German Finance Minister Wolfgang Schaeuble said that turmoil in the financial markets caused by Europe's debt crisis may last another two years, as Group of Eight leaders prepared to discuss Greece and its impact on the global economy.
More than 2½ years after Greece revealed its bloated budget deficit, Europe has "known a lot of crisis," Schaeuble said in a recorded interview broadcast today on France's Europe 1 radio. "It's practically normal." Even so, "in 12 to 24 months we'll see a calming of financial markets," he said.
German Chancellor Angela Merkel and fellow European leaders will again face pressure from their G-8 counterparts to do more to quell the crisis after speculation that Greece will exit the euro wiped almost $4 trillion from global equity markets this month. The U.S., which hosts the G-8 summit beginning today, still faces economic challenges from the "damaging" situation in Europe, Treasury Secretary Timothy F. Geithner said yesterday.
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Europe's G-8 chiefs — Merkel, French President Francois Hollande, Italian Prime Minister Mario Monti, U.K. Prime Minister David Cameron, plus EU leaders Herman Van Rompuy and Jose Barroso — held a video call on the crisis yesterday and agreed that fiscal rigor and economic growth are mutually compatible, Merkel's office said.
"During the G-8, it's very important to see that the Europeans form a common position as quickly as possible," Schaeuble said in the interview. "In recent years we haven't been quick enough" at doing that.
Growth vs Austerity
Geithner, in a speech in Baltimore, highlighted the debate in Europe over encouraging growth, as demanded by Hollande, and the need to consolidate budgets and reduce debt insisted upon by Merkel. Merkel and Hollande said two days ago at their first meeting that they would consider measures to spur growth in Greece as long as voters there committed to the austerity demanded to stay in the euro.
"We want Greece to stay in the euro," Schaeuble said. "But that presupposes that Greece does on its side what is necessary to develop its economy." He said policy makers are open to "every suggestion targeting more growth." Even so, "it's up to the Greek politicians to explain reality, not make false promises."
Greek political leaders began campaigning today before the June 17 election, the second vote in six weeks, after a rise in support for anti-austerity parties foiled the formation of a government. Greece's credit rating was downgraded one level by Fitch Ratings late yesterday on concerns the country won't be able to muster the political support needed to sustain its membership in the euro area.
"An exit would require two conditions: for a Greek government to reject the terms of the EU/IMF program and for the rest of the region to take a hard line in any renegotiation process," David Mackie, chief European economist at JPMorgan Chase & Co, said in a note. "Recent developments suggest that both of these conditions may now be falling into place."
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