Greece’s exit from the eurozone may be a solution for its debt ‘haircut’ which is impossible within the euro, according to the German Finance Minister Wolfgang Schauble, as policymakers in the Bundestag are set to vote on the €86 billion package for Athens.
No one would or could force Greece to leave the eurozone against its will, but a “temporary” exit to restructure its debts was an option that must be considered, according to the minister.
"We have not said that we will impose this [Grexit], we can't, we don't want to, and no one has suggested it, but it would perhaps be the better way for Greece," Schauble was quoted as saying to Deutschlandfunk radio.
The country’s debt is unsustainable and Athens could not manage its debt without writing some of it off, he added. Currently Greece’s overall debt is estimated at €316 billion, of which, €240 billion is owed to its EU creditors – the IMF, the ECB and the European Commission.
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"The more difficult question will be to reach sustainability of the debt, whether a package that is large enough can be agreed upon without any debt reduction”.
"Nobody knows in the moment how it is supposed to happen without debt relief, but everyone knows that debt relief is not possible within the Eurozone,” Schauble said.
Schauble’s comment caused a quick reaction from a former assistant director at the IMF Ashoka Mody, who said that it is Germany who should leave the euro but not Greece.
"It would be better for all involved, though, if Germany rather than Greece were the first to exit", Mody who was responsible for some of the bailouts required during the euro crisis, told Bloomberg View on Friday.
He adds that the currency union was a bad idea and it might be split into two more complimentary parts. Germany’s return to the deutsche mark will immediately lead to the fall of the euro value, and that will give “countries in Europe's periphery a much-needed boost in competitiveness”.
The comments come as German lawmakers are voting in Bundestag on the third bailout package to Greece of up to €86 billion which was agreed by European leaders on Monday. Germany has been Greece’s biggest creditor and the agreement on new money for the country could cause protests form German taxpayers.
READ MORE:ECB increases emergency funding for Greek banks by €900mn
Eurozone ministers agreed to extend a €7 billion bridging loan to Greece on Wednesday. The ECB followed by raising Greece’s emergency liquidity assistance (ELA) by €900 million for a week from €89 billion. This paves the way for the banks, which have been closed for two weeks, to be reopened as soon as on Monday. The head of the ECB Mario Draghi also voiced his confidence that Athens would repay $3.5 billion to the organization on July 20.
Earlier this week, the IMF said that the €86 billion program will not save Greece from financial collapse. The fund warned that European creditors should either write down a massive amount of Athens’ debt or give Greece a 30-year grace period if they want it to recover and repay the money it owes.