German Govt Prepares For Greece To Exit Euro Zone

Michael CEO, Favoured Capital Investment Group Ltd, London

Germany's government is preparing for a Greek exit from the euro zone in case the new Greek government doesn't want to implement the latest austerity program, according to a report for the latest edition of Spiegel magazine pre-released Saturday, citing sources close to the finance ministry.


Germany's finance ministry couldn't be reached for comment on the report Saturday.
The article said experts from the finance ministry are considering several scenarios. The basis scenario assumes "things won't get as bad [as expected]."

According to the article, government experts view "periphery states" such as Spain and Italy as currently experiencing problems borrowing money; "however, unlike Greece, they aren't broke."

The next scenario foresees a Greek exit causing initial turbulence but in the long term it could potentially lead to a stronger euro zone with the weakest member gone, according to Spiegel.

The government's worst-case scenario, Spiegel said, would involve Spain's and Italy's borrowing costs rising dramatically, forcing the European Financial Stability Facility, or EFSF, to provide fresh capital.

To cover such a scenario, the government experts said the EFSF's financing volume would need to be boosted as quickly as possible to more than EUR1.0 trillion, according to Spiegel.

The government is also discussing a "worst-worst-case scenario" which, although considered unlikely, would involve a dramatic devaluation of the new Greek currency against the euro and "disproportionate" negative effects such as high Greek sovereign debt despite write-offs, a further drop in Greece's credit rating, and an economic crisis lasting for decades that could infect other countries, the article said.