Greece Euro-Exit Debate Goes Public

German Finance Minister Wolfgang Schaeuble said Europe has done the “utmost” to prop up the financially stricken country, limiting any further room for leniency after about 240 billion euros ($308 billion) of aid pledges.

“There’s no easy way for Greece, whatever the outcome will be,” Schaeuble told reporters before a meeting of euro-area finance ministers in Brussels today. “It’s not about the question of being more or less generous toward Greece. It’s simply about what is still economically justifiable, what can be done that’s still convincing in economic terms, that still has credibility.”

Signs of stress abounded in European markets today. The euro fell for the 10th time in 11 days and bond yields in recession-wracked Spain, the next potential candidate for financial aid, touched a five-month high.

On the eighth day of Greece’s post-election maneuvering, the head of the biggest anti-bailout party, Alexis Tsipras, said he would boycott an evening meeting in Athens, the latest attempt to form a unity government, and pushed for a new election.

‘Big Problems’

A poll showed 39 percent of Greeks blaming Tsipras, more than any other politician, for the deadlock. Some 66.1 percent want a new government without a fresh vote, according to the Rass SA poll for the newspaper Eleftheros Typos.

“Greece needs to elect a pro-reform and pro-austerity parliament or I foresee big problems,” Dutch Finance Minister Jan Kees de Jager said. “There is no room to weaken the agreements by reforming less or reduce spending cuts.”

Greece’s caretaker government also has yet to decide whether to repay 436 million euros due tomorrow on a note held by investors who shunned its bond-loss accord. Paying the holdouts in full would anger investors who took losses in this year’s debt restructuring, while withholding payment could be construed as default.

Investors pummeled Greek stocks, pushing the ASE Index (ASE) down 4.6 percent to 584.04, the lowest since November 1992. The drop extended last week’s 11 percent plunge.

‘Political Small Change’

German Chancellor Angela Merkel, the dominant figure in two years of crisis containment, said Greece will “always” be part of the European Union, a 27-nation bloc with a common market, business regulations and trade policy. Speaking to a school group in Berlin, she didn’t offer the same assurance about Greece holding on to the euro, saying only that “it’s better for the Greeks to stay in the euro area.”

Austrian Finance Minister Maria Fekter disputed that logic, saying Greece would need to quit the EU in order to pull out of the currency, then reapply to come back into the EU. She called on Greek politicians to stop playing for “political small change.”

Questions for European policymakers include whether to ease the conditions attached to Greece’s financial infusions in order to keep it in the euro or, if that fails, how to contain the damage of an exit.

No answers are likely tonight. As in early 2010 when the first Greek bailout and broader rescue fund were improvised, the way forward will be charted by top political leaders. Their next summit is May 23 in Brussels, the 18th since the debt crisis exploded.

‘Close to Zero’

The once-taboo issue of a Greek departure or expulsion from the 17-nation currency union burst into the public debate last week, when European Central Bank officials including Patrick Honohan of Ireland aired the pros and cons.

EU treaties declare the euro “irrevocable” and provide no exit procedure. A December 2009 study by the ECB’s legal department deemed an ouster or departure “so challenging, conceptually, legally and practically, that its likelihood is close to zero.”

Greece’s predicament multiplied doubts about the health of Spain, the only euro country to remain mired in recession through 2013, according to European Commission forecasts published last week.

Ten-year Spanish yields rose as high as 6.36 percent before settling at 6.23 percent, compared with 6.01 percent at the end of last week. The extra yield over benchmark German levels widened to 477 basis points. Spain’s woes helped drag up Italian 10-year yields to 5.71 percent from 5.51 percent.

‘Healthier State Finances’

“Spain won’t be a second Greece,” Luxembourg Finance Minister Luc Frieden said. “Over the next three years the Spanish government, the Spanish budget will continue on the path toward better and healthier state finances. The road will be difficult and we will accompany Spain on the way.”

Another political turning point comes tomorrow, when Francois Hollande is sworn in as French president in the first power shift to the Socialists in the second-biggest euro economy since 1981.

Hollande’s bid to inject a pro-growth element into the austerity-dominated approach to the crisis got a boost yesterday when Merkel’s party was drubbed in elections in Germany’s largest, most industrial state, North Rhine-Westphalia.

The regional vote maintained the rival Social Democrats’ hold on the upper house of the German parliament and gave them leverage to prod Merkel into concessions before ratifying a euro deficit-limitation treaty, one of her hallmark crisis-fighting initiatives.

‘Bitter, Painful Defeat’

Hollande campaigned against that treaty as well, pledging to flank it with pro-growth measures at a time of 10.9 percent unemployment across the euro zone, the highest since the euro’s debut in 1999.

Merkel, set to host Hollande in Berlin tomorrow hours after his inauguration, said she won’t alter her approach to the crisis in the wake of her party’s “bitter, painful defeat.”

France will be represented by a senior civil servant from the old government at tonight’s Brussels meeting, so the growth- versus-austerity balance isn’t likely to be dealt with until Hollande attends his first EU summit next week.

Also held up until France’s new government takes office are appointments to a vacancy on the ECB’s Executive Board, of a new chairman of euro finance meetings and of the manager of the European Stability Mechanism, the future permanent rescue fund.


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