Greek rescue ‘no longer eurozone obligation’

Eurozone politicians are not obliged to rescue Greece as the country is no longer of systemic importance to the euro, a senior member of German Chancellor Angela Merkel’s party has said.

In an interview with the Rheinische Post newspaper published yesterday, Michael Fuchs also said that Greek politicians could not now “blackmail” their partners in the currency bloc.

“If Alexis Tsipras of the Greek left party Syriza thinks he can cut back the reform efforts and austerity measures, then the troika will have to cut back the credits for Greece.

“The times where we had to rescue Greece are over. There is no potential for political blackmail anymore. Greece is no longer of systemic importance for the euro.”

The remarks are the clearest warning yet to Greek voters from a senior German politician that Athens might lose support if it flouts the terms of its €240bn EU/IMF bailout after early elections next year.

Mr Fuchs, the deputy parliamentary floor leader of Ms Merkel’s Christian Democrats, has frequently expressed frustrations felt by many politicians and the German public about the pace of reform and political hold ups in twice-rescued Greece.

Polls suggest that Syriza will emerge as the strongest party in the January 25 election, although its lead has narrowed. The party wants to cancel austerity and a big chunk of national debt but says it will keep Greece in the eurozone.

The head of Germany’s influential Ifo economic research institute, Hans-Werner Sinn, meanwhile called a Greek exit from the eurozone an option.

“Further debt cuts will be needed again and again, unless the country is released from the eurozone and allowed to regain its competitiveness by devaluation,” he told German daily Tagesspiegel.

On Monday, German finance minister Wolfgang Schäuble warned Greece against straying from a path of economic reform, saying any new government in Athens would be held to the pledges made by the current government of premier Antonis Samaras.

Meanwhile, the ECB president Mario Draghi has said eurozone countries must complete their monetary union by integrating economic policies further and working towards a capital markets union.

In an article for Italian daily Il Sole 24 Ore on yesterday, Mr Draghi said structural reforms were needed to “ensure that each country is better off permanently belonging to the euro area”.

He said that the lack of reforms “raises the threat of an exit (from the euro) whose consequences would ultimately hit all members”, adding the ECB’s monetary policy, whose goal is price stability, could not react to shocks in individual countries.

He said an economic union would make markets more confident about growth prospects — essential for reducing high debt levels — and so less likely to react negatively to setbacks such as a temporary increase in budget deficits.

“This means governing together, going from co-ordination to a common decisional process, from rules to institutions.”

Unifying capital markets to follow this year’s banking union would also make the bloc more resilient.

Reuters