Friday 24 November 2017

ECB policy chiefs begin to consider a euro without Greece

German Finance Minister Wolfgang Schaeuble. Photo: Getty Images
German Finance Minister Wolfgang Schaeuble. Photo: Getty Images

Jim Neuger

FROM the monetary fortress of the European Central Bank to the pro-European duchy of Luxembourg, policy makers are beginning to air their doubts that Greece can stay in the euro.

Post-election tumult in Athens has put the once-taboo subject of an exit from the 17-country currency on the agenda.

"If Greece decides not to stay in the eurozone, we cannot force Greece," German Finance Minister Wolfgang Schaeuble said at a conference in Brussels yesterday. "They will decide whether to stay in the euro zone or not."

After €386bn in aid pledges for Greece, Ireland and Portugal, €214bn in ECB bond purchases and another trillion euro in low-interest loans for banks, plus 17 high-level crisis summits, Greece's political chaos thrust Europe into a perilous new phase this week.

The world is witnessing an "important moment in European Union history, a moment of crisis," EU president Herman Van Rompuy said in Brussels on the 62nd anniversary of the declaration by Robert Schuman, then France's foreign minister, that launched post-war European integration. The euro fell for the eighth day as it dawned on investors that Greek voters' revolt against austerity, and not the victory of Socialist Francois Hollande in France's presidential election, was the more significant of the two national elections in the EU on May 6.

The Greek parties running on austerity-for-rescue platform took one-third of the vote. Top vote getter Antonis Samaras failed to assemble a government, throwing in the towel after a few hours. Second-place Alexis Tsipras, of the Syriza party, began coalition talks yesterday, handing would-be partners an ultimatum to renounce support for the bailout.

The response outside Athens left little negotiating room. "Greece has to be aware that there is no alternative to the agreed consolidation programme if it wants to remain a member of the eurozone," Joerg Asmussen, who last year moved from the German Finance Ministry to the ECB board, said.

"If 80pc of Greeks want to stay in the euro, then I think they have to support parties that are in favour of this policy of staying in the euro," Luxembourg Foreign Minister Jean Asselborn said at the WDR conference in Brussels. Otherwise "comes the point where Greece unfortunately has squandered the opportunity and that will be very, very painful for the people."

European treaties label the euro "irrevocable" and provide no legal procedure for a country to leave or be thrown out. A December 2009 study by the ECB's legal department deemed a country's departure "so challenging, conceptually, legally and practically, that its likelihood is close to zero."

However, last November, German Chancellor Angela Merkel and French President Nicolas Sarkozy turned a planned Greek referendum on austerity into an in-or-out vote on Greece's euro future.

The referendum was dropped and the Greek leader who mooted it, George Papandreou, was out within days. A non-partisan government led by ex-ECB vice president Lucas Papademos took over. Unlike Italy, which got its own technocratic government at the same time, Greek politicians gambled on early elections.

With the coalition talks in Athens at risk of stalemating, another vote may come next month. "In effect the election will be a referendum on continued euro membership," said John Stopford, co-head of fixed income and currency in London at Investec Asset Management, which oversees about $90bn. "As last week's election shows, it's going to be close-run."

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