Germany’s Schäuble Doesn’t Rule Out Greek Default

Deserted grain silos are seen in front of the snowcapped Mount Olympus near the town of Larissa in Thessaly region, Greece April 22, 2015. REUTERS/Yannis Behrakis

BERLIN—Germany’s finance minister said he couldn’t rule out a Greek default, a stance that will add pressure on Athens as negotiations over much-needed financing enter their final stretch.

Asked whether he would repeat an assurance he gave in late 2012 that Greece wouldn’t default, Wolfgang Schäuble told The Wall Street Journal and French daily Les Echos that “I would have to think very hard before repeating this in the current situation.”

“The sovereign, democratic decision of the Greek people has left us in a very different situation,” he said, referring to the January election that delivered a radical-left government bent on reversing five years of creditor-mandated austerity and painful economic overhauls.

In an interview in his spartan Berlin office on Tuesday, Mr. Schäuble, a key architect of Europe’s controversial austerity-driven response to the eurozone debt crisis, showed no willingness to compromise in the negotiations to unlock the final installment of Greece’s €245-billion ($272-billion) bailout. Without a deal, the program will expire in six weeks, leaving Greece with no option but to default on billions of euros in debt repayments coming due this summer.

Even as he dismissed suggestions that the rules of Greece’s bailout can be bent, Mr. Schäuble said he’s ready to open talks with the U.K. about London’s demand to rewrite the rules of its European Union membership. Newly re-elected Prime Minister David Cameron has promised to hold a referendum by 2017 on the U.K.’s membership in the 28-nation bloc.

Mr. Schäuble said he had invited his U.K. counterpart George Osborne to Berlin to discuss how to combine Britain’s requests and Germany’s own wish list of changes to the Treaties of the EU, the bloc’s founding agreements that lay out how it operates.

“We have talked about him coming to Berlin so that we can think together about how we can combine the British position with the urgent need for a strengthened governance of the eurozone,” Mr. Schäuble, one of the most senior members of the German government, said. Chancellor Angela Merkel “knows this and David Cameron is informed.”

Mr. Cameron has said he wants to win back a range of powers from the EU, including more control over what benefits foreign workers in the U.K. can receive, a national veto on some EU legislation, and a bigger say for national parliaments in European decisions.

Germany, and Mr. Schäuble in particular, have long championed a change that would allow for more centralization of fiscal policy within the euro area, of which the U.K. is not a part. But it has faced opposition from France and other member states.

Mr. Schäuble said London’s wish for looser EU ties could provide a vehicle for the tighter-knit eurozone economic governance Berlin thinks is indispensable to the currency union’s long-term survival.

“Since 2010, we’ve been more successful at stabilizing the eurozone than many critics expected. But the structure of this currency union will stay fragile as long as its governance isn’t substantially reinforced. Maybe there is a chance to combine both goals,” he said.

Mr. Schäuble conceded that the protracted process of rewriting the Treaties might not be achievable by 2017, but “we will try to move in this direction, possibly through agreements that would later be incorporated into Treaty changes. There is a big margin of maneuver.”

The finance minister, whose close relationship with Mr. Osborne he said was “no secret and, at least for me, nothing to be ashamed of,” said “we have a huge interest in the U.K. remaining a strong and engaged member of the European Union.”

Returning to the subject of Greece, Mr. Schäuble, who will chair a meeting of Group of Seven finance ministers and central bankers next week in Dresden, rebuffed most ideas from Brussels to carve a way out of the impasse in bailout negotiations.

He also warned the European Commission, seen in Berlin as too lenient with Athens, to keep to its role as one of the three monitors of the program’s implementation, alongside the International Monetary Fund and the European Central Bank.

“Many people talk about things they either do not understand or are not responsible for,” he said. “The Commission plays its role as part of the three institutions. But it acts within the limits of this function.”

Mr. Schäuble is known for taking a hard line on Greece. However, German Chancellor Angela Merkel has taken a somewhat more pragmatic view, and is eager to avoid a Greek bankruptcy or euro exit.

But German officials say Ms. Merkel too needs Greece to enact enough tough economic overhauls for her to justify further bailout aid to Germany’s parliament, where many lawmakers share Mr. Schäuble’s skepticism about Athens’s willingness or ability to comply with the eurozone’s economic rules.

Among the suggestions Mr. Schäuble rejected is the idea that negotiations over a third bailout package, which most economists agree is unavoidable, should start before the current program is completed.

While Greece could be eligible for a third bailout if it completed its program successfully and achieved a budget surplus before interest repayments, Mr. Schäuble said, “Greece has yet to complete the program, it no longer has the primary surplus it had last year, and it has said repeatedly it doesn’t want a new program.”

Talks of splitting the last tranche of the current bailout into mini-installments linked to specific steps to be taken by Athens were also off the table, he said, as were calls from Athens for a top-level political deal to override the stranded technical talks. These talks have become mired in Athens’ refusal to implement the pension, labor market and tax overhauls mandated by the program.

But Mr. Schaeble insisted they had to run their course until they came to an agreement that eurozone finance ministers could either approve or reject.

“The negotiations between Greece and the three institutions (the European Commission, the ECB and the IMF) have always been tough, but they have always succeeded,” Mr. Schäuble said. “I have no intention of interfering in this process.”