Possible Greek Default Worries European Politicians

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Deepening concerns that debt-troubled Greece might default — and increasingly strident comments by several politicians in Germany about that possibility — helped send European markets sharply lower Monday. One German politician said it can't be ruled out that Greece might have to leave the eurozone. French banks — which are heavily exposed to the Greek debt — were particularly hard hit Monday, with some leading banks down more than 10 percent.

MICHELE NORRIS, host: From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

And we begin this hour in Germany amid growing concern that Greece will default on its debts and drive other eurozone nations down with it. That concern, plus increasingly tough talk from German politicians helped send European markets sharply lower today. French banks are heavily exposed to Greek debt and were hit particularly hard with some major banks down more than 10 percent.

NPR's Eric Westervelt begins our coverage today from Berlin.

ERIC WESTERVELT: One after the other, politicians here have been ratcheting up the tough, almost threatening rhetoric over the Greek crisis and raising possibilities once thought taboo.

Today, Christian Lindner, the general secretary of the Free Democrats, the junior coalition partner here, told Germany's ZDF TV that if Greece maintains its strict austerity measures, it will continue to get European bailout money. But he added that Greece may also decide to leave or be pushed out of the 17-member currency block.

CHRISTIAN LINDNER: (Through translator) If the Greeks are unable or unwilling to see through their austerity measures, then state insolvency or indeed leaving the eurozone cannot be ruled out.

WESTERVELT: Over the weekend, the German economy minister and leader of the Free Democrats, Philipp Rosler, added that to stabilize the eurozone, an orderly bankruptcy of Greece might be necessary. Even members of parliament and Chancellor Angela Merkel's own party, the CDU, are taking an increasingly tough line. The strong words are, in part, meant as pressure, but they also reflect deep concern here that Greece may eventually undergo a full or partial default and that a second bailout of Greece, which is underway, will prove inadequate to stem the crisis.

The idea that Greece would go bust and concern over big European banks' exposure to bad debt, again, rattled markets in Europe. The STOXX 50 Index of blue-chip European shares dropped 2.6 percent today with many of Europe's big financial groups down sharply as well. France's Societe Generale ended the day nearly 11 percent down.

Juergen Michels, chief euro area economist at Citibank, says the size of the European rescue fund will very likely have to be increased. And he says talk of eurozone defaults in the next year or so is simply realistic.

JUERGEN MICHELS: We probably also have to see defaults. Greece, at the end of the day, is likely to have one, but it's also likely to happen for Portugal and Ireland. I'm not sure that this happens any time soon, but I just think that in order to get back on track in those countries, that's probably one of the steps that has to be taken.

WESTERVELT: Michels says such a default would be a massive financial shock. But he adds that preparing for it now will lessen the blow. Officials in Chancellor Merkel's finance ministry are reportedly quietly preparing for that possibility and debating how best to support exposed German banks if Greece fails to meet its budget-cutting goals and is therefore unable to receive its next bailout payment.

Professor Hans-Werner Sinn is president of Germany's Center for Economic Studies at the University of Munich. He told reporters in Berlin today that if it's done in an orderly way, bankruptcy for Greece may be the only way for Europe to start to move out from under the debt crisis.

HANS-WERNER SINN: (Through translator) Insolvency does not mean complete ruin and demise. Insolvency allows for the offloading of debts, a fresh start, a liberation. But debts are not Greece's only problem. The other major problem is a lack of competitiveness within the Greek economy.

WESTERVELT: Sinn added, let's not kid ourselves, Greece has been effectively bankrupt since last year's bailout, he said. And their insolvency has simply been deferred by a series of ineffective European political measures.

Eric Westervelt, NPR News, Berlin.

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