Irreconcilable differences?

15/6/2015

The gap between Greek and German views may be too great for the politicians to bridge

Negotiations over a deal to extend Greece's bail-out, and to free up the money it needs to make repayments on its debt, broke down yet again on Sunday night in Brussels. In the narrow sense, the failure was due to the inability of the European Commission and the Greek team to narrow the gap on European demands for measures to increase Greece's budget surplus, including cuts to pensions and a hike in the value-added tax rate. But behind the technical impasse in Brussels lies a gulf between the political realities back home. In European capitals, politicians and voters who see themselves as having already spent billions to rescue Greece have grown fed up with demands for generosity. In Athens, the government led by the far-left Syriza party was elected on promises to undo EU-imposed austerity, but is being told to accept more of it.

Yet there are hints that, in Athens at least, the political mood is beginning to shift. The economy, which was recovering at the end of last year, has dropped into recession since Syriza came to power in February. Meanwhile, opinion polls consistently show that 70-80% of Greeks want to stay in the euro zone, and recent polls suggest 40-50% would accept further tough economic measures as part of a new international bail-out. Last week, two polls showed more than 50% of Greeks now believe the government is mishandling the talks.

Petros Efstathiou, a secondary-school teacher, voted for Syriza at the January 25th election. “I felt good at first...Alexis Tsipras [the prime minister] was standing up to the troika [the unpopular bail-out monitors from the European Commission; the International Monetary Fund; and the European Central Bank]. Our dignity had been restored.” But now Mr Efstathiou sees things differently. For the past two months, he has worried whether his salary will be paid, despite Mr Tsipras’s promises that pensions and public-sector salaries will take precedence over Greece’s creditors.

Greece's unemployment rate, which had fallen to 26.1% at the end of 2014, rose slightly to 26.6% in the first quarter. As for those who still have jobs, the government plans to impose an extra “wealth” levy on taxpayers with incomes of more than €30,000 ($33,600) a year. “I’m taking a German course this summer, then I’m emigrating,” says Andreas Andreou, a 24-year-old unemployed engineer. “I don’t want to stay in a country that could become less European.”

Some European officials wonder why middle-class Greeks have not yet started banging pots and pans outside parliament, as middle-class voters in Argentina have done to protest their government's economic incompetence. While such a shift in attitudes could render Syriza more accommodating, it might come too late to salvage any sympathy from Greece's European creditors—particularly the most important one, Germany. German leaders already took a hard line towards Greece when Syriza was elected in January, and the line has become progressively harder. Among the population, a majority favours a Grexit, according to polls.

As for the government, Wolfgang Schäuble, the finance minister, lost trust in his Greek counterpart, Yanis Varoufakis, months ago. Mr Schäuble is now said to believe that the euro zone might be made stronger, rather than weaker, by losing Greece. In his party, the centre-right Christian Democratic Union (CDU), and its Bavarian sister party, the CSU, many believe the same.

Even the centre-left Social Democrats, who are the junior partner in the governing coalition and have so far tread a softer line on austerity, are talking tougher. Sigmar Gabriel, the party’s boss, declared he was fed up after the talks broke down Sunday night. “The game-theorists in the Greek government are wagering away the future of their country and of Europe to boot,” he said, in a reference to Mr Varoufakis's academic specialisation.

The most powerful person in Germany, as is her wont, is still using more careful rhetoric. Angela Merkel, the chancellor and boss of the CDU, may have become the international personification of austerity over the past five years. Now, however, she appears to be more eager than many in her party to keep Greece in the euro zone. Her brainstorming sessions with the other G7 leaders in Bavaria last week appear to have increased her worries about the geopolitical risk that Greece could drift towards Russia or China after a Grexit. Mrs Merkel has the power to decide Germany’s ultimate stance in the negotiations. But Mr Schäuble will then be needed to help persuade the increasingly sceptical Christian Democrats to ratify any compromise in the Bundestag, where approval is no longer assured.

Many Greeks are no longer counting on Germany to come round. Amid fears that capital controls will be imposed if Mr Tsipras is unable to pull off a new bail-out deal, depositors have been pulling cash out of local banks. Since Syriza came to power, more than €30 billion has moved to accounts abroad, safe-deposit boxes and mattresses. Opposition politicians urge Mr Tsipras to make a deal quickly. “The longer we wait, the harder it becomes to recover,” says Stavros Theodorakis, leader of the small centre-left To Potami (River) party.

But Syriza dominates the government, and many of its hard-left MPs are prepared to defect rather than accept a deal along the lines demanded by the bail-out monitors. Some Greek businessmen even say they would welcome capital controls, if they served as the wake-up call the political system needs in order to change course. “Something dramatic has to happen to force the government to take decisions,” said a leading manufacturer who declined to be named. “Otherwise we may fall out of the euro by accident.”

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