German Finance Minister Wolfgang Schaeuble raised the possibility that Greece may need a parallel currency alongside the euro if the country’s talks with creditors fail, people familiar with his views said.
Schaeuble mentioned the idea of parallel currencies at a recent meeting without endorsing it, according to two people who attended and asked not to be identified because the gathering was private. He also cited the example of Montenegro, which uses the euro but isn’t a member of the currency union, one person said.
The comments suggest that some in Germany are preparing for the worst amid a standoff with Greece that has dragged on since February. While Chancellor Angela Merkel and her finance minister say the goal is to keep Greece in the euro, Schaeuble has also said he wouldn’t rule out a Greek exit from the 19- nation currency.
Germany is “ready to take this brinkmanship very far,” with Schaeuble in the role of “attack dog,” Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington, said by phone. “The risks of contagion to other euro-area countries from a deterioration in Greece is very low.”
Merkel said Friday that greater efforts are needed to unlock bailout funds for Greece after negotiations with Prime Minister Alexis Tsipras at a European Union summit in Latvia failed to produce signs of a breakthrough.
“We’re in this game of chicken,” Kirkegaard said. “The problem is that Alexis Tsipras is riding a scooter and Wolfgang Schaeuble is driving an armored BMW.”
Economists and analysts say introducing a parallel currency, such as IOUs, might be part of a scenario that develops if the deadlock on Greece’s financing persists and the country defaults. German officials are “taking just about everything into consideration,” Schaeuble said in a Bloomberg interview in April.
Asked to comment on Schaeuble’s position on a parallel currency, the Finance Ministry cited his comments in an interview with Les Echos this week that “we take note of the discussion but we are not commenting on it.”
Goldman Sachs International analysts in a note in February cited currency arrangements in Cyprus, Montenegro and Kosovo as possible scenarios for “hybrid situations that could emerge in Greece.” One case could be IOUs to cover domestic spending, which would circulate alongside the euro, according to the Goldman Sachs economists including Huw Pill.
Former Deutsche Bank chief economist Thomas Mayer said he suggested a parallel currency for Greece during talks with Tsipras and Finance Minister Yanis Varoufakis in April, Frankfurter Allgemeine Zeitung reported. Greece isn’t considering a parallel currency, Greek government spokesman Gabriel Sakellaridis said in Athens on May 11.
“Greece’s economy isn’t competitive on the basis of the euro so it would be better for the Greeks to introduce a parallel currency,” Anton Boerner, head of the German BGA export-industry association, said in an interview. “It would be a way to avoid a chaotic collapse.”