Greece urged to stick to EU bailout terms

Germany says any new government in Athens must continue to fulfill contractual obligations of the $289bn bailout.

Angela Merkel
Merkel now reportedly believes the eurozone would be able to cope with Greek exit if necessary [Getty Images]

The German government expects Greece to commit to the terms of its EU/IMF bailout agreement after a January 25 election and a possible change of government in Athens, a spokesman for Chancellor Angela Merkel has said.

German spokesman Georg Streiter told the Reuters news agency on Sunday that a new administration in Athens must continue to fulfill its contractual obligations of the $289bn bailout overseen by the “troika”, which is comprised of the European Central Bank, the European Commission and the International Monetary Fund.

“Greece has fulfilled its obligations in the past… Every new government has to abide by the contractual obligations of the previous government.”

As the eurozone’s paymaster, Germany insists that Greece must stick to a course of austerity and not backtrack on its commitments – especially because it does not want to open the door for other strugglers to relax their reform efforts.

Greece’s woes have also created a political headache for Merkel by helping to boost support for a new right-wing party, Alternative fuer Deutschland, which taps into German voters’ unease over the costs of eurozone bailouts.

However, Streiter declined to comment on a report in the Der Spiegel magazine that said Merkel’s chancellery had shifted its view and now believed the eurozone would be able to cope with a Greek exit if necessary.

Der Spiegel reported on Saturday that both Merkel and Finance Minister Wolfgang Schaeuble now believe the eurozone has implemented enough reforms since the height of the crisis in 2012 to make a potential Greek exit, or “Grexit”, manageable.

In addition, the eurozone now has an “effective” bailout fund, the European Stability Mechanism (ESM), another source added. Major banks would be protected by the banking union.

‘Genie out of the bottle’

A German finance ministry official would only say comments made by Schaeuble last week remained valid.

“If Greece takes another path, it will be difficult,” Schaeuble said last week. “New elections will not change the agreements we have struck with the Greek government.”

Peter Bofinger, on the “wisemen” council of economic advisers to the German government, warned against “Grexit”.

“There would be many high risks for the stability of the eurozone with such a step,” he told Welt am Sonntag newspaper.

“It would let a genie out of the bottle that would be hard to control.” 

Der Spiegel said Berlin considers a “Grexit” almost unavoidable if the left-wing Syriza opposition party, narrowly ahead in opinion polls, wins Greece’s election. Syriza wants to cancel austerity measures and a chunk of Greek debt.

Source: News Agencies