she said that Germans must be “patient” with Greece as it strives to reduce its debt. Michael Meister, her Christian Democratic Union’s finance spokesman in parliament, said today that forcing Greece out of the euro “can’t be our goal.”
The euro dropped to its lowest level since 2001 against the yen and slid versus the dollar today on speculation that Germany is preparing for a Greek default. The 17-nation currency fell to a six-month low versus the dollar last week as credit-default swaps showed a more than 90 percent probability that Greece won’t meet its debt commitments.
Merkel’s call for patience “doesn’t contradict” the requirement for Greece to meet debt-reduction goals to continue receiving bailout aid, Steffen Seibert, Merkel’s chief spokesman, told reporters in Berlin when asked about the differing views in her coalition.
Euro countries that can’t service their debt “in the foreseeable future” must have the chance to restructure it, the Christian Social Union, the Bavarian ally of Merkel’s CDU and the third party in her coalition, said in a draft position paper. National bank-rescue funds would have to handle any resulting losses for holders of Greek sovereign bonds, it said.
‘Don’t Make It’
Policy makers shouldn’t exclude a Greek “exit” from the euro, CSU chairman Horst Seehofer said yesterday in an interview on ZDF television. “If the Greeks don’t make it despite all of their efforts, you can’t rule out this idea.”
Signs that Germany may be getting ready to give up on Greece increased as three coalition officials said Sept. 9 that Merkel’s government is debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get its next bailout payment.
“Every ministry examines hypothetical possibilities,” Finance Ministry spokesman Martin Kreienbaum told reporters in Berlin today, when asked whether his department has a “plan B” for Greece’s debt crisis.
Lars Feld, a German government adviser, said that he’s sure Finance Minister Wolfgang Schaeuble is drawing up an emergency plan to put pressure on Greece while “playing through all the different alternatives,” he said in an interview with Bloomberg Television.
Merkel hasn’t revealed her hand, saying in a Sept. 9 speech that the euro can only survive “if there is deeper integration and also more dependability” on adhering to debt rules.
Germany would act against its own interests if it stopped financial aid to Greece, Merkel said in the interview with Tagesspiegel, according to a transcript e-mailed by the CDU. “What was ignored for years can’t be fixed overnight,” she said. “That means that we have to be patient.”
Forcing Greece out of the euro region would invite financial markets to speculate against other members of the bloc, risking a collapse of the currency union, Meister said on N24 television today.
“That can’t be our goal, considering how successful the European Union and the euro have been in the past years for all of us, especially us Germans,” Meister said.
--With assistance from Brian Parkin and Rainer Buergin in Berlin and Maryam Nemazee in London. Editors: Alan Crawford, Leon Mangasarian
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To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.