By Rainer Buergin, Birgit Jennen and Brian Parkin, Bloomberg
Germany is leaving the door open to discussing debt relief with Greece’s next government, lawmakers in Chancellor Angela Merkel’s coalition said, signaling a more flexible stance than her administration has taken publicly.
While writing off Greek debt isn’t on the table, talks on easing the repayment terms on aid that Greece received from European governments are possible after the country’s parliamentary elections on Jan. 25, the lawmakers from Germany’s two biggest governing parties said. The condition is that Greece sticks to its austerity commitments, they said.
The potential opening reflects scenarios under discussion in Merkel’s coalition for how to respond if Greek voters oust Prime Minister Antonis Samaras, a Merkel ally who has enforced German-led demands for austerity, and elect anti-austerity leader Alexis Tsipras’s Syriza party.
“There should be talks with any government that emerges from the election,” Ingrid Arndt-Brauer, a Social Democrat who chairs the lower house’s finance committee, said in an interview. “You can talk about extending maturities and easing the interest rate on loans with a left-wing government, too.”
A senior lawmaker from Merkel’s Christian Democratic Union said Germany will talk with any elected Greek government, including about an easing of aid conditions, as long as Greece doesn’t renege on its austerity commitments. The lawmaker asked not to be named because coalition discussions are private.
Stocks Rise
The Standard & Poor’s 500 Index extended gains in New York after the report, while the Stoxx Europe 600 Index closed up for the first time in four days.
In London, Merkel backed keeping Greece in the euro, saying she has consistently worked to avoid the country’s exit from the currency bloc.
“We need to tell people, and to some extent market participants, that the chancellor and the German government have always acted in such a way that Greece remains in the euro area,” Merkel told reporters after talks with U.K. Prime Minister David Cameron.
The comments by lawmakers suggest there’s leeway in German policy even as CDU leaders publicly refuse to offer Greece concessions. Merkel’s defense of the euro is under attack by Alternative for Germany, an anti-euro party founded in 2013 that’s won seats in three state assemblies and the European Parliament. A Finance Ministry spokeswoman in Berlin declined to comment on possible Greek debt relief.
Greece’s Decision
Public statements by Merkel’s party have focused on warning Greek leaders to uphold the austerity measures imposed by international creditors as a condition of the country’s two bailouts. At the same time, Merkel has made it clear that she wants to avoid chipping away at the 19-nation currency bloc.
“I’m pretty positive as far as the development in Greece is concerned,” Michael Fuchs, a CDU lawmaker and member of the party’s national executive, said today in an interview with Bloomberg Television. “But it’s all up to Greece” and “it’s going to be difficult for them” if the government abandons austerity, he said.
Germany’s lower house, or Bundestag, can block the government’s contributions to euro-area rescue efforts under powers put in place during the debt crisis, which spread from Greece in 2010. With Merkel lobbying to preserve the joint currency, lawmakers consistently backed bailouts for debt-stricken euro countries.
Merkel Displeased
Speculation about Greece’s future in the euro area surged after Der Spiegel magazine reported this week that Merkel would be prepared to let the most-indebted country leave the bloc. Her comments today were her first on Greece since the report.
Merkel’s spokesman, Steffen Seibert, says Germany’s goal remains for Greece to pursue its economic overhaul and stay in the euro, and the chancellery’s “political leadership” isn’t working on blueprints for a Greek exit.
Merkel was displeased with the Spiegel report because market turmoil may drive more voters to Syriza, according to a person with direct knowledge of her views who asked not to be named citing internal discussions.
Greek 10-year government bond yields rose above 10 percent today for the first time in 15 months as investors abandoned the bonds before the election that Samaras said will determine Greece’s euro membership.
The likelihood of Greece’s leaving the euro is “very low,” Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, said in an interview with Bloomberg Television yesterday. “The reality is that the vast majority of Greeks want to stay in the euro. I think they correctly realize that if they drop out, the situation is going to get much, much worse.”
Europe’s Offer
European Union governments left the door open to “further measures and assistance” for Greece in November 2012 when they cut interest rates on Greek bailout loans, suspended interest payments for a decade, gave Greece more time to repay and engineered a bond buyback.
Where German policy makers draw the line is at a writedown on nominal Greek debt held by European governments and the European Central Bank, a demand made by Tsipras as recently as Jan. 3 in a Syriza convention speech.
That’s “out of the question,” CDU lawmaker Norbert Barthle, the party’s budget spokesman in parliament, said in an interview. “A haircut would mean that financial markets lose faith in Greek bonds and that a return to financial markets would be blocked for a long time.”
