Some in German gov’t preferred temporary Grexit, says Schaeuble

Some members of the German government would have preferred a temporary Greek exit from the eurozone to another bailout deal, German Finance Minister Wolfgang Schaeuble said on Tuesday, without saying if he was among them.

Initial drafts of the agreement European leaders reached with Greece early on Monday included a German proposal to make Greece take a "time-out" from the eurozone if it failed to meet conditions.

The idea was dropped from the final version as not all leaders shared the idea, with a senior EU source saying such a measure would have been illegal.

“There are many people, including in the federal government, who are quite convinced that in the interests of Greece and the Greek people what we wrote down would have been much the better solution,” Schaeuble said when asked about the proposal.

“We wrote down all the possibilities to solve the problem and we discussed that too,” Schaeuble told a news conference.

He added the negotiations for a new aid package and finding temporary financing for Greece were going to be very difficult.

Agreeing on a new deal would take about four weeks, he said.

Until that time the execution risk will have to stay with Greece,” Schaeuble said.

The German minister, a longtime critic of Greece, said the eurozone had to keep the pressure up on Athens to deliver on the structural reforms and fiscal consolidation it had promised.

A confidential IMF study seen by Reuters showed Greece will need far greater debt relief than eurozone countries have been prepared to envisage even a couple of weeks ago, because the economy has deteriorated so severely due to a two-week bank closure.

Unless European creditors are willing to accept a dramatic extension of the grace period for servicing Greece's entire debt stock to them plus future loans, the alternatives are annual transfers to the Greek budget or “deep upfront haircuts”, the updated debt sustainability study said.
Schaeuble said last week he agreed with the IMF that Greece needed a debt writedown, but such a step was illegal within the euro zone under EU law. The unspoken conclusion was that such a haircut should take place outside the monetary union.

[Reuters]