Greek Commissioner Lets Cat Out of the Bag

The Greek EU Commissioner of Fisheries, Maria Damanaki, becomes the first senior EU official who speak openly about the possibility of Greece leaving the euro zone. She warns that Greece must make sacrifices to overcome its debt crisis or face the risk of leaving the euro zone and returning to the Drachma.

“Either we agree with our lenders on a programme of tough sacrifices … or we return to the Drachma.”

Maria Damanaki

 
It was probably well intended, but this type of comment is actually quite dangerous, the eurointelligence.com points out in their daily briefing. I suppose it’s more dangerous for the EU than for Greece. Anyway – let’s see how the financial markets react during today’s session.

The Greek fisheries Commissioner Maria Damanaki warned Wednesday that Greece must make sacrifices to overcome its debt crisis or face the risk of leaving the euro zone and returning to the drachma.

“I am forced to speak openly. Either we agree with our lenders on a programme of tough sacrifices … or we return to the drachma,” she said, according to the semi-official Athens News Agency.

Ms. Damanaki is the first senior European official to publicly declare that the debt crisis could result in Greece leaving the euro zone and reverting to its old currency.

Olli Rehn’s spokesman immediately dismissed the idea of a return to the drachma, naturally.

(Wasn’t that the guy who publicly denied that the EU ministers was attending a meeting in Luxembourg a couple of weeks ago?)

 Well, if you want rumors, you got it!

At the moment there are rumours that Greece might consider to hold a referendum to gain a mandate for proceeding with further austerity measures, spending cuts and privatizations, Greek newspaper Kathimerini reports.

The idea was raised at a Hellenic Federation of Enterprises (SEV) conference on Tuesday by the group’s chairman, Dimitris Daskalopoulos.

Prime minister Papandreou’s aides says that the minister was not averse to the idea and had actually discussed it with ministers at Monday’s Cabinet meeting.

However, Reuters reports that the Greek government denies that a referendum is a real option.

That seems to have become like a strategy for the Greek government – deny everything.

Meanwhile back in Brussels, the politicians are running around making all kinds of proposals, inventing new words for default and then taking it all back…

Now, German finance minister, Wolfgang Schäuble, seems to have changed his mind about a so-called “soft restructuring” for Greece. (Probably something along the lines of a “reprofiling”).

Speaking with Handelslbatt, the German minister explain that a credit event might be the consequence.

(Translation; credit event = financial havoc).

On top nobody knows how to deal with such a situation in country that is part of a monetary union.

“That would be an entirely different constellation that in 1990’s in Argentina and other countries”, Schäuble adds.

But no matter how you twist it; there’s nothing soft about the austerity measures that are in store for the people of Greece. 

Talking to Frankfurter Allgemeine Zeitung, the Bundesbank president, Jens Weidmann, warns that monetary policy will not clean up the mess after a soft restructuring in Greece.

The German central bank is not opposed the restructuring in principle, he points out in his first interview since taking office this month, adding:“As a question of principle the consequences of mistakes in financial policy must not be rolled over to the central banks. That would be a monetization of state debt. There must be a clear separation of monetary and financial policy.”

Weidmann warned a soft restructuring as currently discussed for Greece – a voluntary extension of the maturities of government bonds for private investors – would inevitably have the consequence that the ECB would no longer accept these bonds as collateral.

(Not even as soft assets?)

Talking about the ECB’s securities market program (SMP) Weidman says it is currently on hold.

Explaining the rationale of the SMP he says:

“The eurosystem has acted in a phase when the fiscal policy was unable to act. By doing so it built a bridge. With the EFSF and the EFSM there are now the instruments and the end of the bridge has been reached. The ECB council agrees that the program is limited in time, the only discussion is about the right timing of the exit.”

Well, Mr. Weideman, I can assure you the EU leaders can stay irrational longer than you can stay in office!

However – as eurointelligence.com also underline – these comments are important because Weidmann chooses to bring the Bundesbank back in line with all the other central banks.

Remember that his predecessor Axel Weber marginalized himself and the Bundesbank by publicly opposing the SMP.

(…I did not mention Merkel or PMS…)

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