Merkel warns against Greek default, euro exit

BERLIN Tue Sep 13, 2011 5:29am EDT

German chancellor Angela Merkel speaks at the second day of the International Meeting of Prayer for Peace in Munich September 12, 2011. REUTERS/Michaela Rehle

German chancellor Angela Merkel speaks at the second day of the International Meeting of Prayer for Peace in Munich September 12, 2011.

Credit: Reuters/Michaela Rehle

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BERLIN (Reuters) - German Chancellor Angela Merkel said on Tuesday that Europe was doing everything in its power to prevent Greece from defaulting on its debt and cautioned that an exit from the euro zone would unleash "domino effects" and should be avoided at all costs.

Asked by RBB inforadio whether a Greek default would doom the euro, Merkel answered: "We are using all the tools we have to prevent this. We need to avoid all disorderly processes with regards to the euro."

Calling Europe's challenge "historic," she added that everything must be done to keep the euro zone intact "because we would see domino effects very quickly."

"In a currency union with 17 members, we can only have a stable euro if we prevent disorderly processes. Therefore it is our top priority to avoid an uncontrolled default, because it would hit not only Greece. The danger would be very high that it would hit many other countries."

Merkel's comments come a day after Economy Minister Philipp Roesler, who leads the junior coalition party the Free Democrats in her government, said that to stabilize the euro there could "no longer be any taboos."

Merkel said in her interview everyone should balance their words carefully to avoid further market volatility. She added that Germany felt "absolutely committed" to the euro, saying the country had benefited hugely from it.

Merkel said Europe would not be able to avoid changes to the Lisbon Treaty in the medium-term, making clear that the bloc's rule book needed to be changed to ensure countries that violated fiscal rules were punished.

"Until now, for example, if countries violate the Stability and Growth Pact they cannot be taken before the European Court of Justice," she said.

Merkel also expressed confidence that the German "stability" stance within the ECB would not change after the departure of executive board member Juergen Stark, who is to be replaced by deputy finance minister Joerg Asmussen, a Social Democrat (SPD) whose views on monetary policy are largely unknown.

She expressed confidence that her coalition parties would get a majority without having to rely on the opposition in a vote in the Bundetag lower house of parliament on September 29 to give the European Financial Stability Fund (EFSF) more powers.

(Writing by Noah Barkin; Reporting by Maria Sheahan and Annika Breidthardt; Editing by Anna Willard)

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Comments (3)
Lambick wrote:
Although European politicians have been too slow in searching for solutions to the debt problem, it must be said that Merkel, confronted with countries like Greece and Italy which obviously are trying to fleece the rest of Europe, showed a commendable restraint while trying to keep the Euro system together. She has had the courage to court a painful impopularity with her voters to avoid the damage that comes with acting on impulses. Let’s give her a hand.

Sep 13, 2011 4:08am EDT  --  Report as abuse
Hewson wrote:
So now the Germans are talking about taking errant countries before the European Courts of Justice? As I recall BOTH Germany and France broke the rules on borrowing in recent years when it suited them. Until the stronger countries at the core of the Eurozone cop on to the fact that debt forgiveness is the only route out for heavily indebted peripheral nations then the Euro is doomed to further instability.

Germans, more than anybody else, should know what happens when a country has overly harsh financial penalties forced on it. The aftermath of World War I is surely not too distant a history lesson to be forgotten so easily.

Sep 13, 2011 4:16am EDT  --  Report as abuse
Lambick wrote:
Germany was less than helpful by in fact invalidating the Stability Pact almost from the outset. Still, forgiving debts – in the cse of Greece it’s either that or a default – is all fine but will only work if there is a framework in place to continue a relationship, including a court of law. Greece assumed debts out of its own free will, by the way, which was not the case with WW1 repair payments.

Sep 13, 2011 6:45am EDT  --  Report as abuse
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