Grexit shock: How Germany called for Greece to be turfed out of eurozone

The euro area was already fragile before the outbreak of coronavirus. Eurozone real GDP increased just 0.1 percent quarter on quarter and 1 percent year on year in the fourth quarter of 2019, resulting in the weakest performance in six years. Germany’s output was flat, while Italy and France suffered contractions.

IHS Markit expects the spreading virus to do serious damage to trade, travel and tourism, financial markets, and sentiment.

Italy is especially vulnerable, given its fragile economy, the high incidence of COVID-19, and resulting restrictions on activity.

As many economists wonder whether the coronavirus pandemic will be a rerun for Europe of the 2008 financial crash, unearthed reports shed light on how the bloc dealt with the succeeding southern-European public debt crisis.

According to a throwback report by the Guardian, Germany called for Greece to be expelled from the eurozone for at least five years.

Before eurozone leaders agreed to open talks on a €86billion (£62billion) bailout for Greece in July 2015, some national parliaments were opposing the plan.

Angela Merkel had long sought to avoid going down in history as the German Chancellor who presided over the breakup of the eurozone but her government and many centre-right MPs were not convinced Greece had done enough to justify a new three-year bailout.

Referring to the new fiscal rigour proposals from Athens, former German finance minister, Wolfgang Schäuble, said: “These proposals cannot build the basis for a completely new, three-year [bailout] programme, as requested by Greece.”

A Germany ministry paper revealed that Berlin was pressing for Greece to be expelled from the eurozone for a minimum of five years and wanted the Greek government to transfer €50billion (£44billion) of state assets to an outside agency for sell-off.

The hard line was echoed by Peter Kazimir, former finance minister of Slovakia, who said the new austerity measures tabled by Athens were already past their sell-by date.

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On the other hand, France, Italy and Spain were working tirelessly to save Greece.

It was not the first time Germany had drafted plans for Athens to default and leave the euro, though.

In 2012, eurozone finance ministers met in Brussels to approve the next tranche of loans from the EU and the International Monetary Fund, designed to stave off national bankruptcy while the new Greek government was putting the country’s finances in order.

However, the severe austerity measures being demanded caused such fury in Greece, that Mr Schäuble did not believe any government would have been able to implement them.

According to the publication, his worries were brought into the open after a secret European Commission report was published, in which Mr Schäuble claimed that even if Greece had made good on its promises, it would not have been enough to reach the target of bringing total debt to 120 percent of GDP by 2020.

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A eurozone official told the publication: “He just thinks the Greeks cannot do what needs to be done.

“And even if by some miracle they did what has been promised, he – and a growing group – are convinced it will not pull Greece out the hole.

“The idea instead is that the Greek government should officially declare itself bankrupt and begin negotiating an even bigger cut with its creditors.

“For Schäuble, it is more a question of when, not if.”

Despite opposition, Greece did receive its bailouts and remained part of the eurozone.

Its fiscal progress is currently being monitored by the eurozone and the IMF, which together lent Athens more than €250billion (£232billion) during its decade-long debt crisis.

The Greek economy will grow only slightly this year due to the impact of the coronavirus, by little over 0 percent, Christos Staikouras told Greece’s ANT1 TV on Wednesday.

The country had previously estimated economic growth of 2.8 percent this year.

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