Temporary Greek exit from euro might be best, Schaeuble says

It might be best if Greece ‘temporarily’ freed itself from the constraints of the single currency area, German finance minister Wolfgang Schaeuble seemed to suggest on Thursday.

Speaking to broadcaster Deutschlandfunk radio, Schaeuble objected to a haircut on the nominal value of Greece’s debt, which many observers say would run into legal obstacles as it would be considered ‘monetary financing’.

A ‘haircut’ is incompatible with the country’s continued membership of the euro, he said, adding “but this would perhaps be the better way for Greece".

Nevertheless, he believes Wednesday night’s approval of a package of economic reforms by the parliament in Athens means “we are a step further” and marks an important step.

Hence, he would ask the German parliament to reopen negotiations on a third bailout package for Greece “with full conviction”.

"Even though we have managed to avoid Grexit at this juncture, the integrity of the Eurozone has probably been damaged rather than strengthened by the latest negotiations. Soft debt restructuring is likely to occur as of the first ESM programme review, but a notional haircut has been ruled out," analysts at Exane BNP said in a research note sent to clients.

However, in our view, achieving debt sustainability through soft debt restructuring alone will be very challenging.