Playing with Fire

Europe's Greek Problem

Greece s economy is still in need of repairs. Source: Bloomberg via Getty Images
Greece's economy is still in need of repairs.
  • Why it matters

    Why it matters

    The euro zone might be able to manage a Grexit economically, but it could have enormous political repercussion, not least for Germany.

  • Facts


    • The ECB governing council is meeting on January 22 to discuss launching a program of quantitative easing.
    • Greece’s left-wing opposition party, Syriza, has a 10-percent lead in the polls.
    • Berlin now considers a Grexit manageable.
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The timing couldn’t be more awkward.

Two events will occur almost in parallel later this month that could have long-lasting repercussions for the euro zone.

On January 22, the European Central Bank’s governing council is meeting to discuss its plans for buying up government bonds, a program also known as quantitative easing. ECB President Mario Draghi aims to use the new liquidity to help boost growth in the euro zone’s struggling countries – on condition that they also implement structural reforms.

Three days later, Greece goes to the polls. But Alexis Tspiras, the leader of the Greek opposition party, Syriza, and the likely new prime minister, wants to abandon austerity and is demanding debt relief from the country’s creditors.

Greece has been bailed out twice since 2010, with loans of some €227 billion ($271 billion) by the international troika of the ECB, European Union and the International Monetary Fund.  The German contribution alone to the bailouts is some €55 billion.

It looks increasingly likely that Syriza will triumph in the elections, with Mr. Tsipras’ confrontational stance going down well with Greeks weary of years of austerity.

While his party had recently seen its lead over the ruling New Democracy party slide to just 2.5 percent, that gap has now widened to 10 points since snap elections were called late last month.

If Syriza wins, Greece and the European Union are almost certain to be set on a collision course that could end with the country exiting the euro zone.

If Greece fails to reach an agreement with its lenders, the country could be cut off from further funding. Its current program with the troika is due to end in February, and its current lending rates are too high for the government to be able to raise funding on the markets.

The Greek political situation could potentially make things difficult for the ECB when it meets at the end of the month.

“If the ECB were to decide on wide-ranging buying up of government bonds just three days before the election, that could be very damaging to its reputation.”

Lars Feld, Economic Advisor to Chancellor Merkel

Lars Feld, in the group of so-called “wise men” who act as economic advisors to Chancellor Angela Merkel, says he expects the bank to put off a decision on quantitative easing until after the Greek election. “If the ECB were to decide on wide-ranging buying up of government bonds just three days before the election, that could be very damaging to its reputation,” he told Handelsblatt.

If Tspiras does come to power, the consequences are incalculable. No one knows whether or not a Grexit would spook the international financial markets.

The move would set a precedent; there is no legal mechanism for a member of the euro zone to leave the currency bloc. But creating such a framework is possible, sources in the European Commission told Handelsblatt.

Chancellor Merkel and Finance Minister Wolfgang Schäuble now seem to consider a Grexit manageable, according to a report in Der Spiegel based on government sources. The bottom line for the two leaders is that a new government in Athens will have to stick to the current agreements with the troika. The Greeks can no longer blackmail Europe.

Tsipras DPA
Alexis Tsipras, the man who could crack the euro zone. Source: DPA


Although deputy chancellor Sigmar Gabriel, in an interview with the newspaper Hannoversche Zeitung, said the German government, the European Union and Athens want “to keep Greece in the euro zone,”  he, too, stressed the euro zone should not be blackmailed.

Government sources told Handelsblatt there is “no change of direction.” Germany, they said, doesn’t want the country to leave the currency bloc.

The euro zone is in a much stronger position than at the height of the crisis in 2012.

The European Union has set up a firewall in the European Stability Mechanism, with €500 billion at its disposal to help struggling countries.

Two crisis countries, Ireland and Portugal, have successfully exited their own bailout programs, and even Greece itself is in a much stronger position today, compared to 2012. The country has reduced its public deficit and the economy has returned to marginal growth.

Under Mr. Draghi, the ECB has made a commitment to save the euro “whatever it takes,” while the banking union offers more protection to the financial sector.

Yet some fear that a move to push Greece out of the euro zone could lead to contagion.


The Greek Economy-01


Carsten Schneider, deputy floor leader for the Social Democrats, junior partners to Ms. Merkel’s conservatives, warned that it would be “extremely dangerous economically and politically.” He told Handelsblatt that if the financial markets turned their focus on Italy, then the ESM would not be big enough to rescue the country.

Peter Bofinger, another of Ms. Merkel’s economic advisers, also warned against a Grexit.

“There would be many high risks for the stability of the euro zone with such a step,” he told the newspaper Welt am Sonntag. “It would let a genie out of the bottle that would be hard to control.”

Also, if Greece defaulted on its debts, Germany would lose the €55 billion it has contributed to the country’s two bailouts.

For Germany, the political consequences of being seen as a force pushing Greece out of the euro zone could be enormous. The European Commission under Jean-Claude Juncker wants to keep Greece in the bloc, fearing that an exit could strengthen euro-skeptic forces in other countries.

Yet Berlin isn’t alone. Governments in Paris and Rome also oppose a Grexit. Ms. Merkel would have to act against the wishes of the French and Italian governments if she wanted to force Greece out.

She would then bear the sole responsibility for such a radical move, and the risk of the euro zone managing a Grexit.


Michael Brackmann is an editor on Handelsblatt’s central news desk. Jan Hildebrand leads financial policy coverage from Berlin. Thomas Ludwig is one of the paper’s Brussels correspondents. Laura De La Motte is a specialist banking correspondentAxel Schrinner writes about tax and finance policy. To contact the authors:,, and

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