EU executive warns of Grexit 'catastrophe', urges euro solidarity

BY JAN STRUPCZEWSKI AND ALASTAIR MACDONALD

http://www.reuters.com/article/2015/03/14/us-eurozone-greece-idUSKBN0M90PH20150314

BRUSSELS Fri Mar 13, 2015 8:34pm EDT

(Reuters) - The European Commission warned of "catastrophe" if Greece has to abandon the euro and its chief executive, Jean-Claude Juncker, urged EU governments to show solidarity as Athens struggles to secure more credit.

A day after German Finance Minister Wolfgang Schaeuble said Greece might stumble out of the euro zone because new, left-wing leaders failed to negotiate new borrowings, Juncker's economics commissioner said EU hardliners underestimated the risk that this would start a fatal domino collapse of the common currency.

"All of us in Europe probably agree that a Grexit would be a catastrophe -- for the Greek economy, but also for the euro zone as a whole," Pierre Moscovici told Der Spiegel -- a view not in fact shared by some conservative allies of Chancellor Angela Merkel who favor amputating the bloc's troubled Greek limb.

Moscovici, a French Socialist, countered the argument that protective mechanisms put in place in the three years since the last major debt crisis meant Grexit -- or an inadvertent "Grexident" -- could be contained, or even strengthen the euro.

"If one country leaves this union, the markets will immediately ask which country is next," Moscovici told the German magazine. "And that could be the beginning of the end."

Moscovici's comments reflect alarm in the new Commission formed under Juncker in November that brinkmanship by leaders on both sides of the dispute in the euro zone risks getting out of hand, and a fear governments underestimate the potential damage.

RISK OF FAILURE

Pledging to help find a compromise, Juncker spent some 90 minutes hosting Greek Prime Minister Alexis Tsipras, reinforcing a relationship that has irked some in Berlin who fear the EU executive, which is not itself a lender to Greece, may muddy the debt negotiations and try to water down the lenders' terms.

An EU official told Reuters that Juncker urged Tsipras, 20 years his junior, to do much more to show creditors he was meeting their demands for savings and free market reforms. If he did not, he told Tsipras, there was "a distinct danger" Greece could find itself shut out of the euro monetary system.

In public, Juncker sounded a note of urgency to other EU governments: "This is not a time for division," he said.

"This is the time for coming together."

Tsipras is trying to satisfy conditions from lenders who last month extended until June a 240-billion-euro ($250 billion)bailout deal while also retaining the support of voters who elected him to end years of austerity. He said Greece was doing its bit and others must now help ease its "humanitarian crisis".

Commission officials say Juncker, a long-time premier of Luxembourg and former chair of the Eurogroup of euro zone finance ministers, is alarmed by talk of letting Greece go if Athens fails to make savings and free market reforms demanded.

Schaeuble said on Thursday there was a risk of that happening if negotiations failed. "As the responsibility, the possibility to decide what happens lies only with Greece and because we don't exactly know what those in charge in Greece are doing, we can't rule it out," he told an Austrian broadcaster.

Merkel's spokesman played down talk of a "private feud" with Athens, where officials have raised complaints about the Nazi occupation and World War Two reparations.

The Dutch chairman of the Euro Group of euro zone finance ministers, Jeroen Dijsselbloem, said the Greeks laid too much blame for their problems on foreigners.

While many Greeks resent the terms under which Europeans and the International Monetary Fund have bailed them out since 2010, a majority wants to keep the single currency. That would be in jeopardy if the government ran out of credit, prompting Greek banks to lose access to euros from the European Central Bank.

In a ray of good news for Athens, the Finance Ministry said that although tax revenues dipped in February, there was no repeat of the calamitous fall seen in January, when many people withheld payments before the Jan. 25 election.

TIME FOR "SOLIDARITY"

Juncker said: "The Commission wants to be helpful. But the Commission is not a major player in this because all the decisions ... will have to be taken by the Eurogroup."

Some euro zone officials voiced irritation during last month's negotiations at Juncker's parallel dialogue with Tsipras and at Moscovici's efforts to help draft compromise accords.

Commission officials have said the executive's role has been to offer advice to an inexperienced Greek government.

On Feb. 20, Tsipras agreed to extend the bailout package to June but talks started only on Wednesday in Brussels on how Athens will meet conditions to unlock new cash.

Greek government spokesman Gabriel Sakellaridis said on Friday that Tsipras would call a referendum if creditors demanded extra austerity measures in exchange for financial aid.

(Additional reporting by Angelika Gruber in Vienna,; Renee Maltezou, Lefteris Papadimas and Crispian Balmer in Athens, Toby Sterling in Amsterdam and Michael Nienaber and Stephen Brown in Berlin; Writing by Alastair Macdonald; Editing by Mark Heinrich)