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The short answer is that the political costs are too high for Merkel. Why? If Greece withdraws from the eurozone then her political advisers believe it would eventually be necessary to create a debt union or fiscal union to save Spain and Italy. Its a paradox: Germany would take a hard line with Greeece but may be forced to accept jointly issued eurobonds which German voters widely oppose.
There is also the fact that a Grexit would cost Germany a huge amount because Greece and Greek citizens owe German banks a lot and because German banks are owed a lot thru the TARGET2 settlement system. These numbers are politically unpalatable and are much larger than the cost of continuing drip feed bailout.
A lot has been written by economists and commentators explaining it better than I can if you search a bit.
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