Debt Crisis

E.U. Politician Calls for Grexit

  • Why it matters

    Why it matters

    If the impasse between Greece’s creditors is not resolved, it could block tranches of its bailout package. The country could default on its debt and send shockwaves throughout the euro zone.

  • Facts

    Facts

    • After the outbreak of its debt crisis, Greece’s public debt ballooned to €330 billion ($354 billion), or 179 percent of the country’s gross domestic product.
    • Without a new injection of bailout cash, Greece will not be able to repay €7 billion to its creditors by its July deadline.
    • In July 2015, euro-zone countries granted Greece a €86-billion ($92-billion) rescue loan, the third since the onset of the debt crisis in 2009.
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    Audio

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«Anne Will»
Mr. Lambsdorff argues that the current bailout package is unlawful. Source: Wolfgang Borrs/DPA

The Greek debt crisis is back. Amid increasing uncertainty about Athens’ ability to solve its debt problem, a senior German politician has said he no longer sees a future for Greece in the euro zone.

“We need to find a way, as soon as possible, to keep Greece in the E.U. and maintain solidarity, but to help it to leave the euro zone,” Alexander Graf-Lambsdorff, vice president of the European Parliament, told the regional daily Heilbronner Stimme. “There needs to be a gradual transition towards a national currency,” he said.

Mr. Lambsdorff’s comments come amid uncertainty about the participation of the International Monetary Fund in the current bailout  for Greece. In July 2015, euro-zone countries granted an €86-billion ($92 billion) rescue package, the third since the onset of the Greek debt crisis in 2009. European officials insist the IMF should continue participating in the third bailout program, but the Washington-based lender has suggested it will leave unless Greece’s debts can be made more sustainable.

Mr. Lambsdorff noted that “the IMF doesn’t take Greece’s ability to take on more debt for granted.” In his view, this makes the current bailout package unlawful. The European Stability Mechanism, the euro zone’s €500-billion bailout fund, also requires that a country’s debt be sustainable, he argued.

“Greece cannot grow out of its debt problem,” the IMF warned on Tuesday.

The IMF has repeatedly said it is unwilling to fund endless bailouts for the euro zone’s most troubled country. Global financiers at the IMF consider Greece’s €330-billion debt burden unsustainable and have long called for comprehensive debt relief from Athens’ European partners in the 19-nation single currency bloc.

Even if the country implements further austerity measures and makes labor reforms as demanded by the euro zone, “Greece cannot grow out of its debt problem,” the IMF warned on Tuesday.

In the past, calls for a debt haircut have been sharply rejected by Germany, Greece’s main creditor. More recently, Wolfgang Schäuble, Germany’s finance minister, suggested he could compromise on the issue, but not before the election in September.

Other euro-zone nations, including the Netherlands, have also ruled out cancelling debt before the current rescue program expires in 2018.

The IMF’s involvement in the current rescue program was a key condition for backing from the German parliament, the Bundestag. Mr. Lambsdorff emphasized that Mr. Schäuble made a “crystal-clear pledge” to German lawmakers that the monetary organization would step in.

“So now it’s about time to straighten things up,” the E.U. politician said, suggesting that his party, the Free Democrats, would make this a campaign issue.

But for Athens, time is tight. Without a new injection of cash, Greece will not be able to replay the €7 billion by its July deadline.

 

Jean-Michel Hauteville is an editor with Handelsblatt Global in Berlin. To contact the author: hauteville@handelsblatt.com.

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