Merkel and Hollande stand united on Greece

Merkel Hollande.jpg

Angela Merkel and François Hollande presented a united front towards Greece yesterday (23 August), telling Athens it should not expect leeway on its bailout agreement unless it sticks to tough reform targets.

The German and French leaders met in Berlin to fine-tune their message to Greek Prime Minister Antonis Samaras, who begins a charm offensive in Berlin and Paris in the hope of persuading Europe's big powers that Greece deserves patience.

Merkel stuck to her policy of deferring to a report due in September on Athens' progress by the "troika" of international lenders before discussing flexibility on the bailout terms, but said it was vital "that we all stay true to our commitments".

"But we will, and I will, encourage Greece to continue on its path to reform, which has demanded a lot of the Greek people," she told reporters before a dinner with Hollande.

"We want, I want, Greece to be in the eurozone, it's a desire we have expressed since the start of the crisis. It's up to the Greeks to make the effort that is essential for that goal to be met," said France's Socialist president, standing alongside Merkel.

Samaras has given interviews to German media stressing that while Athens may seek more time to meet the targets, it is not asking for more money. But German Finance Minister Wolfgang Schäuble and others seemed unconvinced.

"More time is not a solution to the problems," Schäuble said, addressing Samaras' hopes that his country might be given four years instead of two to push through painful economic reforms, to alleviate the impact on the Greek people.

Schäuble said more time could also mean "more money" and Europe's help for Greece had already "gone to the limits of what is economically viable".

Dutch support for Merkel

From the sidelines, Dutch Finance Minister Jan Kees De Jager – a staunch ally of Berlin – urged Germany to "stick with its strict position" and giving Greece more time would not help.

European leaders say any decisions on Greece will depend on the report by inspectors from the "troika" – the European Commission, the European Central Bank and the International Monetary Fund.

Samaras is seeking what he calls "a bit of air to breathe" at a moment of rare optimism on financial markets that the EU and ECB are poised for decisive action on the euro debt crisis.

Behind their stern public message, Berlin and Paris may have little choice but to show some flexibility, with little appetite in either capital for forcing Greece out of the eurozone.

After Merkozy

In talks that will also touch on banking supervision in Europe and the role of the ECB, as well as civil war in Syria, Merkel and Hollande are trying to replicate the "Merkozy" alliance that gave the eurozone some semblance of unified leadership under Hollande's predecessor Nicolas Sarkozy.

The Franco-German axis has been strained by Hollande's calls for more measures to stimulate growth, a rebuff to Merkel's strict agenda of austerity. Some German officials say the relationship with Hollande is off to a rocky start.

As Merkel prepares to campaign for a third term in 2013, she cannot cede too much to Samaras – or to the French Socialist government, which is allied with her main domestic opponents, the Social Democrats.

With German patience wearing thin after repeated requests for financial help from Greece, Spain, Portugal and Ireland, Merkel is under pressure to defend taxpayers' interests while also upholding the stability of the currency.

Merkel will be watching Hollande's attempts to meet his own deficit targets with spending cuts and tax measures in the 2013 budget, German officials say.

"If Hollande gives up on his targets because of rising domestic political resistance, we can hardly expect more painful reforms from states like Italy or Spain," said one government source in Berlin, speaking on condition of anonymity.

There are signs that Merkel's conservatives, if not ready to postpone Greek reform targets, may also find ways to be flexible if the troika finds Athens is broadly in compliance.

"With Greece, we cannot change the cornerstones of the aid package or tamper with the principle of conditionality. But I can imagine we could adapt certain things within that framework such as interest rates or maturities on credit, like we already did with the first package," said Norbert Barthle, a member of parliament from Merkel's ruling centre-right coalition.

Jean-Claude Juncker, head of the Eurogroup of eurozone finance ministers, said Greece was staring at its "last chance" to avoid bankruptcy.

A working group led by Germany's deputy finance minister is studying the possible economic impact of a Greek exit from the eurozone, the Financial Times Deutschland newspaper reported today (24 August).

Citing finance ministry sources, the newspapers says the decision to set up the working group showed that Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble wanted to be fully prepared for a possible "negative scenario".

"Colleagues are making calculations about the financial consequences [of a Greek exit] and are considering how a domino effect on other euro member states might be prevented," the daily quoted the ministry sources as saying.

The group, made up of around 10 officials from various departments of the finance ministry, is led by Deputy Finance Minister Thomas Steffen, a member of Merkel's centre-right Christian Democrats (CDU), the paper said.

Asked about the working group, a spokesman for Schäuble told the newspaper the government had to be prepared for all scenarios, including "improbable ones".

New Democracy, the centre-right party that won the general election in Greece in June 2012, formed a coalition government with the third-placed socialist PASOK and a small pro-European leftist force, the Democratic Left party.

New Democracy won 29.7% of the vote, ahead of the leftist Syriza with 27%. Both New Democracy and PASOK are part of the “pro-bailout” camp.

New Democracy and PASOK alternated in power from the fall of military rule in 1974 until last year, when Greece's economic crisis forced the rivals to share power in a national unity government tasked with rescuing the country from bankruptcy.

Many Greeks hold both parties responsible for the nation's near bankruptcy, which forced it to take bailouts from the European Union and IMF in 2010 and again this year.

  • 24 Aug.: Samaras goes to Berlin to meet Merkel
  • 25 Aug.: Samaras goes to Paris to meet Hollande
  • September: the Troika (European Commission, International Monetary Fund and European Central Bank) will determine whether Athens gets the next tranche of its bailout. If not, Greece will be bankrupt.

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