Saving Greece

Europe Holds Euro Together – For Now

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The euro zone is trying its best to hold onto Greece, but deep skepticism remains.
  • Why it matters

    Why it matters

    Many in Germany remain openly skeptical about whether Greece is likely to remain in the euro zone, despite German lawmakers approving a third bailout program on Friday.

  • Facts

    Facts

    • Greece was handed a series of emergency financial lifelines on Thursday to keep the country and its banks afloat and out of bankruptcy for the coming weeks.
    • The German Bundestag on Friday gave German Finance Minister Wolfgang Schäuble a mandate to negotiate a third bailout for Greece.
    • Mr. Schäuble advocated in favor of the bill’s passage, although he has continued to hold out the option of Greece leaving the euro.
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    Audio

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On the face of it, Greece and Europe have stepped back from the brink. Fears that Greece will become the first country to leave the euro have eased.

German lawmakers overwhelmingly passed a bill for a third bailout for Greece in the Bundestag on Friday afternoon, overcoming perhaps the largest hurdle to a deal that Chancellor Angela Merkel labeled a “last chance” for Athens.

But at the end of the bruising battle of recent months, lasting damage has been done to allegiances within the euro zone; many wonder now whether the bad blood over the benefits and problems with austerity will persist.

Those in favor of a rescue have carried the day – for the time being.

Chancellor Merkel reiterated before lawmakers that she sees more “advantages than disadvantages” in a new bailout package for Greece. French President François Hollande talked this week of a victory for Europe, and even U.S. president Barack Obama has expressed relief that a “Grexit” has been avoided.

Despite the positive rhetoric from leaders, there is still deep skepticism about whether the fragile truce agreed last week will stand the test of time. This is especially true in Germany, Europe’s largest economy and Greece’s largest creditor. The decision to give Greece its third bailout in five years is deeply polarizing here.

Some 119 German lawmakers opposed the bailout in the afternoon vote – half from Ms. Merkel’s own governing party – and another 40 abstained, while 439 voted in favor. A highly fractious debate ahead of the vote showed that, even as lawmakers prepared to pass the three-year bailout, the questioning continued.

Germany’s finance minister, Wolfgang Schäuble, is stubbornly holding onto his view that a “Grexit” might be the best thing to do for Greece.

“It might be a better option for Greece,” Mr. Schäuble said of a plan he proposed last weekend for Greece to temporarily leave Europe’s common currency, in an interview with the German radio station Deutschlandfunk Thursday morning.

His view is in direct contradiction with his boss, Chancellor Merkel, who spent 17 hours last weekend and into Monday morning negotiating a deal that would help keep Greece a member of the 16-year old euro, a common European currency that includes 19 nations and stretches from Ireland in the west to Latvia and Estonia in the east.

Following the weekend deal, a parliamentary vote in Greece Thursday morning in favor of structural reforms paved the way for E.U. finance ministers to ease their stranglehold on Athens’ shaky finances later in the day. Banks in Greece are set to re-open Monday after being closed for three weeks.

Today, Germany’s parliament had its say on last weekend’s agreement. Despite much grumbling in some quarters, the Bundestag cleared the way for formal talks to begin on a third bailout for Greece – a three-year rescue program totaling as much as €86 billion, or $93.6 billion.

Even as solutions are agreed, the doubts about what’s best for Greece remain widespread.

Mr. Schäuble, a member of Chancellor Merkel's center-right Christian Democratic Union party, is hardly alone in his view that a Greek exit from the 19-nation euro zone is still very much on the table.

Mr. Schäuble’s contradictory views are all the more remarkable as he served as Ms. Merkel’s spokesperson on Friday, and will continue to do so in the weeks and months to come.

The finance minister formally put forward the motion in the Bundestag, to give him a mandate to negotiate a new rescue program for Greece.

Although Mr. Schäuble recommended in his 18-minute speech before lawmakers that negotiations should be held with Athens regarding a third rescue program, he also sees many obstacles that still stand in the way of a real and lasting agreement.

This skepticism begins with whether Alexis Tsipras, Greece’s embattled leftist prime minister, will actually implement the reforms he has promised in return for more European bailout funds.

The doubts extend to the question of debt sustainability, which Mr. Schäuble like many experts, including the International Monetary Fund, believe is completely out of reach.

Anyone who listened closely to Mr. Schäuble’s radio interview on Thursday will have heard what he really hopes will happen: He wants to make a Grexit more appealing to Greeks by offering them the debt relief they crave – but only from outside the currency bloc.

It’s a view that has made Mr. Schäuble a lot of enemies this week. He’s been criticized in many European countries as a heartless accountant who wants to drive Greece out of the euro in order to avoid having to release further billions in aid. U.S. economists have accused him of putting Europe’s future at risk.

 

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Mr. Schäuble has seen widespread support for his Grexit plan. Source: DPA

 

Mr. Schäuble’s double-edged approach has also been described as “Tsipras style” by exasperated senior members of the Social Democratic Party (SPD), the minority partner in Germany’s coalition government. It is a reference to Greek Prime Minister Alexis Tsipras, who agreed to implement tough reforms in exchange for the bailout that he, too, does not actually believe in.

Mr. Schäuble’s relationship with Sigmar Gabriel, Germany’s deputy chancellor and head of the center-left SPD, has also reportedly been destroyed.

And yet Mr. Schäuble, a member of Chancellor Merkel’s center-right Christian Democratic Union party, is not the only one who said a Greek exit from the 19-nation euro zone is still very much on the table.

 

Bailing Out Greece-01

 

 

Ever since Mr. Schäuble threatened the Greek government with a Grexit over the weekend, authoring a proposal backing a five-year temporary exit from the common currency, he has been inundated with letters of support from the public. His popularity as a politician in Germany is at an all-time high.

“Stick to your guns, Mr. Schäuble!” Over 2,000 letters flooded into his parliamentary office the middle of the week; employees can barely keep up with the incoming mail pouring into the finance minister’s office at the German Bundestag and at the citizens’ center of the finance ministry that is headed by Mr. Schäuble.

German concerns stretch beyond traditional party lines. Trust in Greece’s ability to turn its own economy around – and remain in the euro in the process – is at an all-time low.

“Where there is no will, there is also no way,” Peer Steinbrück, Mr. Schäuble’s predecessor as German finance minister, and a member of the center-left Social Democratic party that is the current junior coalition partner in Ms. Merkel’s government, said Friday.

The skepticism comes despite Greece doing everything it can to keep itself above water – and inside the euro-zone boat.

Last weekend, Greece’s left-wing prime minister, Alexis Tsipras, agreed to implement a series of tough structural reforms and spending cuts that he has resisted for months – and which were loudly rejected in a referendum just a week earlier – in exchange for the emergency funding he needs to avoid Athens declaring bankruptcy and tumbling out of the euro zone.

Early Thursday morning, the Greek parliament passed a controversial bill implementing some of the reforms Mr. Tsipras promised over the weekend.

It’s a bill that could cost him his job – new elections are likely after about half of his own party rebelled against the bailout terms. But it also paved the way for Greece’s neighbors to ease their stranglehold on Athens and the country’s economy over the past few weeks – a stranglehold that had been in place ever since Mr. Tsipras broke off negotiations over a bailout at the end of June and instead announced he would take the matter to a referendum.

European finance ministers agreed Thursday to a bridge financing package of €7 billion that should keep Greece out of bankruptcy until mid-August. Banks, which have been closed since June 29, are now expected to re-open again on Monday, after the European Central Bank agreed to raise its ceiling on emergency loans – albeit by just €900 million.

That is a relief, all well and good, providing much-needed breathing room for a country mired in a deep economic crisis for the past five years. But anyone hoping that the long-running Greek crisis is now over will be sorely disappointed.

Mr. Schäuble feels that it would be irresponsible to take the pressure off the government in Athens now; it must yield to the conditions of reform. If it does not, Mr. Schäuble is prepared to take appropriate action. And by repeatedly emphasizing this, he is also restricting Ms. Merkel’s scope for concessions.

Greece’s third bailout package will run for three years. The Grexit plan may be off the table in negotiations in Brussels for now, but it’s still close at hand – in Mr. Schäuble’s desk drawer.

 

Christopher Cermak writes about politics and economics for Handelsblatt Global Edition. To contact the author: cermak@handelsblatt.com

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