German advisers say euro zone exit should not be taboo
By Caroline Copley
BERLIN (Reuters) - The German government's panel of independent economic advisers favors creating an insolvency mechanism for euro zone states and says countries should be able to leave the single currency as a last resort.
The Greek crisis has called into question the future of the euro. Wrangling over a third bailout for the heavily indebted country almost sending Athens crashing out of the euro zone.
In a report published on Tuesday, the council of five experts, known as the "wise men", said the Greek crisis showed further reforms were needed, such as an insolvency procedures, to make the euro zone more stable.
But the council stressed that it should still be possible for a country to drop the euro as a "last resort", to avoid threatening the existence of the single currency.
"In a currency union, the basic rules must be adhered to and for this reason the exit of a member state should not be taboo, for otherwise partners are susceptible to blackmail," council member Lars Feld told reporters on a media call.
Feld also said the council viewed a third bailout for Greece as the "right step" as long as Athens implemented reforms.
He said an insolvency mechanism would work by assessing whether a country requesting aid from the euro zone's bailout fund was caught in an extreme budget crisis. If so, debt restructuring would be needed, for example through a one-off extension of maturities or a haircut.
Nonetheless, the council said an insolvency mechanism would only be possible once states had dealt with current debt levels. They also warned against "quick-win" fiscal policies, such as the creation of a euro zone treasury, a European unemployment insurance scheme or an economic government for the bloc. Continued...