Greece is taking precautionary fiscal measures in case the political uncertainty in either Italy or Germany worsens, the country’s economy minister told CNBC on Monday.
“We don’t know what’s going to happen in Italy, we don’t know what’s going to happen in Germany yet, so there are significant questions here,” Dimitris Papadimitriou, Greece’s minister of economy and development, said in Athens.
Greece is on track to end its current bailout program in August 2018, but it is “making provisions” in case something happens within another European Union (EU) member state that causes nervousness among European investors.
“I foresee a very clean exit, but what I am saying is that we are making provisions so that in case something happens, not necessarily Greece’s doing, but you know we are in an unstable European Union,” Papadimitriou said. “One has to be prepared not only for your own house but also for what happens in your neighbor’s house.”
Italy’s election, due to be held in the spring, has been singled out by many market players as a top risk for 2018. As more voters have expressed that they are fed-up with mainstream politics, whether in the U.K. or the U.S., this has raised the possibility that the next Italian government may try to divert from tough fiscal rules imposed upon it by the EU.
At the same time, there are also concerns over the ongoing political impasse in Germany and what it might mean for the EU’s future.
Despite his concerns over potential shocks coming from Italy and Germany, Papadimitriou said they will not derail the much-promised talks to restructure Greece’s debt.
“They (European leaders) have recognized that something has to happen with the Greek debt, even the outgoing finance minister (Wolfgang) Schauble indicated that, in fact, Greece has done what it was supposed to do and more and therefore we have to deal with the Greek debt,” Papadimitriou said.
Though he would prefer a nominal haircut – which many European countries oppose – Papadimitriou said there “there will be some kind of restructuring” even though it is currently unclear what that will look like.
Greece and its lenders concluded over the weekend the third bailout review, paving the way for talks on debt to kick off in the new year.
Papadimitriou said that “it would be better” for the debt talks if Martin Schulz, head of the German socialist party, agreed to enter a coalition with the Christian Democrats.
On Monday, Schulz told reporters that party members would discuss later this week at the party congress whether they should start coalition talks with Chancellor Angela Merkel. If they give the green light, these could start as early as next week.
Greece ‘makes provisions’ in face of German and Italian political uncertainty