Germany says Greece could have a 'Grexident' and be pushed out of the euro

Varoufakis SchaeubleREUTERS/Fabrizio BenschGreek Finance Minister Yanis Varoufakis and German Finance Minister Wolfgang Schaeuble (L) address a news conference following talks at the finance ministry in Berlin February 5, 2015.

Even without the heat of official negotiations, relations between Athens and Berlin are getting more and more sour by the day. The latest example comes from Wolfgang Schaeuble, Germany’s finance minister.

When pressed by Austrian reporters on whether he there could be a “Grexident” — an accidental series of events which could lead to Greece leaving the euro — Schaeuble said that Greece’s future was down to the Greek authorities “and since we do not know exactly what the authorities in Greece will do, we can not rule it out.”

It’s Greece’s official position that it will stay in the euro, so Athens likely won’t appreciate the intervention.

This comes just a few days after reports that German Chancellor Angela Merkel avoided a much bigger rebellion from her own party on Greece’s bailout extension, due to Schaeuble’s personal intervention. In the end, only 29 of Merkel’s Christian Democrat bloc voted against the motion to approve the bailout.

Though the eurozone’s finance ministers have tentatively agreed to extend Greece’s bailout, based on a provisional promise of certain reforms, relations have rarely been more strained.

Athens filed a formal complaint about Schaeuble this week over remarks the Greek government found insulting.

Here’s Bloomberg:

Germany and Greece confirmed Thursday that the Greek ambassador in Berlin made an official protest late Tuesday to the German Foreign Ministry over comments made by Schaeuble.

Schaeuble and his Greek counterpart Yanis Varoufakis have traded barbs in recent weeks, with Schaeuble suggesting on Tuesday that Varoufakis needed to look more closely at an agreement Greece signed in February and commenting on his fellow minister’s communication strategy. Schaeuble said Thursday that any suggestion he had insulted Varoufakis was “absurd.”

The Greek government is taking an increasingly populist line against Germany. Prime Minister Alexis Tsipras delivered a speech on Tuesday, demanding WWII-era reparations from Germany, and the country’s justice minister has threatened to sign a law which would allow Greek complainants to seize German assets as compensation.

Berlin is pushing back on the other side. According to the Financial Times, much of Germany’s finance ministry accepts the “gangrenous limb” theory that Europe would be better off without Greece.

Hawkish German officials accept what they call “the amputated leg theory,” which says Greece should be cut off like a gangrenous limb to spare the rest of the eurozone body. The doves counter with the “domino-effect theory” — the idea that if Greece crashes out of the eurozone, other vulnerable economies could follow, and destroy the currency union.

The hawkish finance ministry argues the eurozone is better-placed to survive a possible Grexit than during the last Greek bailout in 2012. It has since created new institutions, including the European Stability Mechanism, the eurozone bailout fund, and moves to buttress weak banks. “We are much more stable now,” says a senior official. “We are not interested in a break-up, but fear of a break-up is not pushing us in any direction.”

There are still months of bitter negotiations yet to go, and even with a tentative agreement to extend the country’s bailout for a few months, there’s no real sign that Berlin and Athens are getting any closer in their positions. In fact, it seems like they’re becoming more entrenched and uncooperative.

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