Greek Debt

Not Blinking First

SchaeubleMerkel-dpa
Over to you, Mr. Schäuble.
  • Why it matters

    Why it matters

    • If Germany can reach a deal with Greece, the latest euro crisis could be quickly put to rest without jeopardizing the common currency.
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  • Facts

    Facts

    • Greece’s latest bailout program its lenders ends at the end of this month.
    • The ECB on Wednesday said it was cutting off Greek bank from its normal lending operations.
    • The Greek finance minister meets today in Berlin with his German counterpart.
    •  
  • Audio

    Audio

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What a difference a week makes.

Just last week, Greece’s new ruling left-wing Syriza party was talking tough about getting Europe to ease its stranglehold on the Greek economy and cancel some of Athens’ debt.

But as its diplomatic offensive across European capitals unfolded this week, the new Greek government got more than a taste of just how tough its debt negotiations with European leaders are going to be.

Perhaps the harshest reminder came today when Greek Finance Minister Yanis Varoufakis met his German counterpart, Wolfgang Schäuble, in Berlin. After delaying a press conference for more than 45 minutes as talks dragged on, the two ministers told reporters that they had amicably “agreed to disagree,” at least for the moment.

“There are elections and democratic legitimacy not just in one country, but in all European countries,” Mr. Schäuble said, repeating a refrain that Greece’s new ministers have heard many times during their diplomatic tour this week.

Mr. Varoufakis was later to meet Germany’s deputy chancellor, Sigmar Gabriel, who leads the Social Democratic party.

Greece’s new coalition government, headed by Mr. Varoufakis’s left-wing Syriza party, has vowed to renegotiate the terms of Greece’s nearly €250-billion ($286 billion) bailout with its troika of lenders, the European Commission, the European Central Bank and the International Monetary Fund. In the run up to its victory last month, Syriza argued that budget cuts tied to the troika’s rescue package insulted the Greek people and was choking economic recovery.

The other 18 euro-zone countries have preached tough love with Greece, saying it must cut and reform its way out of its six-year economic crisis. Germany, the biggest single euro-zone lender to Greece, has spearheaded this approach.

For his part, Mr. Varoufakis has done his best to appeal to the sensibilities of his different audiences. Speaking in Berlin, he delicately evoked Germany’s Nazi past – not by comparing its current crop of leaders to the fascist movement but by warning that Germany, more than any other country, should understand the dangers of keeping a country in economic depression for too long.

“Germany must and can be proud of the fact that Nazism has been eradicated here…but one of history’s most cruel ironies is that Nazism is rearing its ugly head in Greece,” he said, noting that a neo-Nazi party – Golden Dawn – has become the third-largest in Greece.

“The ECB is being used as an instrument of politics. But this is a dangerous game, because citizens and investors could lose trust in Greece's banks and pull their deposits.”

Marcel Fratzscher, Berlin-based economics institute DIW

There was some common ground between the two ministers, notably on the need to tackle corruption and tax evasion in Greece. But while Mr. Schäuble urged greater understanding for the lot of Greece’s people – and recognition of the tough road the country has traveled so far – he showed few signs on Thursday of budging from his long-held position. Solutions “we don’t have, but we didn’t have to find them today,” he said.

The German public hasn’t budged either – more than two thirds of people taking part in a recent poll said they opposed easing repayment conditions on Greece.

In the face of such disapproval, the Greek finance minister visited Berlin today perhaps as a chastened man.

Yesterday morning, Mr. Varousakis met with European Central Bank President Mario Draghi in Frankfurt, only to watch helplessly as the ECB later that evening issued a statement saying it was cutting Greek banks’ access to its normal lending operations until a new rescue deal is in place.

The tightening of the financial screws on Greece has prompted concerns that more Greeks might move capital to other euro countries.

The remaining lifeline for Greek banks is a costly form of emergency loan known as Emergency Liquidity Assistance offered by the ECB. Most observers expect the European bank to maintain this support while a deal is sought.

“As was to be expected, the ECB is being used as an instrument of politics,” Marcel Fratzscher, the head of the Berlin economics institute DIW, told Handelsblatt. “But this is a dangerous game, because citizens and investors could lose trust in Greece’s banks and pull their deposits.”

Greece’s new prime minister, Alexis Tsipras, didn’t have any better luck. On Wednesday, he met with four European leaders in Brussels and Paris – E.U. Commission President Jean-Claude Juncker, E.U Council President Donald Tusk, E.U. Parliament President Martin Schultz and French President Francois Hollande.

All gave Mr. Tsipras the same message: Greece must stick to European rules.

Perhaps the clearest statement came from Mr. Hollande: “We are responsible for our currency. It does not belong to one country, but to all of them, and its stability must be respected.”

Mr. Hollande offered no concrete proposals for how to ease Greece’s debt burden, only a vague promise of a “dialogue over a medium- and long-term contractual framework between Greece and the euro zone.”

Juncker-Tsipras-AP
Hand-holding but tough talk. Alexis Tsipras met with E.U. Commission President Jean-Claude Juncker and other top officials in Brussels and Paris on Wednesday. Source: AP

 

The tough talk from Europe’s leaders has already led Mr. Tsipras to soften his demands. He has given up one major election pledge – a cancellation of some Greek debt – after other euro zone countries made clear this was a non-starter.

Instead of a debt haircut, Mr. Varoufakis is now calling for a restructuring of Greece’s debt that would link repayments to its growth prospects: The slower Greece recovers, the longer it has to repay its debt.

But even this proposal has been met with skepticism among Europe’s leaders.

Germany has so far stayed the toughest of all. A letter from Berlin to other euro zone finance ministers, obtained by the news agency Reuters on Wednesday, made clear that Greece must revert to the reform course of its previous government, which Syriza ousted in January.

The mood in Germany against easing Greece’s debt load comes in part from a feeling among the public and government officials that they have been through this before.

Greece’s appeal for leniency is falling on deaf ears in Berlin. Many grumble that Germany was forced to get its economy in order, imposing unpopular structural reforms, flexible labor laws and wage restraints.

“You might remember that not so long ago, Germany was labelled ‘the sick man of Europe,'” not least because of its weak economic growth and high level of persistent structural unemployment, Jens Weidmann, the president of Germany’s central bank, noted in a speech on Thursday.

”Other euro-area countries rightly expected Germany to set about resolving its economic problems,” Weidmann said, adding, “The conclusion to be drawn from the German labor market experience is that implementing reforms requires quite some perseverance, but efforts do finally pay off – overcoming a crisis is more of a marathon than a sprint.”

The task of reaching a deal with Greece now falls to the euro groups finance ministers, including Mr. Schäuble, who will hold a meeting in Brussels on February 11, just days before a wider summit meeting of E.U. leaders.

Greece Greek gov debt in percent and in billion of euro-01

Angela Merkel, the German chancellor, has tried to stay above the political fray, leaving the tough talking to her finance minister. A high-ranking E.U. diplomat said Ms. Merkel is determined not to make Greece a topic of next week’s E.U. summit, leaving the issue to finance ministers instead.

Time is not on Greece’s side. The country will have to formally request an extension of its rescue program with the troika of European Commission, ECB and International Monetary Fund, by February 16 at the latest. That’s when euro group finance ministers are set to meet.

Otherwise, Greece’s could be left fending for itself on March 1.

 

Ruth Berschens heads Handelsblatt’s Brussels office, leading coverage of European policy. Thomas Hanke is a Handelsblatt correspondent in Paris. Christopher Cermak is an editor at Handelsblatt Global Edition in Berlin, focusing on economics and financial issues. To contact the authors: berschens@handelsblatt.com; hanke@handelsblatt.com; cermak@handelsblatt.com.

This story was updated at 15:00 CET today with comments from the German and Greek finance ministers.

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