Chancellor Angela Merkel’s government is split on whether Greece’s continued euro membership is the best way forward for the country, German Finance Minister Wolfgang Schaeuble told reporters in Brussels on Tuesday.

“Some people in the government are of the view that this would be, or could be the better solution for Greece and its people, but of course under the condition that the decision on this is taken by Greece,” Schaeuble said when asked whether an exit would be a better solution for Greece than yet another bailout.

Greece’s euro-region peers cited an exit from the monetary union as an option alongside other alternatives in a draft document for publication after a leaders’ meeting, Schaeuble said following a two-day gathering of finance ministers from European Union countries. He declined to say whether he’s confident that Greece won’t need a fourth program after the third bailout package that’s being prepared at present.

David Fuller's view

I imagine many people in the German government, probably including Wolfgang Schaeuble, would like Greece to exit the Euro of its own volition.  After all, they have already had three increasingly acrimonious and expensive bailouts.  If Greece accepts the current terms demanded by the EU – terms which may well have been intended to drive it from the single currency – this Procrustean bed would very likely necessitate an eventual fourth bailout.  Meanwhile, any fears that other Southern European countries would demand Greece’s ‘favourable terms’ are clearly unwarranted today.  

Re politics and markets, as I see it: 1) equity investors in Europe and beyond are temporarily relieved of uncertainty because Grexit is no longer an imminent prospect; 2) however, Greece is now a vassal state locked in a deflationary spiral with little control over its future.  Ironically, because its impoverished citizens, cowed by bank closures and failing businesses, have not yet grasped the nettle of independence and voted for Grexit; 3) consequently Greece’s economy will most likely require a another bailout package within the next few years; 4) however, if Greeks recover their nerve and exit the Euro in the near future, stock markets will be temporarily shaken once again but the Greek economy could be considerably better off in a year’s time; 5) An insufficiently democratic, largely socialist and unreformed EU will remain unable to fully develop the economic potential of its region.  This is a recipe for further agitation, including the rise of parties on the EU’s extreme left and right.   

(See also: Greece Should Just Quit)