European Disunion

Germany Risks Isolation on Greece

Greek Finance Minister Yanis Varoufakis Attends News Conference With Germany's Finance Minister Wolfgang Schaeuble
No great rapport. Wolfgang Schäuble and Yanis Varoufakis.
  • Why it matters

    Why it matters

    • Germany, the largest euro zone economy, is the biggest contributor to the bailout loans to Greece. If Berlin does not agree to a deal, Greece could be forced out of the euro zone.
    •  
  • Facts

    Facts

    • German finance minister, Wolfgang Schäuble, rejected Greece’s application for a six-month extension to its bailout loan.
    • The eurogroup of euro zone finance ministers meet on Friday to discuss the Greek letter.
    • Greece’s current bailout program expires on February 28.
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    Audio

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The rollercoaster ride that is the Greek euro crisis continues.

Euro finance ministers were poised to meet later today in Brussels — their third meeting in just over a week — to agree on a response to Greece’s latest proposal to end the euro crisis.

There had been near elation a day earlier after Athens seemed to have finally capitulated and applied for an extension to the bailout program. But things quickly turned sour when Germany flatly rejected the Greek offer.

At the beginning of the week it appeared to be the Greek finance minister, Yanis Varoufakis, who looked isolated. But today’s meeting could turn the tables and see Germany’s finance minister, Wolfgang Schäuble, cut a lone figure.

The initial reaction on Thursday morning to the Greek letter had been relief.

Greece desperately needs to secure funding from its European partners, with its current bailout program running out on February 28. Greek banks in particular are reliant on emergency loans from the European Central Bank, which could be cut off in the absence of a deal.

Shortly after receiving the letter from Athens, a spokesman for Jean-Claude Juncker said that the European Commission president viewed it as a “positive sign.”

The proposals included a six-month extension of the bailout program, and a number of concessions, including most significantly, the acceptance that Greece would remain under the supervision of the hated troika of lenders – the European Commission, the ECB, and the International Monetary Fund.

That is a major climb-down, considering the ruling Syriza party swept to power in January on a campaign against the troika and austerity.

Yet, only half an hour later, a sharp rebuke came from Berlin. “The letter from Athens is not a substantial solution,” said Mr. Schäuble’s spokesman Martin Jäger.

“In truth it goes in the direction of a bridge financing, without fulfilling the demands of the program.”

The statement seemed to not only be a slap in the face to the Greek government, but also to Mr. Juncker.

It is rare that a commission president is so openly contradicted.

“In truth it goes in the direction of a bridge financing, without fulfilling the demands of the program.”

Martin Jäger, Finance Ministry Spokesman

And Mr. Juncker had not been alone in his welcoming of the Greek application.

Eurogroup chairman Jeroen Dijsselbloem, who had taken a tough line with Mr. Varoufakis, was also upbeat. He said that he believed Athens was on the right path.

Mr. Dijsselbloem, who is Dutch finance minister, announced that the finance ministers would gather again in Brussels on Friday at 3 p.m. CET.

The French government was also positive about the Greek move. Prime Minister Manuel Valls described it as a “very encouraging sign.”

On Friday, Helsingin Sanomat, Finland’s finance minister, said he was hopeful that a deal will be agreed to extend Greece’s bailout program. “Last night a spark of hope arose that an understanding could be reached,” he told the Antti Rinne newspaper, “so that Greece could continue the underlying program to strengthen its economy.”

In his proposal, Mr. Varoufakis had not only applied for a six-month extension of the bailout loans. He also said his country would “honor Greece’s financial obligations to all its creditors” and would not take any unilateral steps “that would undermine the fiscal targets, economic recovery and financial stability.”

He promised to “proceed jointly, and making best use of given flexibility in the current arrangement, toward its successful conclusion and review on the basis of the proposals of, on the one hand, the Greek government and, on the other, the institutions.”

These commitments would seem to meet the demands of the euro group.

The letter is almost identical to the letter former Greek prime minister, Antonis Samaras, wrote at the end of 2014 asking for a two-month extension, when it was clear Greece would not successfully exit its bailout program by December.

Greece Greek has time to repay debt repayment schedule maturities loans-01

 

The difference between then and now is the deep mistrust in Berlin toward Prime Minister Alexis Tspiras and his left-wing government.

The fear is that the application in its current form could be a “Trojan horse,” according to sources close to the German government. There was no sign “unfortunately of a clear will to complete the current program,” the sources told Handelsblatt.

In light of this deep skepticism, Mr. Schäuble’s people want a water-tight commitment to the program, fearful that Athens has no intention of implementing reforms.

There is also the problem of the personal animosity between the two ministers. A top European Union official told the BBC that there is a serious clash of personalities between Mr. Schäuble and Mr. Varoufakis.

“I would advise that we don’t rush to say yes or no, but that we engage in talks.”

Sigmar Gabriel, German Vice Chancellor

“Schäuble is outraged by comments made by Varoufakis,” the official said.

The Greek government had initially adopted a very confrontational tone, stating it would not deal with the troika and leaking key documents to the media. Yet, with the realization that there was little sympathy among its European partners, Athens has toned down the rhetoric.

Although Mr. Schäuble’s reservations are shared in many European capitals, that doesn’t mean his swift and harsh reaction on Thursday was appreciated.

And it is not only the eurogroup that looks divided, for the first time, on the issue.

There are also indications that there are divisions in Berlin.

Economics Minister Sigmar Gabriel, who is leader of the Social Democrats, was reported to be angry that Mr. Schäuble had issued the statement without consulting the rest of the cabinet.

“I would advise that we don’t rush to say yes or no, but that we engage in talks,” Mr. Gabriel told reporters on Thursday. “Certainly not everything is possible, but I’m very happy that we’ve come this far.”

Meanwhile, the opposition Greens released a statement welcoming the Greek letter and accusing Mr. Schäuble of irresponsibly risking a Greek exit from the euro zone, “which would have terrible political and economic consequences for the euro zone and Greece.”

And on Thursday evening Chancellor Angela Merkel spoke for 50 minutes with Mr. Tsipras. The Greek government reported that the talks were “constructive” and that the conversation “was held in a positive climate, geared towards finding a mutually beneficial solution for Greece and the euro zone.”

Yet, it is  Mr. Schäuble who will be sitting at the table in Brussels this afternoon. The eurogroup has to be unanimous in any decision it reaches on Greece. Mr. Dijsselbloem is, therefore, considering asking the Greeks for an additional declaration, to put the German doubts to rest, a high-ranking European Union diplomat has told Handelsblatt.

Ultimately, though, Mr. Schäuble is also going to have to make some sort of conciliatory gesture. Otherwise, he could be the one looking isolated, not Mr. Varoufakis.

 

Ruth Berschens is Handelsblatt’s bureau chief in Brussels, Jan Hildebrand covers politics from Berlin, Gerd Höhler is the paper’s Athens correspondent and Thomas Hanke is based in Paris. To contact the authors: berschens@handelsblatt.com, hildebrand@handelsblatt.com, hoehler@handelsblatt.com, hanke@handelsblatt.com

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