Markets run at signs Germany is losing patience with Greece
Financial markets fled to safety on Monday at signs that Germany, Europe's paymaster, is losing patience with debt-wracked Greece, as senior officials raised the spectre that it could leave the eurozone.
A raft of comments from policymakers about the previously unmentionable subject of an "orderly default" for Greece drove the euro to 10-year low points and German bond yields down to a record low level as investors piled out of risky assets.
"It is our goal that Greece stays in the eurozone, that Greece implements its savings measures," said Christian Lindner, general secretary of the Free Democrats (FDP), junior coalition partners in Berlin.
"But we must consider what happens if the Greeks are not in a position to do this," Lindner told ARD television.
"The Greeks must decide themselves whether they want to stay in the euro or not ... it should not be a taboo," added Lindner.
Broaching another subject that was previously taboo, the head of the FDP, Economy Minister Philipp Roesler, said that Europe could no longer rule out an "orderly default" for Greece.
"To stabilise the euro, we must not take anything off the table in the short run," Roesler, who is also vice chancellor, wrote in an opinion article in Monday's edition of Die Welt, a conservative daily.
And the head of the Christian Social Union (CSU), Bavarian sister party to Chancellor Angela Merkel's CDU party, also raised the possibility of Greece leaving the eurozone if it could not force through painful austerity measures.
"Rumours are spreading that the German government is hoping to end the Greece aid. It is tempting to believe these rumours, as everything seems to fit," said Ulrich Leuchtmann, an analyst at Commerzbank.
The comments, indicating wider concerns over a possible default by Greece, pushed the single currency to a fresh 10-year low level against the yen in afternoon Asian trade.
Both German and US 10-year bond yields also hit historic low points as investors shunned risky deals and bought assets seen as safe during times of financial turmoil.
Also fuelling financial market fears was an article in Der Spiegel news weekly reporting that Finance Minister Wolfgang Schaeuble doubted that Greece can avoid a default.
Spiegel said that finance ministry officials in Berlin were contemplating two scenarios should Greece go bankrupt: one where the country stays in the eurozone and another where it introduces its former currency, the drachma.
Meanwhile, in Athens, the government announced new measures amounting to two billion euros in new budget cuts demanded by the European Union and the International Monetary Fund for its rescue package.
Greek Prime Minister George Papandreou said on Sunday that Greece must defend itself "like being in a state of war" to obtain the second bailout, "despite the ill will" of some Europeans.
But German officials from Merkel downwards have insisted that Greece fulfil its international commitments before receiving the next tranche of aid.
"Greece knows that credit is only available if it meets its obligations," Merkel said in a weekend media interview, nevertheless calling on her fellow Germans to stick to the unpopular course of bailing out Athens.
Comparing the Greek efforts to Germany's struggles to overhaul infrastructure in former communist East Germany after reunification in 1990, Merkel stressed: "We must be patient."
Holger Schmieding, an analyst at Berenberg Bank, said: "A German 'no' to further support for Greece is a serious risk, although it is not the most likely scenario yet."
However, if this were to happen, "it could weigh on financial markets, depress business and consumer sentiment and exacerbate the near-term downside risks to the German and overall eurozone economy," the economist warned.
© 2011 AFP