The Greek Challenge Finding Harmony with Berlin

Global Centre Stage

The much-anticipated bilateral meeting between Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel was characterised by some observers as Tsipras taking the risk of walking straight into the lion’s den. Others labelled the reunion a much overdue reconciliation attempt after all the political brinkmanship exercised by various ministers in Athens and Berlin during the past two months. However, as Dr Jens Bastian insists, PM Tsipras and Chancellor Merkel will need more than bilateral visits serving to mend fences. Between euro area urgency and geo-political implications, both sides need further confidence building, sustainable commitments

The visit of Greek Prime Minister Alexis Tsipras on March 23 and 24, 2015 to Berlin in order to meet Chancellor Angela Merkel was absolutely timely and utterly necessary. The bilateral meeting was somewhat overdue since Greece’s new PM took office on January 26, one day after winning a landslide electoral victory with his Syriza party.1

Though Tsipras had previously visited President Francois Hollande in France and met Italian Prime Minister Matteo Renzi in Rome, while taking part in two European Union summits in Brussels, he had yet to see the German Chancellor in a face-to-face meeting on his or her home soil.

Some observers characterised the meeting as Tsipras taking the risk of walking straight into the lion’s den. Others labelled the reunion a much overdue reconciliation attempt after all the political brinkmanship exercised by various ministers in Athens and Berlin during the past two months.

Issues in Focus

The Berlin meeting yielded an atmospheric improvement in bilateral relations. But the consultations do not represent a breakthrough between Greece and its most important creditor country in the euro area. But both sides were determined to leave sniping at each other behind them and rather focus on the substance of the relations as well as the complexity of issues on the agenda.

It was crucial in that respect that PM Tsipras underlined that Germany was not responsible for the six-year crisis in Greece. This clarity in his statement was refreshing, but it points to a potential disconnect: There is one more confrontational narrative at home about Germany and a more conciliatory one when the new Prime Minister meets his euro area peers.

To illustrate: A major obstacle in the bilateral relationship remains the Greek claims being articulated with renewed emphasis by the Tsipras government concerning World War II reparations from Germany. Parliament speaker Zoe Konstantopoulou, a Syriza representative, appointed herself to lead a special House committee tasked with building a case for such claims in March 2015. The cross-party committee of 15 MPs is tasked with collecting evidential and historical material supporting Greece’s demands.

Greece Matters: Limits of Solidarity with Athens

The urgency of bilateral consultations in the Chancellery could not be underestimated. There is speculation about a massive crisis in the public finances of the Greek government. The short- to-medium-term economic and fiscal perspectives of the country remain dire. The structural problems of Greece continue to define the core of the euro area crisis since 2009, and an end is not in sight!

The government of PM Tsipras is desperately trying to deal with an untenable situation under conditions of extreme time and liquidity constraints. At the forefront of this challenge are fiscal conditions of the state administration, repayment obligations to international creditors (in particular the IMF), sustained capital flight from the domestic banking sector and rampant tax evasion. The six-year recession and the social consequences of prolonged mass unemployment further characterise the new government’s point of departure.

To what degree these framework conditions and structural deficits can be improved by Greece remaining a member of the single currency regime in Europe will be the key question searching for answers in the coming months. It appears that almost every minister in the euro area deems it necessary these days to make some more or less unsolicited statement about ‘Grexit’ scenarios or the newest version of what is now called ‘Greek accident’. So while Slovenian PM Miro Cerar insists that solidarity to Greece has its limits, Johan Van Overtveldt, Belgian finance minister, said the currency bloc had sufficient safeguards in place to endure a Greek departure. Pierre Moscovici, EC’s financial affairs chief is categorical when he says, “We won’t keep Greece in the EZ at any price”.

This short list of statements is anything but reassuring for the political authorities in Athens. Those listed are representatives from countries that have rather held back in the past from criticising Greece in public and calling into question its continued membership in the euro area.

The ‘usual suspects’ such as the German finance minister Wolfgang Schäuble or the Dutch head of the Euro group of finance ministers Jeroen Dijsselbloem are being increasingly supported by other member states. In a way, one could argue that the new government in Athens has unintentionally achieved something that seemed impossible during the past five years of crisis management in the euro area. All finance ministers are united with the exception of Greece, which stands isolated at the sidelines of negotiations.

Re-evaluating Established Coordinates of EU Rescue Programmes

The change of government in Athens illustrates during the first three months of execution that the established coordinates of European rescue programmes are subject to root-and-branch re-evaluation. The focus of this debate does not centre primarily on the amounts of financial resources made available. Rather it is centred on the rules of the game, about the defining principles of constructive cooperation in the European Union and among members of the euro area.

The key decisions about Greece’s capacity to remain in the euro area will be made first and foremost in Athens, then in the Chancellery in Berlin and by equal measure at the newly inaugurated headquarters of the European Central Bank (ECB) in Frankfurt.

One of the key questions concerns the following: Is Germany prepared to continue committing fiscal transfers to Athens for the foreseeable future, including in the framework of a possible third programme which would not be called a Memorandum and cannot be based on a continuation of austerity measures?

Given her track record during the past five years of crisis management in the euro area, Chancellor Merkel is reluctant to deliver a clear-cut commitment. She will have in mind that in a recent opinion poll (March 26) for the German state television ZDF, 45 percent of respondents were in favour of Greece leaving the euro area. She will also be aware that the interpretation of such polling data is currently being fiercely debated inside her own Christian Democratic Party, CDU.

A second issue concerns the critical role being played by the ECB as regards the current liquidity constraints of the Greek state and lending facilities being provided to Greek banks through emergency liquidity assistance (ELA). As the Greek government’s coffers are running on empty with no liquid refuelling station in sight, the ECB holds the key to the provision of short-term liquidity alternatives.

While the ECB in Frankfurt holds the liquidity keys, its president Mario Draghi is uncomfortable with the institution taking such centre stage in crisis resolution. This has prompted various critics to argue that the ECB is overstepping its policy mandate and shaping directly the economic and financial framework of a member state of the euro area.

Policy Alternatives: Risks of Financial Salvation from Moscow

What would be the policy alternatives available and how sustainable are they domestically and vis-à-vis Greece European partners as well as international creditors? One controversial option is the new government’s veiled attempt to find financial salvation in Moscow. More specifically, the travel diplomacy of Greek government representatives to Russia since taking office is a matter of concern for its European peers. The possibility of forging strategic alliances between Athens and Moscow is seen as a red line by the European Commission in Brussels and the Chancellery in Berlin.

It would thus be re-assuring on the part of PM Tsipras to emphasise that as a member of the euro area Greece will not undertake any loan shortcuts through Russia. His visit to Moscow on April 8 was closely monitored by the Chancellery for any signs of regional re-orientation by Greece or attempts at calling into question the existing sanctions regime against President Putin because of the Ukraine crisis and the annexation of Crimea.

The possibility of Russia providing a Plan B option for solving Greece’s immediate liquidity constraints underlines the degree to which the sovereign debt crisis of the country is fast turning into a potential area of geo political uncertainty and regional implications in southeast Europe. Put otherwise, the institutional framework in which this crisis is unfolding in the international arena has fundamentally changed since the new government took office in Athens.

It was the administration of President Barack Obama that understood these geo political implications most immediately and reminded its European allies that “you cannot keep on squeezing countries in recession” (February 1, 2015 interview of President Obama).

The last thing the European Union and NATO currently need is a member state such as Greece to initiate a rapprochement with Russia and consider financial assistance from Moscow as a viable alternative if and when the conditionality requirements from Brussels and/or Berlin become unsustainable for the authorities in Athens.

However, for this scenario to be avoided, the Greek PM Tsipras and Chancellor Merkel will need more than bilateral visits serving to mend fences. A constructive dialogue critically rests on a soft power element that is in high demand between both countries, but currently in low supply on the ground in Athens and Berlin: it is the political commodity called trust. Between euro area urgency and geo-political implications, both sides need further confidence building, sustainable commitments.

The euro area and its 'problem child' face critical three months ahead. Athens, Berlin, Brussels and Frankfurt will have to confront vexing issues that imply the investment of political capital under severe time constraints. These four cities represent the decision making centres that will inform us if the Greek drama will have a continuation or a resolution in order to avoid turning into a Greek tragedy.

Notes:

1 Syriza is an abbreviation that stands for “Coalition of the Radical Left”. The party came just two seats short of an absolute majority in the Greek parliament in the 25th January 2015 general elections. It was thus obliged to form a coalition government, an unseemly union of the radical Left with the nationalist party Anel, which stands for “Independent Greeks”.

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