23 Mar 2015

Greece: Tsipras meets Merkel for eurozone crisis talks

It’s the meeting that had to happen. A radical left-wing Greek prime minister and a centre-right German chancellor whose ministers have been urging her to throw Greece out of the eurozone and impose “the rules”.


Alexis Tsipras
arrives trailing the threat to seize German property, in payment for war reparations dating back to 1941-44; Angela Merkel arrives saying Greece will be given “flexibility” as long as it complies with the conditions of a bailout made in 2011, which its voters have now rejected.

I was told last week that the meeting itself is “a sideshow”: the Greeks feel progress has been made in the back channels of the Eurogroup, and at the five-way meeting last Thursday night, towards the politicians imposing a political solution on the central banks and technocrats they see as applying “the rules” too rigidly.

But Mrs Merkel and Mr Tsipras can do a lot this afternoon by aligning messages. Since they have both seen ministers taunting the other’s electorate with their own determination to win this face off, aligning messages is a big ask.

Effectively Mrs Merkel will need to say there is progress, that flexibility for Greece is emerging and that Germany believes the Greek government is acting in good faith a it slowly puts flesh on the bones on its domestic plans. Mr Tsipras will have to indicate he accepts she’s speaking with good faith.

But make no mistake: if things don’t come to a speedy conclusion in this first round of Greek debt renegotiation, they will spiral out of control. Mr Tsipras wrote to Mr Merkel, and other leaders, last Thursday warning that if Europe did not release monies due to Greece, it would be forced to choose between repaying IMF debt and paying the salaries of civil servants (and would choose the latter).


Mr Tsipras has only two cards to play: the first is geopolitics. The US State Department has been forcefully warning the Germans not to destroy Greece – which is the easternmost historic NATO power. It is 500km away as the missile flies from Sebastopol and one border away from Islamic State militants.

The second is the rise of the far left and right in Europe’s bigger, heartland countries. In Spain, Podemos – a party much more radically “Horizontalist” than Syriza, and drawn from devotees of direct action – won 15 seats in the Andalusian regional assembly, and will hold the balance of power there. In France the Front National beat the ruling socialists into second place on Sunday, in nationwide local elections.

Though the mainstream parties have held back the far left and right insurgencies so far, any demonstrative crushing of Greece by the European centre would boost the narrative they feed on: that European centrist politics represents an unflinching elite. In the end, what happens in this phase of the Greek crisis is just the prelude. The real negotiation will be about debt relief for Greece – which €320bn has a mountain of largely unpayable debt.

Greek economy

Extend and pretend only works on a problem like that if you get growth: extend the repayment times, pretend Greece is solvent, and eventually growth erodes the debt pile. But the Greek economy is being hammered by lack of cash: businesses that cannot borrow to invest or cover bills; banks whose deposits have shrunk as savers anticipate a Cyprus style seizure of their money at the behest of the ECB.

So while the substance of today’s meeting may be slight – any slip into confrontational rhetoric would be a disaster. It is entirely possible that the Greek state runs out of money in April, and has to default unwillingly on debts it is committed to pay.
That would not equal the “hard default” advocated by those who want Greece to leave the Euro, but it would destabilise the entire continent’s finance system.

For in the end, the very institutions that are driving Greece to the edge of bankruptcy are the ones formally charged with overseeing its banks and its continued solvency. Ultimately it comes down to whether the German political elite is prepared to go further than it has already to create space for Greece within the single currency. Mr Tspiras has the right at least, in private, to ask for Ms Merkel’s frank assessment as to whether it does.

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