Merkel pressed to give up Greece as Germans urge strong euro

German Chancellor Angela Merkel is coming under growing pressure from within the ranks of her own party bloc to give up on Greece for the sake of the euro.

Members of Merkel’s Christian Democratic bloc are openly challenging her stance of keeping Europe’s most-indebted country in the 19-nation currency region. Even some officials in the Finance Ministry are leaning toward the conclusion that the euro area would be better off without Greece, two people familiar with the matter said.

“The euro would be strengthened if Greece left,” Alexander Radwan, a Merkel-affiliated lawmaker who voted for granting Greece a temporary extension of its bailout in February, said in an interview. “The other countries could then move closer together and apply the rules more strictly.”

With European finance ministers due to resume talks on Greece on Monday, hardening sentiment in Germany risks sending mixed signals to investors as Prime Minister Alexis Tsipras’s government attempts to reach a deal with creditors.

Spanish and Italian bonds declined Monday as investors speculated that Greece will struggle to win more aid. German Finance Minister Wolfgang Schaeuble warned that countries “can suddenly slide into default,” according to an interview with Frankfurter Allgemeine Zeitung posted on the ministry website.

Schaeuble outburst

Merkel has repeatedly voiced public support for keeping the country in the euro, partly for geopolitical reasons. Other officials in her government view Greece as a rule-breaker and a drag on the region’s economy, said the people, who asked not to be named discussing the deliberations.

Schaeuble, a prominent German advocate of European unity for decades, has given plenty of signs of exasperation with Greece since Tsipras and Finance Minister Yanis Varoufakis took office in January on an anti-austerity platform.

He told an Austrian television interviewer on March 12 that he could envisage a Greek exit from 19-nation currency. On a panel in Berlin the next week, he accused Greek authorities of lying to voters by failing to tell Greeks that they “lived way above their means” for decades.

While that rhetoric resonates with lawmakers in Merkel’s party bloc who have to sign off on future Greek aid, Merkel wasn’t happy about the outburst, a person familiar with the chancellor’s thinking said. She blamed it on Schaeuble’s temper and saw no need to disavow or reprimand him, the person said.

Stronger euro

The Finance Ministry declined to comment on Schaeuble’s position on Greece’s future in the euro area beyond his public statements. Steffen Seibert, Merkel’s chief spokesman, declined to comment on calls by German politicians for a euro area without Greece.

As talks between Greece and its creditors drag on, the view that the euro would be stronger without Greece is gaining ground in Merkel’s Christian Democratic-led bloc, according to two lawmakers. They asked not to be identified because they don’t want to publicly challenge Merkel.

“Having its own currency could help Greece get back on its feet,” Hans-Peter Friedrich, one of 29 lawmakers from Merkel’s bloc who voted against extending Greece’s aid program, said in an e-mailed answer to questions.

“Europe will only go so far to help Greece stay in the euro” because the euro area “has the tools to contain the financial damage of a Greek default,” Christian Schulz, an economist at Berenberg Bank in London, said in a research note.

Merkel has backed keeping the euro area whole as long as Greece proposes economic-policy changes that win creditors’ approval. She and Tsipras stepped up contacts last week, talking by phone twice in three days.

“I’m trying, in everybody’s interest, to do everything possible to keep Greece in the euro,” Merkel said at a rally of her Christian Democratic Union in the city of Bremerhaven last month. [Bloomberg]

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