Europe

Europe

Germany, EU urge calm amid Greek default talk

13 September 2011 03:58 (UTC +04:00)

Baku-APA. German and European Union officials scrambled to calm jittery markets, as talk in Berlin of a Greek default fuelled fears the debt crisis was deepening, sending the euro sharply lower, APA reports quoting AFP.

US President Barack Obama meanwhile warned Monday that solving the eurozone crisis was a key factor in rescuing the fragile global economy.

The single currency fell to a 10-year low against the Japanese yen and German bond yields tumbled as traders sought a safe haven after senior German policymakers raised the spectre of an ignominious eurozone exit for Greece.

Markets were already volatile following the shock resignation of the chief economist at the European Central Bank, Juergen Stark, who reportedly disagreed with the ECB’s policies to fight the debt crisis.

Analysts feared that a sharper tone from Berlin indicated that Europe’s paymaster was losing patience with Athens and its deficit problems.

German Economy Minister Philipp Roesler set nerves jangling with an opinion piece for the conservative daily Die Welt in which he said Europe could no longer rule out an "orderly default" for Greece.

And the news weekly Der Spiegel reported that German finance ministry officials were working on two scenarios should Greece go bankrupt: in one, it stuck with the euro; in the other, it reintroduced the drachma.

Other senior politicians, including close allies of Chancellor Angela Merkel, have also suggested Greece could be forced out of the euro.

But at a regular government news conference Monday, Merkel’s spokesman Steffen Seibert, sought to steady the ship.

"Our goal is quite clear: We want to stabilise the eurozone as a whole," he told reporters.

Athens nevertheless had to fulfil strict conditions before receiving its next tranche of bailout money from the EU’s rescue fund, he added.

At the same press conference, Roesler’s spokesman stressed: "Our common goal is the stability of the euro and we want Greece to stay in the euro."

But German Finance Minister Wolfgang Schaeuble appeared to confirm in a televised appearance that his ministry was planning for the contingency of a Greek default.

"We would be a bad government if we did not prepare ourselves the best we can, even for the most unlikely things," Schaeuble said.

In Brussels, a spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn tried to hold the line, insisting that Brussels was not considering a Greek default scenario.

"I’m saying this pretty well every two or three days. No, we are not working on such a hypothesis," Amadeu Altafaj said at a daily EU briefing.

The head of Germany’s influential Ifo institute nailed his colours to the mast however: Athens should default and withdraw from the eurozone, he argued.

A Greek default "would not be the end of the world but a liberation for the country", Hans-Werner Sinn told reporters.

Greece needed to devalue its currency by 20 or 30 percent, he added. "To do this, they need to leave the eurozone. It would be the least bad scenario."

After meeting in Berlin, EU Commission President Jose Manuel Barroso and Merkel urged eurozone countries to implement measures already agreed by EU leaders to boost the bloc’s rescue fund (EFSF).

French Finance Minister Francois Baroin later backed their statement.

But Slovakia, for one, may not oblige.

Prime Minister Iveta Radicova warned late Monday that she not might be able to get support for a eurozone rescue fund in her centre-right coalition.

Holger Schmieding, an analyst at Berenberg Bank, said it was Germany’s position that was crucial to the markets.

"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".

In the United States meanwhile, President Obama warned that the eurozone crisis was a barrier to global recovery.

"We will continue to see weaknesses in the world economy, I think, so long as this issue is not resolved," he said.

"It will be a significant topic for the G20 meeting that takes place in November," he added. That meeting will be hosted by France.