Euro crisis

German Government Divided Over Greece

merkel and schaeuble_greek divide_dpa
Greece is driving a wedge between members of Germany's coalition government.
  • Why it matters

    Why it matters

    A sharp divide has emerged in Germany’s ruling coalition over the issue of Greece, one that could yet unravel Angela Merkel’s political support base if she’s not careful.

  • Facts

    Facts

    • Germany’s parliament voted Friday to approve starting talks on a third bailout for Greece, with 439 voting in favor, 119 against and 40 abstaining.
    • Euro zone officials will spend the next four weeks hammering out the details of a new bailout package for Greece totaling up to €86 billion.
    • Unlike Angela Merkel, Finance Minister Wolfgang Schäuble says a “Grexit” still remains very much on the table.
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    Audio

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Angela Merkel was understandably cautious in her response: “Nobody came to me and asked for any kind of dismissal,” the German chancellor said in an interview with public broadcaster ARD on Sunday.

The question was about Wolfgang Schäuble, her finance minister and fellow Christian Democratic Party (CDU) member, who in an interview with Germany’s Der Spiegel magazine on Sunday said he was prepared to resign if ever forced to take a position on Greece that he didn’t agree with.

“We have a joint result, and the finance minister will now lead these negotiations just as I will,” Ms. Merkel said. She added, firmly: “We will now work together in this coalition and of course together in the [Christian Democratic] Union.”

These words were aimed as much at her fiercely independent finance minister as anyone else, and were designed to smooth over the massive gulf of opinion within her own party over Greece.

The issue of Greece, and whether or not the troubled country deserves its third bailout in five years to stave off bankruptcy, has opened up a chasm in Ms. Merkel’s governing coalition.

On the one side is Mr. Schäuble and the right wing of the CDU party. While Ms. Merkel says a “Grexit” has been off the table since euro zone leaders agreed to give Greece a third, final bailout last week, her finance minister believes it remains very much in the cards.

On the other side is Ms. Merkel’s junior coalition partner, the Social Democrats, led by deputy chancellor and economics minister Sigmar Gabriel. Sources in Berlin say that the relationship between Mr. Schäuble and Mr. Gabriel has been irreparably damaged by the Greece crisis.

While Ms. Merkel says a 'Grexit' has been off the table since euro zone leaders agreed to give Greece a third, final bailout last week, her finance minister believes it remains very much in the cards.

For now, Ms. Merkel’s coalition is holding. The German parliament, the Bundestag, voted overwhelmingly on Friday in favor of the E.U. starting talks with Greece over a third bailout aimed at keeping Greece inside the 19-nation currency bloc. The vote removed a final stumbling block, allowing E.U. negotiators to this week get down to the business of ironing out the details of the bailout package.

But, like Mr. Schäuble, many parliamentarians remain hugely skeptical that the negotiations will really bear fruit. Significantly 65 members of the CDU did not back the government on Friday in the Greek vote.

There remain serious doubts in Germany over whether Greece will follow through with harsh structural reforms that Europeans have demanded, but which Athens believes are detrimental to its economy.

Greek Prime Minister Alexis Tsipras last weekend agreed to the demands of Greece’s creditors in exchange for starting talks on a third bailout that could total €86 billion. It was a decision that cost him the support of much of his own left-wing Syriza party. Over the weekend he was forced to re-organize his own government by firing ministers that opposed the new bailout’s harsh terms.

Mr. Tsipras had already let go his outspoken finance minister, Yanis Varoufakis, earlier this month, who resigned just one day after the Greek public voted overwhelmingly against the austerity path demanded by creditors in a referendum on July 5. Will Ms. Merkel be forced to fire her finance minister too?

Most political observers believe this is unlikely. But it is clear that Mr. Schäuble, Germany’s finance minister since 2009 and a one-time challenger of Ms. Merkel’s for leadership of the CDU party, has done his best in the past few weeks to make life difficult for his boss.

“It is part of democracy that one can have differences of opinion,” Mr. Schäuble said in the Spiegel interview published on Friday, adding that nobody can force him to take a decision he didn’t want to take. “If somebody were to try, I could go to the president and ask for my dismissal.”

The threat was clearly aimed at Ms. Merkel – a warning that he would not tolerate any and every decision on Greece – even if Mr. Schäuble later in the same interview, asked if he was really thinking about tendering his resignation, responded: “What gives you that idea?“

For many outside observers, Mr. Schäuble’s tough line on Greece has undermined the European ideal. They argue that the austerity conditions attached to two bailouts worth €240 billion have saddled Greece with unsustainable debt and no hope of recovery.

Mr. Schäuble insists that debt relief is not compatible with membership of the euro zone, and he has suggested that if Greece is to really cut its debt burden it needs to exit the common currency.

For Mr. Schäuble, this threat isn’t just about being tough on Greece. It’s about forcing Athens to stick to the rules that govern the 19-nation euro zone – rules that have been broken far too many times in the past. Anything else will undermine the future stability of the currency area.

“Europe is close to his heart,” insisted one confidant of the finance minister, who declined to be named. The message, in Mr. Schäuble’s mind, is that he’s even willing to risk his job for it.

Mr. Schäuble also knows that his threat poses a significant problem for Ms. Merkel. While the finance minister may be vilified abroad, he is more popular than ever with the public and with members of his own political party.

“At the moment he feels he is number 1 on the Greek question. However, he is only the favorite of the Germans on this one point,” said Gero Neugebauer, a politics professor at the Free University in Berlin.

Mr. Neugebauer cautioned that he doesn’t expect Mr. Schäuble to resign.

“If he resigned, then he would be acting against his own belief, that he is a servant, that he is in the government for the party, and that he is not there to satisfy his own vanity,” Mr. Neugebauer said.

But should Mr. Schäuble decide at any point to withdraw his backing of a third bailout package for Greece, Ms. Merkel would have a full-blown rebellion on her hands. Indeed his call to keep the idea of “Grexit” alive has resonated with the many members of his own party who, like him, chose to provisionally back negotiations over a third bailout in Friday’s parliamentary vote.

“I wish the negotiations success, but not at any price,” Günther Kirchbaum, a CDU parliamentarian and head of the Bundestag’s committee on European issues, told Handelsblatt.

Mr. Kirchbaum added that a Grexit remained an option for him, too, even if he voted in favor of starting the negotiations. He called the Friday Bundestag vote “the toughest I’ve had to make as a parliamentarian.”

While Ms. Merkel has done her best to gloss over the differences in her own party, her junior coalition partner in government, the Social Democrats, are hoping to benefit from the ruckus.

Sigmar Gabriel, head of the SPD and the country’s vice chancellor, called it a “gigantic conflict” between Mr. Schäuble and Ms. Merkel.

Mr. Gabriel’s own relationship with the finance minister is in tatters: “Mr. Schäuble turned the SPD against him,” Mr. Gabriel said in an interview with German public broadcaster ZDF.

The chief argument between the two men stems from a paper authored by Mr. Schäuble and submitted during last weekend’s marathon talks in Brussels. It was a paper that suggested Greece should leave the euro on a temporary basis for five years, causing outrage in many European quarters.

The proposal also got Mr. Gabriel, who also serves as the country’s economics minister, in hot water after he initially suggested he was “of course” aware of Mr. Schäuble’s proposal. He has since distanced himself, telling the ZDF that it was “not sensible” for the proposal to be brought forward in the name of Germany.

The opposition Green Party, meanwhile, sees the so-called governing right-left coalition as severely weakened and urged Ms. Merkel to pay closer attention to Europe than to the musings of her finance minister.

“Finance ministers come and go, but the relations with our most important European partner France and our European stance remain,” Cem Özdemir, head of the Green Party, told Handelsblatt. “These will have to withstand both Schäuble’s Grexit and Gabriel’s hedging.”

 

Jan Hildebrand is Handelsblatt’s chief political correspondent in Berlin. Barbara Gillmann is a Handelsblatt correspondent in Berlin. Siobhan Dowling and Christopher Cermak of the Handelsblatt Global Edition also contributed to this story. To contact the authors: hildebrand@handelsblatt.com and gillmann@handelsblatt.com 

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