Friday 9 December 2016

Greece crisis: German advisors want mechanism for a country to leave euro zone

Published 28/07/2015 | 13:56

Protests In Athens As Government Works To Secure Bailout...Riot policemen clash with protesters trying to reach the entrance of the Greek Parliament building during a 24-hour general strike in Athens, Greece, on Tuesday, Feb. 7, 2012. Greece's government and international creditors are working on the final draft of an agreement on budget and structural measures needed to free up a second aid package, a Greek official said. Photographer: Kostas Tsironis/Bloomberg via Getty Images...I
Protests In Athens As Government Works To Secure Bailout...Riot policemen clash with protesters trying to reach the entrance of the Greek Parliament building during a 24-hour general strike in Athens, Greece, on Tuesday, Feb. 7, 2012. Greece's government and international creditors are working on the final draft of an agreement on budget and structural measures needed to free up a second aid package, a Greek official said. Photographer: Kostas Tsironis/Bloomberg via Getty Images...I
A sign for financial ratings agency Fitch Ratings. Photo: Jason Alden/Bloomberg
Greece's energy minister and head of the far-left flank of ruling Syriza party Panagiotis Lafazanis (R) points while talking with former Greek Finance Minister Yanis Varoufakis during a parliamentary session in Athens, Greece July 15, 2015. Prime Minister Alexis Tsipras battled to win lawmakers' approval on Wednesday for a bailout deal to keep Greece in the euro and avoid bankruptcy, as the IMF pressured Greece's creditors to provide massive debt
Alexis Tsipras, leader of the Syriza party, left, and Pablo Iglesias, leader of Spain's Podemos party, wave to supporters during a Syriza party pre-election rally at Omonoia square, in Athens, Greece, on Thursday, Jan. 22, 2015. The election battle between Greek Prime Minister Antonis Samaras and opposition leader Tsipras moved into its final stretch, with Tsipras's anti-bailout Syriza party maintaining its lead before voting day on Jan. 25. Photographer: Yorgos Karahalis /Bloomberg Alexis Tsipras; Pablo Iglesias
Greek Prime Minister Alexis Tsipras
Women withdraw money from an ATM outside a National Bank branch in Athens, Greece, July 19, 2015. The Greek government ordered banks to open on Monday, three weeks after they were shut down to prevent the system collapsing under a flood of withdrawals, as Prime Minister Alexis Tsipras looked to the start of new bailout talks next week. REUTERS/Yiannis Kourtoglou
REFILE - CLARIFYING BYLINE Greek Prime Minister Alexis Tsipras looks on during a swearing in ceremony of members of his government at the Presidential Palace in Athens, Greece, July 18, 2015. New ministers in Greek Prime Minister Tsipras' government were sworn in on Saturday after a reshuffle expelled dissidents from his cabinet and began a new phase of negotiations for a third bailout package. REUTERS/Alkis Konstantinidis
A street performer plays with a ball at the Constitution (Syntagma) square near the Parliament building in Athens, Greece July 18, 2015. The Greek government ordered banks to open on Monday, three weeks after they were shut down to prevent the system collapsing under a flood of withdrawals, as Prime Minister Alexis Tsipras looked to the start of new bailout talks next week. REUTERS/Ronen Zvulun
A street performer (R) acting as a statue stands at the Constitution (Syntagma) square near the Parliament building in Athens, Greece July 18, 2015. The Greek government ordered banks to open on Monday, three weeks after they were shut down to prevent the system collapsing under a flood of withdrawals, as Prime Minister Alexis Tsipras looked to the start of new bailout talks next week. REUTERS/Ronen Zvulun
'Syriza undertook to tackle such endemic corruption and reform the system of public administration in Greece, but so far has been remarkably slow to do so'
Greek Prime Minister Alexis Tsipras looks on during a swearing in ceremony of members of his government at the Presidential Palace in Athens, Greece. New ministers in Tsipras' government were sworn in on Saturday after a reshuffle expelled dissidents from his cabinet and began a new phase of negotiations for a third bailout package (REUTERS/Alkis Konstantinidis)
Sinn Fein Leader Gerry Adams TD (Photo: Gareth Chaney Collins)
People flee from one of the fires that broke out around Athens yesterday
German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble talk during a meeting of the Bundestag yesterday
Riot police run as they disperse protesters during clashes in Athens, Greece July 15, 2015.
Smoke from a fire over the eastern suburbs of Athens. (AP)
A firefighting helicopter drops water at a raging wildfire at the Kareas suburb, east of Athens, Greece July 17, 2015. Dozens of Athens residents fled their homes on Friday as wildfires fanned by strong winds and high temperatures burned through woodland around the Greek capital, sending clouds of smoke billowing over the city. REUTERS/Alkis Konstantinidis
Greece's Prime Minister Antonis Samaras (L) and Ireland's Prime Minister Enda Kenny talk at a European Union leaders summit in Brussels October 19, 2012. EU heads of states and government took a big stride towards establishing a single banking supervisor for the euro zone, striking a deal under which the bloc's rescue fund could start recapitalising ailing banks next year, a French government source said. REUTERS/Sebastien Pirlet (BELGIUM - Tags: POLITICS BUSINESS)

The German government's panel of independent economic advisers favours creating an insolvency mechanism for euro zone states and says countries should be able to leave the single currency as a last resort.

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The Greek crisis has called into question the future of the euro. Wrangling over a third bailout for the heavily indebted country almost sending Athens crashing out of the euro zone.

In a report published on Tuesday, the council of five experts, known as the "wise men", said the Greek crisis showed further reforms were needed, such as an insolvency procedures, to make the euro zone more stable.

But the council stressed that it should still be possible for a country to drop the euro as a "last resort", to avoid threatening the existence of the single currency.

"In a currency union, the basic rules must be adhered to and for this reason the exit of a member state should not be taboo, for otherwise partners are susceptible to blackmail," council member Lars Feld told reporters on a media call.

Feld also said the council viewed a third bailout for Greece as the "right step" as long as Athens implemented reforms.

He said an insolvency mechanism would work by assessing whether a country requesting aid from the euro zone's bailout fund was caught in an extreme budget crisis. If so, debt restructuring would be needed, for example through a one-off extension of maturities or a haircut.

Nonetheless, the council said an insolvency mechanism would only be possible once states had dealt with current debt levels. They also warned against "quick-win" fiscal policies, such as the creation of a euro zone treasury, a European unemployment insurance scheme or an economic government for the bloc.

"Making the euro area collectively responsible for potential costs without member states giving up any national sovereignty over fiscal and economic policies would - sooner or later - make the currency union more unstable," they wrote.

The council's stance conflicted with a study from the ZEW think tank, also published on Tuesday, that proposed a common unemployment insurance scheme and an insolvency process for countries threatened with bankruptcy.

The economists envisaged granting heavily indebted states a three-year period to access funds from the euro zone's bailout mechanism before negotiations over debt restructuring start.

Both sets of proposals come as politicians look for lessons from the Greek debt crisis. Over the weekend, the German magazine Der Spiegel reported that Germany was willing to discuss naming a euro zone finance minister who would have his own budget and the power to raise extra taxes.

Reuters

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