When Greece is locked in bailout talks with its international creditors, there are only two German politicians that markets seem to pay attention to — finance minister Wolfgang Schaeuble and of course, Chancellor Angela Merkel.
But it seems there’s a split between the two on the best approach to the Greek situation. According to German newspaper Die Welt, Merkel is still unwilling to really consider the idea of a Grexit (Greek exit from the eurozone).
Schaeuble, on the other hand, sees acceptance of a possible Grexit as an important bargaining tool for Germany and the rest of the eurozone. If Grexit is ruled out, he things that gives Athens too much of a powerful negotiating stance.
According to the report, that’s one of the reasons that Schaeuble sees the inclusion of the International Monetary Fund (IMF) in negotiations as important. The Fund is more used to taking a touch line against its borrowers, whereas the European Commission is thought to be more preoccupied with keeping Greece in the euro, and willing to give away a more generous deal.
The leaked deal proposals that we saw nearly two weeks ago would tend to reinforce that line — the proposals which reportedly came from the European Commission were relatively vague and noncommittal on reforms, the opposed of what Schaeuble and the IMF would want.
Merkel also has to deal with her own restless political party, many of whom favour Schaeuble’s stern stance. Reports at the time of the tentative February agreement that Greece would continue its bailout suggested there was very strong opposition against it within Merkel’s Christian Democrats. Though the Chancellor has managed to get them to toe the line so far, that’s not guaranteed forever.
Die Welt reports that Merkel is backed by the German foreign ministry, which aligns with reports that Merkel will paint any deal with Greece as necessary for European security. A May 19 Bloomberg article suggests she will make the geopolitical instability of a southern part of Europe splitting off from the bloc a major part of her argument for an agreement. Here’s a snippet from that report:
Merkel would hold the speech after Greece and its creditors agree on a deal with conditions she deems strong enough to sell to parliament and the German public, according to two government officials. She would argue that a Greek exit from the euro area would risk causing geopolitical instability in the region, said the officials, who asked not to be identified because the discussions are private.
That approach may be more convincing to sceptical German conservatives than appeals to pan-European solidarity. But to get to that point, either Athens or the international institutions still need to make major compromises on issues like pension reform. If that doesn’t happen, Grexit could occur no matter who wants it.
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