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Berlin tries to calm markets riled by Greece

The Local · 12 Sep 2011, 13:42

Published: 12 Sep 2011 13:42 GMT+02:00

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A raft of comments by senior German politicians raising the spectre of an "orderly default" for Greece and even an ignominious eurozone exit sent the euro to a 10-year low as traders worried the debt crisis was worsening.

But a spokesman for Germany's Economy Minister Philip Rösler, who is also vice chancellor, sought to allay these fears, saying: "Our common goal is the stability of the euro and we want Greece to stay in the euro."

At the same news conference, Chancellor Angela Merkel's spokesman said that Germany "assumes that Greece is doing everything it can" to implement strict austerity measures to battle its deficit woes.

"Our goal is quite clear: We want to stabilise the eurozone as a whole," Steffen Seibert said.

After a meeting between Merkel and European Commission President Jose Manuel Barroso, the two leaders issued a statement saying they were "agreed on the overwhelming importance of the euro for Europe and Germany."

"Stability and growth in euro countries are the decisive pre-conditions for a stable euro," the pair said, according to a statement issued by the German government.

Rösler himself had contributed to the market fears by writing in an opinion article in Monday's edition of the conservative Die Welt daily that Europe could no longer rule out an "orderly default" for Greece.

"To stabilise the euro, we must not take anything off the table in the short run," Rösler wrote.

Also fanning the flames were comments by the general secretary of the Free Democrats (FDP), junior coalition partners in Berlin, suggesting that Greece's euro membership was in doubt.

"It is our goal that Greece stays in the eurozone, that Greece implements its savings measures," Christian Lindner told ARD television. "But we must consider what happens if the Greeks are not in a position to do this."

"The Greeks must decide themselves whether they want to stay in the euro or not ... it should not be a taboo," added Lindner.

"Rumours are spreading that the German government is hoping to end the Greece aid. It is tempting to believe these rumours, as everything seems to fit," said Ulrich Leuchtmann, an analyst at Commerzbank.

Both German and US 10-year bond yields hit historic low points as investors shunned risky deals and bought assets seen as safe during times of financial turmoil.

Also fuelling financial market fears was an article in Der Spiegel news weekly reporting that Finance Minister Wolfgang Schäuble doubted that Greece could avoid a default.

The magazine said that Finance Ministry officials in Berlin were considering two scenarios should Greece go bankrupt: one where the country remained in the eurozone and another where it reverted to its former currency, the drachma.

Hans-Werner Sinn, president of the influential Ifo economic institute in Germany, told reporters that a Greek default "would not be the end of the world but a liberation for the country."

He said that Greece needed to devalue its currency by 20 or 30 percent. "To do that, they need to leave the eurozone. It would be the least bad scenario," Sinn said.

Despite seeking to calm the waters, Berlin stuck to its tough line that Athens needed to fulfil its international commitments to receive its next tranche of aid.

Story continues below…

"Our line on Greece is clear: We will help, but only under strict conditions," said Seibert. If Greece is not able to live up to its commitments, "then the next tranche

cannot be paid. That is quasi-automatic," he said.

Holger Schmieding, an analyst at Berenberg Bank, warned of the damage that that would cause.

"A German 'no' to further support for Greece is a serious risk, although it is not the most likely scenario yet," he said.

However, if this were to happen, "it could weigh on financial markets, depress business and consumer sentiment and exacerbate the near-term downside risks to the German and overall eurozone economy."


The Local (news@thelocal.de)

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Your comments about this article

14:35 September 12, 2011 by mike_1983
plugging holes in a sinking ship!!!
15:59 September 12, 2011 by derExDeutsche
its not just Greece, folks. Others Euro zone members are not far behind. This DEBT, created by over reaching Government programs and policy, has not yet hit bottom. Europe has hard times ahead. Germany, for selfish reasons, wants to keep control over Europe and the Euro. However, as more truth is revealed at just how bad the situation is, it becomes less and less likely. The Govt. debt being reported is just the tip of the iceberg.

Thanks, no money down Home loans! Thanks Fed, thanks Fanny/Freddie, Thanks Socialism and Colonial Currency.

16:17 September 12, 2011 by storymann
Bailing Greece out again, will be a hard sell to the German Parlement , voter resistance to this runs strongly against.

There is no way Greece can become solvent with the Euro,they need to devaluate their currency even this will be difficult.

Greece never had 3% growth ,as it stated when entering the zone and assuming the currency. Greece was under the impression that it would be able to ride on Germany's slip stream.The problem with that is Germany has diversified outside the Euro zone unlike many of the weaker members.

What can Greece offer for colateral? their bonds are junk and will have to be written off.

derExDeutsche is correct, this is just the tip of the iceberg.


If the euro zone stalls or the USA, both continents will be strongly back into double dip recession,and possible depression.

The simple difference between recession and depression is:

when your friend looses his/her job that is recession.

when you losse your job that is depression.
16:34 September 12, 2011 by derExDeutsche
The markets need correction. Not more artificial stimulus or redistribution. That's what got us into this mess in the first place.
20:00 September 12, 2011 by aceroni
The germans should stop playing this dangerous game of asserting one day a thing and the next day the contrary. They are playing with the markets to force Greece and the other Euro members into adopting unpopular measures but in doing so they are destroying an incredible amount of wealth. They know they can't let the euro experiment fail, because what they would face is an across the board collapse of all european economies, German included.
21:31 September 12, 2011 by nec123
Greece can not pay back her debts. I think it would be cleverly for them to declare bankruptcy so that no need pay back...
21:52 September 12, 2011 by finanzdoktor
@ aceroni: Let's conveniently ignore how this whole mess got started in the first place, right? Sweep the dirt under the rug, and maybe no one will find out, except when the carpet begins bulging (like consecutive misleading budget and revenue reports to the EU).
22:06 September 12, 2011 by lwexcel
Bloomberg just posted an article that states that there is only a 2% chance that Greece will not default on their debt. Meaning that there is a 98% chance that they will not be able to pay back their debts. Seriously this is absolute BS the other euro zone countries need to stop bailing this country out. Look at it as a bad investment and simply walk away. People that fight against the market always lose.
00:40 September 13, 2011 by Logic Guy
Well, at the end of the day, human life should be rather easy. And so, I find it very interesting, that leaders of governments lack the intelligent to solve even the most basic problems.

The biggest problem with this particular world, is that the most intelligent people are not in leadership positions. With some 500,000 people living in the

European Union, surely there are at least a few people who would say...

"We would like for Greece to remain a member of the EU, but reality indicates that it's best to shrink the size of the EU, take an initial hit in Euro value, but later on actually recover and become even stronger."

For the most part, the universe is based upon very, simple laws.

When will humans understand this?
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