ECONOMY

Merkel toyed with idea of Greek euro exit until late 2012, claims ex-ECB official

German Chancellor Angela Merkel toyed with the idea of forcing Greece out of the euro until the autumn of 2012, according to Lorenzo Bini Smaghi, a former executive board member at the ECB.

In his new book, Morire di Austerita (Dying of Austerity), Bini Smaghi claims that Merkel was finally convinced that a Greek exit would be too costly for Germany and the eurozone. She then threw her weight behind the coalition government in Athens that was elected in the June polls last year.

Bini Smaghi also claims in his book that former Italian Prime Minister Silvio Berlusconi also mulled plans to pull his country out of the euro in late 2011, shortly before he was forced out of government.

Berlusconi discussed plans to leave the euro with Merkel and French President Nicolas Sarkozy, claims the former central banker.

In his book Bini Smaghi argues that the departure of any country from the euro area would have a devastating effect on the remaining single currency members because of the implications a default on external obligations would have on the European Central Bank’s Target 2 internal payment system.