German Finance Minister Wolfgang Schaeuble ruled out a Greek sovereign default as the cash- strapped country and international inspectors seek agreement on policies before an Oct. 18 European Union leaders’ summit.
“It will not happen that there will be a ‘Staatsbankrott’ in Greece,” Schaeuble said in English at a forum in Singapore today. “Greece has had to take a lot of very serious reforms” and an increasing majority of the population “does understand that being a member of the common European currency is in the best interest of Greece,” he said.
Schaeuble said he doesn’t see “any sense to speculate on Greece leaving the euro” because it would be very damaging for both the country and the region. Germany is ready to assist Greece to build a competitive economy and functioning public administration, he said.
Speculation about a Greek exit intensified as public opposition to spending cuts widens and Prime Minister Antonis Samaras’s government stalls on budget cuts. A deal with the troika of the International Monetary Fund, European Central Bank and European Commission is needed to unlock a 31 billion-euro ($40.2 billion) aid installment that the Greek government needs to recapitalize its banks and pay debts.
Swedish Finance Minister Anders Borg said yesterday it’s “most probable” that Greece will quit the common currency and such an outcome shouldn’t be ruled out in the next six months.
Borg said a Greek euro exit probably wouldn’t have a major impact on the financial system, “since in practice everyone already understands which way the wind is blowing.”
Given Greece’s lack of competitive industry and inability to implement necessary reforms, “it’s a little bit hard to see how they’ll resolve this situation without stimulating competitiveness through a significantly lower exchange rate,” Borg said.
Schaeuble told the Singapore-German Chamber of Industry and Commerce that a Greek exit would create “huge” problems and wouldn’t happen.
“If you look at how much interlinked we are in the European Union and in the currency union, to leave it would create huge, incredible difficulties for everyone,” Schaeuble said. “Therefore the better way is to solve it, but of course it has to be solved.”
89 Policy Steps
Euro-area finance ministers on Oct. 8 backed Greece’s plan to trim its budget and reshape the economy, while demanding that the government in Athens commit to a list of 89 policy steps before the summit. They didn’t commit on whether the next 31 billion-euro aid installment will be paid out in one go or released in smaller chunks.
“Everyone is trusting that Samaras and his government is really decided to do what is needed,” Schaeuble said.
While Germany and the other euro members will “stick to the monetary union,” every euro state has to fight the problems it faces as it’s “impossible for Germany to pay everybody’s bills,” Schaeuble said. Germany “would be destroyed” if it overstretched its resources, he said.
Turning to Spain, the German minister said financial markets have yet to appreciate efforts made by the country’s government, led by Prime Minister Mariano Rajoy, to return to sustainable public finances. Standard & Poor’s cut Spain’s sovereign-debt rating by two levels to BBB- on Oct. 10, citing the backtracking of euro-region peers on a pledge to sever the link between the sovereign and its banks.
“Since Spain is under the pressure of markets, Spain had to take decisions on reducing its deficit, to increase its competitiveness, but Spain is delivering since the Rajoy government is in place,” Schaeuble said. “They’re doing very well but it takes time until markets believe them.”
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