7 Jul 2015

Greece's rebellion will only harden Germany's approach

German Chancellor Merkel attends the weekly cabinet meeting at the Chancellery in Berlin

If Angela Merkel has her way, the euphoria in Athens about Sunday’s referendum result will prove short lived: far from forcing the rest of the eurozone to compromise, there’s a discernible hardening of attitudes in Berlin.

“The door is still open,” the German chancellor claimed last night, but she has also made it clear that the chances of Greece staying in the euro will diminish by the hour unless Alexis Tsipras and his new Finance Minister Euclid Tsakalotos come up with new proposals for economic reform here in Brussels today. In other words, the ball is not in the eurozone’s court but has been quickly knocked back to Mr Tsipras again.

Early indications are that Tsipras will not give Merkel what she wants. It is reported that he wants Greece’s debt to be cut by 30 per cent. In other words, for Greece’s creditors to take another financial “haircut”.

Even if Tsipras now agrees to the fiscal and pension reforms he angrily rejected last month, Merkel surely could not agree to a further write-off of Greek debt.

It would appal her Finance Minister, Wolfgang Schauble, and the risk to Merkel is that he would resign, signalling the beginning of the end of her own chancellorship. Her Vice-Chancellor, Sigmar Gabriel of the Social Democrats, has also hardened his position.

“The political costs of doing a deal with Germany are very large,” as Alex White of the Economist Intelligence Unit put it to me.

Merkel doesn’t want to go down in history as the woman who pushed Greece out of the eurozone; but nor does she wish to remembered by Germans as the chancellor prepared to do a deal with Greece at any price – a legacy which could destroy her political career.

So what happens next? Serious talks in Brussels about keeping Greece in the eurozone are very unlikely even to begin today unless Greece makes a positive first move.

Instead, Greece may be left to stew in its own juice, its banks continuing to run out of capital, the European Central Bank unlikely to extend a further financial lifeline unless the eurozone’s political leaders signal that negotiations have begun again in earnest.

The French, Spanish and Italians are more inclined to give Tsipras some of the relief from austerity that he has been pleading for for months. But the Germans are not.

Berlin’s hope is that as this week progresses, and the crisis deepens, the Greeks will be forced into doing a deal. Greece has already begun to leave the Eurozone, with its banks shut and dispensing little cash and last week’s default on an IMF loan. So the pressure is certainly on.

Though this strategy of isolation might well underestimate the determination of Alexis Tsipras, who still seems to believe that the cost of Greece leaving the Eurozone is so very high and so unknown that Merkel and others will eventually give him more of what he wants.

So another few days of dangerous brinkmanship lie ahead. A deal is certainly possible – a restructuring of Greek debt, tied to economic reform, worded in such a way that both sides can claim domestic political victory. But it is also conceivable that Angela Merkel will decide that Greece should be “let go”.

And though Greeks would never forgive her for that, Germans would say they did their best to revive the patient, who failed to respond to treatment and eventually slipped away.

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10 reader comments

  1. James says:

    The majority of Greek people who said NO is prepared for a Grexit. We don’t want to leave the Euro but we can’t stay and die inside the Eurozone either. I am pretty sure that al the loans to Greece after 2010 were violating international laws. They knew that the debt was not viable but they kept lending. I just wish this goes to the courts. The Germans don’t want to pay for Greece’s debts but it was Merkel who transfered Greece’s debt from German banks to her people.

  2. Philip Palmer says:

    The people of Europe’s attitude is also hardening against the tyranny imposed by the EU and its agenda to create a united states of Europe, with one currency and the loss of democratic control for nations across the continent. Greeks have spoken with a loud voice against the German master plan. Austria has a large anti EU movement. Britain is having a referendum on EU membership and remains outside the Euro. Croatians are 60% against joining the Euro. Marine Le Pen may be the French President in 2017 and there is a massive anti EU and anti Euro grouping in France. Merkel the dictator will see the disintegration of the Euro and it has already begun. The Greeks will have to exit the Euro, maybe nationalise the banks and take the Icelandic route. Meanwhile watch the BRICS countries develop alternatives to the Euro and the USD.

    1. Luke says:

      The BRICS aren’t a trade group like the EU or NAFTA. They are a term coined by economists to describe Brazil, Russia, India and China. There is nothing for Greece to join when it gets kicked out of the EU. Chinese people work hard for long hours at low wages. Contrast that with Greece where people work 35 hour weeks and retire at 50 just because there is a risk the cleaner didn’t clean their computer keyboard properly.

  3. Dave Hansell says:

    The problem here is that the issue has been misinterpreted. For the vast majority of human beings in Greece this is not about domestic political face saving, as presented in this sloppy analysis, it is about everyday practicalities like being able to live and sustain themselves.

    The weasel words and term “economic reform” here means people already impoverished and struggling to make ends meet having more money taken from them in pensions, wages etc to pay to banks, which deliberatly overstreached themselves so that their executives and managers could earn multimillion euro bonuses, at the same time as the means by which to grow themselves out of the problem is removed by those very banks as everything in Greece not superglued down to the bedrock of the planet is sold off and privatised for the benefit of foreign corporations and the Greek Plutocracy, which is largely responsible for this situation.

    Even the IMF recognise that this is economically impractical. The five years that Greeks have suffered under this model of “economic reform” have not worked. In fact it has made things worse. Proposing, arguing, advising and putting forward this model as a way forward is economically illiteracy at its starkest. Wherever it has been used it has been factually proven to be a complete failure, laying waste to whole economies and impoverishing populations simply to feed the vanity of elites who increasing numbers across the planet are recognising have no clothes.

    Going down this road will end in bloodshed on the streets and not just in Greece. It really is time media outlets started doing their jobs properly and presenting the reality along with the real alternatives which exist rather than parroting the Corporate Party TINA line. Otherwise more and more people are just going to stop listening to those media outlets not doing their job.

  4. Jim McMorrow says:

    European union…what a farce. It’s still big countries beating up little countries as far as I can tell, nothing “united” about that. I think it will be better for Greece to exit in the long run. Change their economy by internal unity rather than external pressure.

  5. mervyn johnson says:

    Five years ago when the Greeks accepted their first bailout, they already knew that they could never repay the loan. However, they returned for more, and were given another huge bailout. Now we are back in similar territory, demanding more yet not willing to abide by the Lenders proposals or the schedule.
    Demanding another ‘haircut’ and with a far greater period before repaying a single cent.
    And all this comes down to the German taxpayer,again.
    It’s about time that the Greek government as much as the general population lived up to their responsibilities, as hard as they may seem, and start paying taxes, and to eradicate their colossal ‘black-economy’. They want to be Europeans then they should act the same way.
    Whether or not a compromise from either side can be achieved, it will in the long term, be to the determent of the Greek people.

    1. James says:

      @mervyn johnson
      What do you mean “again” ? No taxpayer expect of the Greeks has paid for the Greek debt.
      The haircut was done to private investors. And even that required 34 billion euros as sweteners.
      Merkel transfered the rest debt from banks to her people. So that if Grecce’s default’s taxpayers would pay the difference and not the banks. We know that we had corrupted politicians and there are efforts to prove their criminal actions so we can put them in jail. On the other hand it is also illegal to lend a country or a person or a business when you know that they can’t pay you back and that they are going to default. Greece has followed all the reforms Merkel asked. What was the resut? Actual GDP shrank by 32% (25% nominal) and debt increased. The “help” Greece is receiving goes to repaying interest.

      And if you are one of those German who think that the Greeks are lazy check this OECD table and then think how your media manipulate you.
      https://stats.oecd.org/Index.aspx?DataSetCode=ANHRS

    2. Jim McMorrow says:

      So the Greeks are in the same situation now (worse) than they were 5 years ago when the troika started “helping” them…a starving man will keep taking food no matter how bad the deal that goes along with it.

  6. H Statton says:

    I am not an economist or a politician that much will become apparent, and there are certainly times when my heart rules my head.

    It is not easy to make an informed decision if you’ve been unaware of the exact nature and extent of behind the scenes skulduggery. Greeks have felt the result of it, but unearthing details of past political misdemeanours is like trying to catch a slippery fish.

    As Ciaran Jenkins said in his report last night, the Greek ‘no’ vote was a “big fat two-fingers to one [Germany] country in particular”.

    It is not two-fingers to the German people and the German people do not see it as such. It was not two-fingers to Europe. It was aimed at corruption, immorality and exploitation. “Oxi” showed resilience and character against the crooked elite of its own country.

    The Greek people have had enough; enough to remain steadfast in their continuing support of Syriza despite the protracted uncertainty of recent months, the result being a venture into the complete unknown.

    Their very vocal farewells to the departing Yanis Varoufakis were munificent. He is a man of principle.

    Watching it pan out over the past months has been like a Mexican standoff, except there has been nothing absolute fired from the guns of each side. Impasse, unspoken yet unacted upon compromise, political chess, mere posturing, call it what you will. It seems to have been a case of who blinks first.

    Although taking the moral high-ground doesn’t pay the bills you can only push people so far until they utter a resounding ‘no’ to the establishment, the status quo. Greeks have been suffering and yet have remained in ebullient mood.

    The ‘No’ campaign has won the moral victory, but how often can the discussion table be returned to, and who will make concessions. Someone has to give ground.

    Germany and France has to hold fast as they cannot be seen to be weak, but no-one wants Greece to fall apart, and it’s cracking under the strain.

    I don’t think other countries would be averse to the idea of helping Greece, but probably not financially. Already there is talk of supplying food parcels and medical supplies.

    For people in other countries that have suffered under austerity it would be a bitter pill to swallow, to see Greece receive preferential treatment, but how can Greece be expected to repay an impossible debt?

    If Greece was a person they would declare themselves bankrupt, see their credit rating slashed, and be unable to seek credit for a given period, surviving only on scraps.

    Where does it progress from here? Keep us informed, Paul Mason, Jonathan Rugman and co.

    What does this all mean for relations in the Eurozone in general?

    What does it mean for the Brexit referendum?

  7. Mike Harland says:

    I think you will find that she is only bluffing in an attempt to appease her right wing partners – but Obama won’t allow it to happen and she will never go against the US.
    Tsipras is more cunning than Varoufakis, that’s why he turned up with nothing today – game theory is still in play and the EU unelected technocrats have gone too far against democracy and sovereignty – her whole fiscal union idea will go down in flames if she doesn’t intervene as Obama wants.

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