FT: Germans becoming increasingly resigned to Grexit

12/6/2015

German Chancellor Angela Merkel remains publicly committed to doing a deal to save Greece from bankruptcy, gamely insisting this week: “Where there’s a will, there’s a way.”

But behind the scenes, top government officials are becoming increasingly resigned to a possible Greek default and exit from the eurozone, and discussing preparations to deal with such a scenario.

Throughout the Greek crisis, Germany has been among the most sceptical EU members about Greece’s ability to adhere to a reform plan that would revive its economy and allow it to repay its debts.

Yet German doubts have deepened over the last week after a putative agreement negotiated with Greece’s prime minister, Alexis Tsipras, frayed and then gave way to recriminations.

Fearing a deal may now be out of reach, many in Berlin echo the International Monetary Fund’s assessment on Thursday in which it cited “big differences” between the parties as it withdrew its negotiating team.

Among the more pessimistic, the view is that the Greek government has shown itself in months of talks unwilling to deliver on reforms. The gap between Athens and its creditors is seen not in narrow differences over budget numbers but in wide swaths of economic policy.

They also fear that Mr Tsipras is operating under the mistaken assumption that his country’s creditors will, at the last moment blink — something they insist is not the case.

“Lenders are signalling in ever more ways . . . that they do not intend to blink. Whether or not these are partly negotiating tactics, such preparations can take on a life of their own,” said Holger Schmieding of Berenberg, the German bank.

“Lenders are signalling in ever more ways . . . that they do not intend to blink. Whether or not these are partly negotiating tactics, such preparations can take on a life of their own,” said Holger Schmieding of Berenberg, the German bank.

Steffen Seibert, Ms Merkel’s spokesman, on Friday declined to comment directly on a report in Bild, the tabloid newspaper, that the government no longer ruled out Grexit.

Mr Seibert said government policy towards Greece had not changed: “We are working in the direction that Greece can remain a eurozone member,” he said.

But European diplomats in Berlin say Germany is drawing up contingency plans for a possible Grexit. Officials are considering ways of helping Athens remain in the EU, even if it leaves the eurozone, with emergency EU funding, for example.

The German government believes the financial turmoil of a Grexit is manageable. The finance ministry sees little danger of contagion spreading from Greece to other potentially vulnerable eurozone members.

But Berlin is worried about the political fallout. German politicians recognise that the Syriza-led government includes far-right and far-left firebrands who could bring huge crowds on to the streets of Athens, with the risk of violent demonstrations.

Ms Merkel herself sees Greece’s stability as critical — she does not want the EU and Nato-member plunge into disorder at a time when the Balkans are fragile and Russia stands ready to increase its influence.

“I can’t say how this will end,” says one European finance official with a close knowledge of Berlin.

A senior MP in Ms Merkel’s ruling CDU/CSU bloc predicts Ms Merkel will succeed in her quest for a deal — if necessary by persuading the sceptics in her own party and those in eurozone partner nations “of the importance of the geopolitics”.

Other CDU MPs are not so sure. In the last Bundestag vote on Greece in February — to extend the current aid package to June 30 — 29 of the 32 members voting against in the 630-strong chamber were CDU/CSU.

How many might now actually oppose easing Greece’s rescue terms is unclear. Even if the party rebelled, Ms Merkel might still secure passage with her coalition allies, the Social Democrats, and the opposition Greens and far-left Linke.

But that is still a gamble. Says Daniela Schwarzer, of the German Marshall Fund of the US, a think-tank: “Even if Merkel makes the case for geostrategic reasons she could face difficulties in parliament.”

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