“German Chancellor Angela Merkel toyed with the idea of forcing Greece out of the euro until the autumn of 2012.” These claims are raised by Lorenzo Bini Smaghi, until recently one of the six-man executive council at the European Central Bank and for many years Italy’s man in Frankfurt”
In his Morire di Austerita (Dying of Austerity), Bini Smaghi reveals that Merkel continued to think that Greece could be thrown out of the euro safely as late as the early autumn of 2012. She was finally convinced that a Grexit would cause “all hell to break lose, with chain reactions engulfing the whole system. She then switched tack abruptly, rushing to Athens to praise the new government for its heroic efforts.
Bini Smaghi states that any EMU state leaving the euro would face likely default on external obligations. “The national central bank would not be able to repay liabilities accumulated in relation to other members of the euro system, which are registered in the internal payments system of the Union (known as Target2). The insolvency would provoke substantial losses for counter-parties in other eurozone countries, including central banks and states.”
I did not read Bini Smaghi’s book – it’s in Italian anyway. All information I have about Merkel’s Grexit idea comes from two sources in English and one in Greek. It seems as if Bini Smaghi does not reveal who convinced Angela Merkel that a Greek euro exit was a bad idea for Germany and the eurozone.
However some Greeks internet users recalled the official visit of German Chancellor Angela Merkel to China end of August 2012. Merkel had meetings with Chinese President Wen Jintao and Vice President Xi Jinping.
Reading through the news of this time, both Jintao and Jinping expressed their interest that Greece remains in the euro zone and indirectly threatened Merkel with future European bond purchases. The Chinese had (and still have) a vivid and direct interest in euro-Greece, not least due to their Cosco investment in Piraeus Port – the EU port for China.
“Chinese Premier Wen Jiabao told his German counterpart that Spain, Italy and Greece must take steps to prevent a worsening of the euro region’s sovereign-debt crisis as he pledged to consider further European bond purchases.
“The main worries are two-fold: First is whether Greece will leave the euro zone,” Wen said after meeting Chancellor Angela Merkel in Beijing, a pool report showed. “The second is whether Italy and Spain will take comprehensive rescue measures. Resolving these two problems rests with whether Greece, Spain, Italy and other countries have the determination for reform.” (Bloomberg)
The Chinese had a vivid and direct interest in euro-Greece, not least due to their Cosco investment in Piraeus Port – the EU port for China.
Nevertheless, Bini Smaghi revealed also in his book that Italian PM Silvio Berlusconi seriously floated plans to pull Italy out of the euro in October/November 2011.
In his book Bini Smaghi confirmed as well that Germany is on the hook for €574bn of credits from the Bundesbank to the central banks of Greece, Portugal, Ireland, Italy, Cyprus, and Slovenia.
The Economist: One woman to rule them all – German voters should re-elect Angela Merkel as their chancellor—and Europe’s leader (full article here)
KTG proposal: More precise the Economist-title would be: One woman to ruin them all 🙂
In his book Bini Smaghi confirmed as well that Germany is on the hook for €574bn of credits from the Bundesbank to the central banks of Greece, Portugal, Ireland, Italy, Cyprus, and Slovenia.
Sources on Lorenzo Bini Smaghi book Telegraph, capital.gr and ekathimerini
