Wednesday, February 8, 2017
Trump envoy says Greece is now more likely to leave the euro
Ted Malloch, proposed US ambassador to the EU, casts doubt on survival of eurozone and says Athens should return to drachma
Greeks protest against austerity outside parliament in Athens last year. Photograph: Kostas Pikoulas/Pacific/Barcroft/Rex/Shutterstock
Helena Smith in Greece
Wednesday 8 February 2017 15.10 GMT Last modified on Wednesday 8 February 2017 16.51 GMT
Donald Trump’s administration has put itself on a fresh collision course with the European Union after the president’s candidate to be ambassador in Brussels said Greece should leave the euro and predicted the single currency would not survive more than 18 months in its present form.
Days after being accused of “outrageous malevolence” towards the EU for publicly declaring that it “needs a little taming”, Ted Malloch courted fresh controversy by saying Greece should have left the eurozone four years ago when it would have been “easier and simpler”.
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Malloch made his comments as financial markets began to take fright at the possibility of a fresh Greek debt crisis later this year. Shares fell and interest rates on Greek debt rose after it emerged that the EU was at loggerheads with the International Monetary Fund (IMF) over whether to give the country more generous debt relief.
“Whether the eurozone survives I think is very much a question that is on the agenda,” he told Greek Skai TV’s late-night chat show Istories. “We have had the exit of the UK, there are elections in other European countries, so I think it is something that will be determined over the course of the next year, year and a half.
“Why is Greece again on the brink? It seems like a deja vu. Will it ever end? I think this time I would have to say that the odds are higher that Greece itself will break out of the euro,” Malloch said.
The stridently Brexit-supporting businessman, who has yet to be confirmed as the US president’s EU ambassador and is seen by Brussels as a provocative nominee for the post, said he wholeheartedly agreed with Trump’s tweet from 2012 saying Greece should return to the drachma, its former currency.
Donald J. Trump ✔ @realDonaldTrump
"Greece should get out of the euro & go back to their own currency--they are just wasting time".
“I personally think [Trump] was right. I would also say that this probably should have been instigated four years ago, and probably it would have been easier or simpler to do,” Malloch said in the interview with the show’s chief anchor, Alexis Papahelas.
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Seven years of arduous austerity – the price of the international bailout – had been so bad for the country that it was questionable whether what came next could possibly be worse, Malloch said.
In the third bailout in as many years, Greece has lost more than 25% of its GDP due to austerity-fuelled recession, the biggest slump of any advanced western economy in modern times. Without further emergency funding from its €86bn (£74bn) rescue programme, Athens could face a default in July when debt repayments of about €7bn to the European Central Bank mature.
Concerns on Tuesday over Greece’s debts drove up yields on two-year government bonds to their highest level since last June, reflecting growing anxiety on financial markets over Athens’s ability to keep up to date with debt repayments.
The renewed focus came as the IMF revealed its board was split over how far spending cuts in the country should go, raising fresh doubts over the IMF’s participation in rescue plans for the struggling Greek economy. The IMF believes that the budgetary demands being imposed on Greece by Europe are unreasonable and that the country’s debts will hit 275% of national income by 2060 without fresh assistance.
Malloch said: “I have travelled to Greece, met lots of Greek people, I have academic friends in Greece and they say that these austerity plans are really deeply hurting the Greek people, and that the situation is simply unsustainable. So you might have to ask the question if what comes next could possibly be worse than what’s happening now.”
The biggest unknown was not a euro exit, but the chaos it would likely engender as Greece moved to a new currency, he said.
The governance structure of the IMF means the US could block any deal it did not support.
“If the [IMF] will not participate in a new bailout that does not include substantial debt relief, and that’s what they are saying, then that, more or less, ensures a collision course with eurozone creditors,” Malloch added, saying it was imperative that EU member states forgave a substantial part of Greece’s mountainous public debt.
“Now we all know that primarily [puts pressure on] Germany, which remains opposed to any such actions, so I think it suggests that Greece might have to sever ties and do Grexit and exit the euro,” he said.
Under bailout programmes financed mostly by Germany, Greece has been given about €336bn in rescue loans, money that Berlin and other lenders are determined to get back. The euro-denominated debt pile would be essentially erased if Greece reverted to the drachma.
Malloch’s latest intervention is unlikely to be greeted enthusiastically by EU officials, who are voicing fears that stalled bailout negotiations with creditors could pave the way for an accidental default in the summer.
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