Euro Rescue

Germany, Greece Narrow Differences

All smiles. Frank-Walter Steinmeier and Nokos Kotzias at the German foreign office Sunday. Wource: photothek.net
All smiles. Frank-Walter Steinmeier and Nokos Kotzias at the German foreign office Sunday.
  • Why it matters

    Why it matters

    If Germany and Greece cannot agree a deal, Greece may default on its debts and leave the euro zone.

  • Facts

    Facts

    • Greece’s Alexis Tsipras and German chancellor Angela Merkel will meet in Berlin on Monday.
    • The Greek and German foreign ministers have agreed to work together to find a compromise on the Greek crisis.
    • Greece claims Germany should pay reparations for World War II.
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    Audio

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After the fight comes the making up. Over a dinner with wine, fresh bread and flowers on a white table cloth, the foreign ministers of Germany and Greece, Frank-Walter Steinmeier and Nikos Kotzias, agreed to work together to resolve the Greek financial crisis.

The small, private dinner at the German foreign ministry on Sunday evening between the two men and a clutch of aides signaled a potential thawing of relations between the two countries.

Germany and Greece have been at daggers drawn in recent weeks over the issues of debt, economic reforms and World War II reparations.

Greek ministers, furious that Germany has blocked its access to credit unless it implements domestically unpopular reforms, say that  Greece was destroyed under a brutal Nazi occupation during World War II that Germany has still not paid for. The amount they are demanding – some €300 billion – would wipe out most of Greece’s debt in one go.

Germans, exasperated by having to pay for what they see as an endless bailout for an ungrateful country, see the issue as a distraction.

On Sunday, Mr. Kotzias suggested that the two countries could set up a joint commission to study the issue. “Athens wants to come to an agreement regarding the issue of reparation. We need to find a common denominator,” he said, in an interview with German newspaper Suddeutsche Zeitung.

“The Greek government is already running into arrears which is increasing tensions and pressure domestically.”

Thomas Harje, Chief economist for the Euro area, Barclays Capital,

The tone was much more moderate than it has been in the past. Earlier this month, Justice minister Nikos Paraskevopoulos threatened to seize German property in Greece unless the issue of reparations was resolved while the German government spokesman Steffan Seibert said at the time that he considered the matter closed.

The foreign office said the German foreign minister had not agreed to any sort of committee on reparations, But Mr. Steinmeier took a conciliatory tone, saying: “We must not allow the undoubtedly large and difficult issues we face erode the strong foundations of German-Greek relations.”

He added that he and Mr. Kotzias had agreed to to “take stock of bilateral relations between Germany and Greece and to discuss their continued development in the future.”

Despite the German government’s insistence that the issue of reparations is closed, some other German politicians have expressed some support for the Greek view. The Green party’s Antje Vollmer told Deutchlandrundfunk radio station said she believed Germany still had some responsibilities from World War II. Ralf Stegner, a vice chairman of the SPD party, the CDU’s coalition partner, also said Germany should talk to Greece again about the matter.

The emollient words came as Greece’s fiery leftist prime minister Alexis Tsipras prepares to meets the far more sedate, center right German chancellor Angela Merkel on Monday afternoon.

Both sides hope to rebuild relations between the two countries, after tense, and ultimately unproductive talks in Brussels last week between Mr. Tsipras and Ms. Merkel and other euro zone leaders. Ms. Merkel had urged Mr. Tsipras, who came to power in January, to stick to reforms his predecessors had agreed. He snapped: “Forget the commitment of the previous government.”

Volker Kauder, parliamentary leader of her CDU party, told Handelsblatt at the weekend that Germany was not considering any alternatives to that program, but many hope the tone between the two governments will become less hostile.

 

An intimate dinner. Mr. Steinmeier and Mr. Kotzias on Sunday evening. Source: photothek.net
An intimate dinner. Mr. Steinmeier and Mr. Kotzias on Sunday evening. Source: photothek.net

 

At the heart of the matter is Greece’s €240 billion ($260 billion)  bailout program. Greece desperately needs the funds, but its lenders, which include the European Union, the International Monetary Fund and the European Central Bank are refusing to pay out unless the Greek government implements reforms.

EU and IMF creditors have said they will only release the final €7.2-billion tranche of Greece’s bailout once the new government in Athens has delivered a viable reform package.

Greece is running out of money, and it is clear that Mr. Tsipras and Ms. Merkel will have to reach some sort of compromise if they are to stop Greece collapsing.

“There is a cash crunch on the government side,” Thomas Harje, chief economist for the Euro area at Barclays Capital in Frankfurt told Handelsblatt Global Edition. “There are pensions, wages to be paid out at the end of this month. We have already seen some payments being made late, some payments being diverted from places. It means the Greek government is already running into arrears which is increasing tensions and pressure domestically.”

Despite the strong words about reining back austerity and taking on its credits, the Greek government has so far been careful to not default on its main debts. It paid the IMF and other creditors  €1.2 billion payment due in early March. Its next challenge is due in April, when it must pay out another tranche of just under €500 million to the IMF. Greece will struggle to make this payment, but  Mr. Harjes said the Greek government also understands that defaulting on payments due to the IMF was not an option. “Defaults on IMF payments are very serious,” he said. “It is a senior creditor. If you trigger that you default on other payments too with all that implies.”

Mr. Tspiras is aware that he is in a perilous position. In a letter published by the Financial Times Monday he wrote to Ms. Merkel on 15 March warning that Greece could not afford to pay its debts and maintain its social spending and pleaded for help with “a small cash flow issue.” He warns that all the restrictions and demands placed on Greece by the “sharp deterioration in the already depressed Greek social economy — a prospect that I will not countenance.” He concludes the letter pleading, “With this letter, I am urging you not to allow a small cash flow issue, and a certain ‘institutional inertia,’ to not turn into a large problem for Greece and for Europe.”

 

Meera Selva is an editor with Handelsblatt Global Edition. To contact the author: selva@handelsblatt.com

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