Published on 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”.

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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).

Geopolitics

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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12 reader comments

  1. Tim says:

    Huh has Turkey left NATO or something?

  2. Royaldocks says:

    “not to destroy Greece – which is the easternmost historic NATO power”
    Has Paul Mason heard of Turkey, I wonder? Likewise, Bulgaria and Romania are further to the East, as are the Baltic countries.

    The rise of anti-Austerity party is not in Tsipras’ favour, quite the opposite. If Syriza were to be seen to win concessions, the rise of parties like Podemos would be unstoppable. As outlined in the FAZ today, the one card he has is the European way of trying to come up with compromise, and to show solidarity.

  3. James Demetrios Athanassiou says:

    Last paragraph of Paul’s piece is succinct summary of the Greek situation.

    Athens, Greece.

  4. Adam says:

    “any demonstrative crushing of Greece by the European centre would boost the narrative they feed on: that European centrist politics represents an unflinching elite.”

    Greek voters (on the news) seemed to be saying “Syrzia is a risk but how much worse can it get? We have to try something.” If Greece were ‘crushed’ – even if it supported Syrzia’s analysis – surely it would erode support for their movement among all but ideological supporters? Or perhaps shift support to the right instead?

    It wouldn’t necessarily be good for the left.

  5. gnez says:

    I would think that Turkey would qualify as the easternmost historic Nato member country. Moreover Turkey is on the border with the ISIS militants rather than one border away.

  6. John Locke says:

    Greeks Demand the Right to Spend Europe’s Money !!
    This of course is the Communist/Socialist credo. They usually limit their take of other people’s money and property to their own country. When that runs out they are in trouble and have to use terror to subdue the population (Russia, Cuba, North Korea,?Venezuela), give up the Soc/Commie paradigm (China), or collapse (Russia, Eastern Europe). Syriza in Greece has thought of the brilliant idea of spending Europe’s money instead. If it works and Tsipras is a fan of Seinfeld he could tell his fellow co-commie : “We’re golden, Yanis !!” It will take a long time for a small country like Greece to bleed Europe dry, and the con men in charge will have their secret bank accounts and villas all set by then.

    As an aside, if Merkel can actually pull this off, that is, to get Greece to enter into the fold of responsible nations, despite all the provocations from its current management, then she deserves 2 Nobel prizes (peace, economics). It would be a very mighty achievement.

  7. Andrew Dundas says:

    Is Syriza truly left-wing? Or is it the ‘Public Sector’ party that defends the interests of public employees at the expense of all others?

    No one knows the answers to those questions.

    But if Greece is unable to pay its debts and is bankrupt, who’ll be the least badly affected by Syriza’s policies? Will it be the small business workers, the millionaires or the civil servants?

    When we know those answers, we’ll be able to tell whether Syriza is a sincere peoples’ party or just another special interest group.

  8. quietoaktree says:

    “For in the end, the very institutions that are driving Greece to the edge of bankruptcy …”

    http://www.money-go-round.eu/Country.aspx?id=EL

    Banks took €100 Billion haircut.

    Greeks seldom pay taxes.

    http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_02/08/2013_512391

    — somehow I cannot follow the logic of this article.

  9. Stella Croskery says:

    While the Greek state needs reform especially in relation to tax collection and the civil service the German public should acknowledge most “bailout” funds go to German and French banks who recklessly bought Greek bonds before the crash. These banks were effectively made bankrupt and have been bailed out by Greeks. Also Germans may like to recall they were gifted 2% of the USA’s GDP after the war and in 1953 had 60% of their debts forgiven.

  10. michael lynch says:

    The Germans have paid the bills so why is it wrong for them to expect that money back, Greece told a lot of Porkies to get there hands on German and EU money. What did they Think?, That it Was Free?, They Joined The Club They must pay the Membership Fees, Or Leave, We on the Other hand Joined a Common Market, We Did not Ask for Anything, And We Owe the EU Nothing, It will be Up to us if we stay with this Disaster or Rejoin the Real World..

  11. Stella says:

    Debt is a two way transaction. Bad bets is part of risk assessment. It is what banks do. The German and French banks lent to the Greek state on the false assumption the risk was the same as for Germany. We need cooperation not a blame game

  12. Andrew Dundas says:

    It’ll be bad for all nations and policy makers if the Greek economy collapses.

    The correct remedy is in the direction of Keynes’ 1930s advice to Roosevelt and which helped the US economy out of a much deeper economic crisis. Create extra money – that’s fiat money which central banks do – and invest it with people who’ll spend it all. That’s the low income households.

    AND ensure that the rich pay into the tax system too.

    Both also require a bonfire of the ideologies and supervision of the tax collectors’ work.

    The situation is nothing like as bad as 1945 when tight discipline, rationing and generous low interest loans did the business. We all have to participate. Blame games are idle. Only solutions count.

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