German Chancellor Angela Merkel is intervening directly in a deepening rift between Greece and its international creditors, a sign of Berlin’s growing concern that the acrimony threatens the unity of the eurozone.
Ms. Merkel and other key leaders met with Greek Prime Minister Alexis Tsipras on the sidelines of a European Union summit on Thursday night. The chancellor has also invited Mr. Tsipras for face-to-face talks in Berlin on Monday.
The meetings show that the Greek crisis is seen in Berlin as enough of a threat to Europe’s stability for heads of government to get involved, European officials said. The chancellor’s message for Mr. Tsipras–that Greece has no alternative to cooperating with finance officials’ demands–is likely to disappoint the Greek leader’s hope for a lenient funding deal.
That Ms. Merkel, Europe’s most powerful leader is trying to assert her authority in the Greek debt crisis reflects her mounting worry that bad blood between Athens and other EU capitals could lead to Greece tumbling out of the euro–an outcome that no eurozone government wants, because of its unpredictable and potentially ruinous consequences.
So far this year, Ms. Merkel has left the Greek problem to her finance chief Wolfgang Schäuble, while she focused her foreign-policy energies on trying to stem the Russian-backed separatist war in Ukraine. But Mr. Schäuble and other eurozone finance officials are struggling to collaborate with their Greek counterparts amid rising animosity and mutual mistrust.
President Barack Obama and other world leaders have lobbied Berlin to lead the search for a compromise on Greece, expressing concern that Greek bankruptcy and an exit from the euro could divide and destabilize the EU just as Europe’s post-Cold War order faces a serious challenge from Russia.
“I’m very aware that the world is watching us, how we in the eurozone deal with problems and crises in individual members states,” Ms. Merkel told Germany’s lower house of parliament, the Bundestag, on Thursday. Restating her mantra since the eurozone debt crisis erupted in 2010, she said: “If the euro fails, then Europe fails…the euro is far more than a currency.”
She was expected to press Mr. Tsipras at their Brussels and Berlin encounters to accept that Greece’s only hope of securing the financing it needs to avoid default is to cooperate with eurozone finance ministers and technocrats from the EU and International Monetary Fund. Arriving in Brussels on Thursday, she played down the chances of an imminent deal, telling reporters: “Don’t expect a breakthrough.”
The latest Greek crisis is rapidly boiling down to whether a compromise is possible between the two key protagonists, European officials and analysts say: Ms. Merkel and Mr. Tsipras.
Ms. Merkel continues to see a Greek euro exit as deeply undesirable, people familiar with her thinking say. It would render the eurozone chronically fragile by proving that membership isn’t permanent, inviting future financial speculation against other struggling members. It could also turn Greece into a loose cannon within the EU and NATO, complicating the West’s efforts to deal with geopolitical challenges, from Russia to the Middle East, these people say.
But Ms. Merkel also believes she can only sell rescue loans for Greece to skeptical German lawmakers and voters if Athens, in return, shakes up its economy to become more viable inside the euro.
Mr. Tsipras, however, would have great difficulty getting his party to swallow the kind of economic policies that creditors want. Trying to pass laws that meet the IMF’s demands for further labor-market deregulation, pension cuts or privatizations would probably split Syriza, party insiders say.
The young Greek premier is instead pinning his hopes on persuading Ms. Merkel that she has to make a fundamentally political choice: Does she want to keep Europe intact or not? If so, then she must grant Greece a financial lifeline together with looser budget reins and an end to IMF-style measures, he has argued.
Since his accession to power, Mr. Tsipras has tried to take the dispute the highest political level, bypassing the Eurogroup–the forum of eurozone finance ministers–where Greece is under pressure to provide specifics on its parlous finances and economic policy plans.
Some other EU leaders are worried that, by engaging Mr. Tsipras directly, Ms. Merkel may encourage Athens to believe it doesn’t have to cooperate with the Eurogroup or the IMF.
Ms. Merkel was careful to insist on Thursday that her talks with the Greek leader aren’t a substitute for cooperation at the technocratic level.
Greece is struggling to scrape together enough cash to service its debts to the IMF and other creditors in coming weeks. It needs billions of euros in rescue loans to meet heavy bond repayments owed to the European Central Bank in July and August. Failure to repay those debts would lead the ECB to cut off funding for Greece’s banks, forcing the country to surrender to creditors’ demands or return to a national currency, the drachma.Syriza’s often-confrontational tone has alienated much of Europe from Greece’s demands for more lenient treatment, reducing the sympathy of many voters and policy makers for the economic hardship many Greeks have suffered since 2010. Opinion polls suggest a majority of German voters now support Greek exit from the euro–something a large majority of Greeks still reject.
Under Greece’s bailout program, the eurozone and IMF has doled out cheap loans since 2010 in return for economic overhauls in Greece. But the tough medicine–including cumulative austerity measures that represent around 30% of Greece’s annual economic output, according to EU figures–have contributed to the Greek economy shrinking by a quarter, leaving unemployment at around 26%. Most Greeks don’t believe the creditors’ medicine has made their economy healthier as German officials insist.
Instead, exhausted Greeks elected Syriza to end the hated measures and the country’s strict supervision by EU-IMF technocrats, which the public widely views as humiliating. The problem for Syriza and its leader Mr. Tsipras, however, is that Greece still needs EU-IMF financing to avoid a debt default.
A truce reached on Feb. 20–when Athens and its creditors agreed to continue the bailout and negotiate mutually acceptable economic policies for Greece, unlocking further financing–has frayed badly in recent weeks.
Eurozone officials this week accused Greece of refusing to share financial information or draw up convincing economic overhauls. Greece’s government charges its creditors with trying to meddle unacceptably in its affairs, including by trying to halt legislation passed by the Parliament in Athens on Thursday to give free electricity and food coupons to poor Greeks.
“We are waiting for proposals (from the creditors) on how Greece can turn towards growth; we haven’t heard any of those up to now,” a senior Greek government official said ahead of Thursday’s EU summit.