Two interesting quotes from an interview with Jens Weidman, President of the Bundesbank. Emphasis mine:
SPIEGEL: Are your alternatives truly realistic? As the example of Greece shows, a return to self-reliance and sanctions through interest rates is not an option. And stronger political integration requires a new contractual basis complete with lengthy parliamentary processes, and possibly even constitutional amendments and referendums.
Weidmann: I think both approaches are feasible in principle, which doesn't mean that they're easy. The second option does indeed require time-consuming changes to the European treaties and national constitutions. It's important to take these steps in the right order and not to introduce the common liability part now, which might be more convenient for some, just because political integration is expected to occur at some point in the future. But I also feel that it would be promising, contrary to many prophecies of doom, to pursue a path returning to the origins of the real framework. It has to be strengthened, however.
SPIEGEL: What exactly would happen if Greece were not to fulfill the conditions for the next tranche of aid payment? Would Greece no longer receive any money at all?
Weidmann: Part of the regulatory framework of the monetary union is to uphold agreements. This means that Greece must live up to its commitments, and that there will be no aid payments if these promises aren't kept. Otherwise we would be setting false incentives.
From another Spiegel article:
"'If something isn't done immediately then no option will be excluded,' the Süddeutsche Zeitung on Tuesday quoted an unnamed euro-zone source as saying. An anonymous European Commission source told the paper that 'absent a strong troika report, we will see a national bankruptcy at the end of the month.'"
"Athens has fallen so far behind in its austerity measures that murmurings that Greece should exit the euro zone are no longer the exclusive domain of the political margins of Merkel's government coalition."
Also interesting is the following quote on Italy from the same article:
"On Monday, Mario Draghi, who will take over the reins of the ECB in November, warned Rome that the central bank's policy of buying bonds 'should not be taken for granted.' According to the Financial Times Deutschland, the ECB slowed purchases of Italian bonds on Monday, a move which was widely interpreted as a warning to Rome."
Meanwhile, Germany's president questions the legality of these bond purchases by the ECB:
"I regard the massive acquisition of the bonds of individual states via the European Central Bank as legally questionable."
The same article quotes former German Chancellor Helmut Kohl, one of the early supporters (and architects?) of the European Currency Union as saying: "We have no choice [but to help EU members, such as Greece, face their debt crises], if we do not want to let Europe break apart."
How can a prominent German former politician take such a strong stand and just say "we have no choice, we have to help"? By adding the qualifier "if we do not want to let Europe break apart" but at least German seem increasingly comfortable with that option.
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