Greece should pay wages in drachmas: German MP

BERLIN Mon Jul 23, 2012 4:10am EDT

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BERLIN (Reuters) - Greece should start paying half of its pensions and state salaries in drachmas as part of a gradual exit from the euro zone, a leading German conservative was quoted on Monday as saying.

Alexander Dobrindt, general secretary of the Christian Social Union (CSU), the Bavaria-based sister party of Chancellor Angela Merkel's Christian Democrats (CDU), has long argued that Greece would be better off outside the euro zone.

"With Greece we have reached the end of the road. There must not be any further aid. A country which does not have the will to fulfil the conditions, or is not able to do so, must get a chance outside the euro," Dobrindt told the daily Die Welt.

The CSU has often been more critical of EU bailouts than Merkel's party, but his comments underline the degree of German frustration with Athens over its continued failure to meet reform targets under its 130 billion euro aid programs.

"Greece should start to pay half of its civil service wages, pensions and other expenditures in drachmas now," Dobrint added.

"A soft return to the old currency is better for Greece than a drastic move. Having the drachma as a parallel currency would allow the chance for economic growth to develop."

Dobrindt did not explain how Greece could manage a partial return to its old currency without triggering turmoil in financial markets and a likely run on its banks.

Inspectors from the international 'troika', the European Commission, European Central Bank and International Monetary Fund, arrive in Athens on Tuesday to focus on some 11.7 billion euros of spending cuts Greece needs to make in 2013 and 2014.

Greek Prime Minister Antonis Samaras said on Sunday that his country is in a "Great Depression" similar to that of America in the 1930s, with its economy seen shrinking by close to a fifth after five consecutive years of recession since 2008.

Greece wants two more years to achieve its bailout goals but its lenders have opposed the idea because it would imply even more financial aid.

The German weekly Der Spiegel reported at the weekend that Greece would need up to 50 billion euros in additional aid beyond the 130 billion euros already agreed and also said the IMF may refuse to contribute any further funding.

The German and Greek finance ministries declined to comment on the Spiegel report.

THIRD TRANCHE?

Echoing the Spiegel's line on Monday, the Sueddeutsche Zeitung daily quoted German government sources as saying Germany too would be unlikely to sign off on any fresh aid for Greece.

"It is unthinkable that Chancellor Angela Merkel could go once more before the Bundestag (lower house of parliament) and seek agreement for a third package of aid for Greece," the paper quoted the government sources as saying.

If Greece does require more aid and its lenders reject the request, it will default on its debt repayments and most likely be forced out of the single currency.

German Finance Minister Wolfgang Schaeuble was more circumspect in his comments about Greece in an interview for Monday's edition of Germany's top-selling Bild daily, saying he wanted to wait for the troika's report on the country.

"If there are delays (in implementation of reforms) Greece must catch up," Schaeuble said.

Schaeuble also stressed that Spain -- the latest beneficiary of emergency EU aid worth up to 100 billion euros for its ailing bank sector -- was in a much healthier state than Greece.

"Spain's economy is much more effective and has a different structure. The country can turn around very quickly," he said.

(Reporting by Gareth Jones and Alexandra Hudson, writing by Gareth Jones; Editing by Catherine Evans)

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