The Der Spiegel report suggesting Greece was considering leaving the euro emanates from a German government source, and that may explain everything.For weeks, German officials have been hinting that they want a Greek restructuring to happen. German economic advisor Lars Feld recently said that the restructuring should happen “sooner than later.” He’s previously also said “restructuring is the only road to take.”
Greece is now rumoured to be requesting an extension on the interest payments of its IMF-EU bailout loan.
For German Chancellor Angela Merkel, a continuation of easy bailout programs for Greece could be damaging to her domestic position, and exacerbate the growth of far right parties in Europe.
While Germany is probably correct that restructuring on this private debt now will be cheaper than when Greece’s EU/IMF loan expires at the end of 2012, Berlin is thinking about political costs, not necessarily economic costs. The recent election results in Finland have put the eurozone bailout mechanisms, specifically the Portuguese bailout, in danger as a euroskeptic, right-wing, populist party — the True Finns — has seen a considerable rise in popularity and will likely enter government.
Merkel worries about a similar rise in anti-eurozone populism in Germany. The “Liberal Awakening,” a wing of governing junior coalition member the Free Democratic Party (FDP), is gaining strength even as the FDP has suffered several electoral setbacks in local elections under former party leader and current Foreign Minister Guido Westerwelle.
Anything to ratchet up the pressure on eurozone leaders to come together to deal with the Greek problem could increase the speed in which a Greek debt restructuring happens. Thus, leaking information suggesting Greece is plotting to leave the euro seems in the German government’s interest.
In fact, the German government is prepared to argue that even if Greece leaves the euro it will need to restructure, according to Der Spiegel’s report.
“It would lead to a considerable devaluation of the domestic currency against the euro,” the paper states. According to German Finance Ministry estimates, the currency could lose as much as 50 per cent of its value, leading to a drastic increase in Greek national debt. Schäuble’s staff have calculated that Greece’s national deficit would rise to 200 per cent of gross domestic product after such a devaluation. “A debt restructuring would be inevitable,” his experts warn in the paper. In other words: Greece would go bankrupt.
Thus the Der Spiegel report may be true, but it also may just be a calculated move by the German government to ramp up the speed of Greek debt restructuring.