Berlin vs Brussels

The Battle for Greece – and Europe

Schauble and JunckerAP
Jean-Claude and Wolfgang aren't pals.
  • Why it matters

    Why it matters

    The European Commission and Athens are hoping for a quick resolution to negotiations now that a techinical deal has been reached, but Mr. Schäuble and others in Berlin are warning against being too hasty.

  • Facts

    Facts

    • Germany fears a hasty agreement could be too lenient on Greece.
    • Greece has to repay the ECB €3.2 billion by August 20.
    • The Commission would not be sad to see the IMF refuse to participate in a third Greek bailout.
  • Audio

    Audio

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A German government report recently noted that no other E.U. country has so many of its nationals in high-ranking positions at the European Commission. Even the most important advisor to the commission president, Jean-Claude Juncker, is a German — Martin Selmayr, But despite the plethora of German-speakers in Brussels these days, there’s been a communication breakdown with Berlin.

There are so many disagreements that some officials speak of an “ice age” or even a “feud” between the commission and the German government.

The Greek government’s announcement on Tuesday that it had forged a deal on a new €86 billion bailout with its creditors — the European Union, the European Central Bank and the International Monetary Fund —  is likely to stoke the conflict between Berlin and Brussels. Whereas the commission has been plumping for a quick deal with Athens, the German government has cautioned against rushing the agreement.

“It is decisive that this is a basis for the next few years; it cannot just last a few months. Growth and attractive and reliable conditions for more investments must be the goal,” Jens Spahn, Germany’s deputy finance minister, said in response to news of a technical agreement, which still has to be given the seal of approval by the E.U.’s political leaders.

This German wariness is irritating European officials.

Of course, both sides attempt to downplay the quarrel officially. When asked about her relationship to Mr. Juncker, whom she tried to prevent from become commission president, German Chancellor Angela Merkel said: “That doesn’t have to be mentioned anymore, it’s like bringing refrigerators to Eskimos.” And even behind the scenes, the two leaders quickly agreed that Greece absolutely needed to be saved and remain in the euro zone.

But some high-ranking officials at the commission are now asking themselves what the promises from Berlin were worth. Why, for example, did Ms. Merkel allow her finance minister, Wolfgang Schäuble, suggest Greece might be better off exiting from Europe’s single currency?

“It’s plainly clear that Schäuble prefers a Grexit,” said a source close to Mr. Juncker.

Many E.U. officials have accepted that Mr. Schäuble brought up the option of a temporary Grexit at the summit in mid July in order to help push Athens to accept a deal under conditions more acceptable to Berlin. But the commission took offense at how he suggested it might be better for Greece. “Outrageous,” said one member of Mr. Juncker’s staff. “What does Schäuble actually want?” said another Brussels source.

Berlin’s troubled relationship with Brussels explains why even comments made by Mr. Schäuble in passing can pour gasoline on the proverbial fire.

On the other hand, Germany’s veteran finance minister rarely skips an opportunity to put the commission in its place. During negotiations with Greece, the commission president’s advisor, Mr. Selmayr, used Twitter to indicate a deal might be near. Mr. Schäuble quickly shot him down, saying “unauthorized persons” should restrain themselves.

“The Greece crisis and even before, during the row over the commission’s deferential position over the French deficit, have strained Berlin’s ties to the Juncker Commission considerably,” said Henrik Enderlein, director of the Berlin-based Jacques Delors Institute.

Berlin’s troubled relationship with Brussels explains why even comments made by Mr. Schäuble in passing can pour gasoline on the proverbial fire. At a finance ministers meeting in July he said the commission should consider giving up regulatory duties if it wanted a more political role in Europe. It was only two weeks later, when the remarks became known publically,  that the commission came to consider the utterances a frontal attack.

Mr. Juncker’s spokeswoman dismissed the minister’s comments as a “very German view,” to which an official in Berlin responded: “When they react like that, it just shows they have a bad conscience over how they keep claiming ever more competencies.”

The spat shows just how difficult upcoming discussions on the future of the euro zone could be. E.U. leaders hope to meet as early as October to consider how sovereign nations can best share a common currency and to what degree they can better coordinate their economic policies. That sounds easy, but it will be a huge challenge needing plenty of goodwill from all sides.

Whereas Germany is sure to push for strict budgetary discipline, other countries like France and Italy, as well as the commission, are sure to push for less rigidity.

“Schäuble’s push should be seen in this context,” said Jakob von Weizsäcker, a member of the European Parliament for the German Social Democrats. He said Mr. Schäuble was letting the commission know Berlin could play hardball if it attempted to group up with Paris and Rome.

Such political posturing comes at a price, of course. Ever since Germany ostensibly got its way at the euro crisis summit, there has been a growing fear of German dominance in Europe. Yanis Varoufakis, Greece’s flamboyant ex-finance minister, has described Mr. Schäuble in interviews as having a steely grip on the euro zone. “When he says something in the Eurogroup, everyone obeys, even the French, who act brave and defiant outside of the conference room door,” Mr. Varoufakis said. “He whistles and they submit.”

Other E.U. players have a more nuanced opinion of Mr. Schäuble’s stature. The German finance minister has belonged to the Eurogroup of euro-zone finance ministers since 2009 – an eternity in a body where most politicians last only 1.7 years on average.

An E.U. diplomat said it was difficult to push something through against Mr. Schäuble, but that didn’t mean that Germany always held the upper hand. For example, the European banking union does not correspond to Mr. Schäuble’s wishes. And it’s unclear if Germany can postpone an agreement over another Greek bailout.

 

Bailing Out Greece-01

 

Berlin wants to talks to lead to a more comprehensive deal and fears a hastily negotiated one could end up being too lenient on Athens. For example, it’s currently unclear how deep Greece’s spending cuts next year need to be.

The Greek government hopes to present a final bailout deal to parliament by August 18. But if that date can’t be met, Greece will need an emergency bridging loan in order to repay the European Central Bank €3.2 billion, or $3.5 billion, on August 20. The IMF and Germany wanted to give Greece emergency funding lasting through the summer, but other euro-zone countries rejected that idea.

It’s also unclear if the IMF will participate in a third bailout for Greece. The Washington-based fund has said that would only be possible if Europe agreed to some form of debt relief for Athens. The current IMF program in Greece runs out in March 2016. During the E.U. summit in July, the fund  insisted that it would only make its decision after the first review of Greece’s implementation of its bailout program in the fall.

Should the IMF decide to abandon the negotiations then, it would put Ms. Merkel and Mr. Schäuble in a difficult spot. Germany wants the IMF on board to increase pressure on Greece, but European Commission officials would not be sad to see it depart. “They would get the political flexibility that they absolutely want,” said a German finance ministry source.

That would certainly escalate Berlin’s row with Brussels – but at least it would be a row held in German.

 

This article first appeared in the weekly business magazine WirtschaftsWoche. To contact the authors: schmitz@wiwo.de and wettach@wiwo.de

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