Merkel's Leadership Gap Fans Greek Crisis: Schroeder

Chancellor Angela Merkel has failed to lead during Europe's debt crisis and must now rise above German public opinion to offer more help for troubled euro-area states, former Chancellor Gerhard Schroeder said.

Merkel acted too slowly when the crisis unfolded last year, pandering to the "yellow press," Schroeder said in an interview. Schroeder said the chancellor, who defeated him in 2005, should press for banks and other bondholders to take losses and give euro countries more time to cut budget deficits.

Schroeder's comments may jibe with a change that's emerging in Europe's crisis-fighting strategy, as finance ministers in Brussels indicated they may shift some costs to bondholders in a "soft restructuring" of Greek debt. Merkel, as the leader of Europe's largest economy, holds the key to Greece's chances of escaping a restructuring.
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To end the debt crisis that forced Greece, Ireland and Portugal to seek outside aid, so-called haircuts involving compulsory losses for banks and other investors including the European Central Bank are "absolutely essential," however uncomfortable they may be for vested interests, Schroeder said.

"In the long run, the government can't justify aid programs to their voters unless they force creditors that have made a lot of money on the enormous interest rates for Greece and the others to share the cost," he said. "That risk is already priced in."