February 17, 2012

Greek-German Relations Strained in Debt Negotiations

Athens' ire at 'sheer blackmail' rises over stiff austerity measures, war of words

Germany's get-tough attitude toward Greece, echoed by Austria, Finland and the Netherlands, has angered Greek officials who say they have done everything they were asked to do in order to be granted a second bailout by the troika of the European Union, International Monetary Fund and European Central Bank. Yet northern countries in the eurozone persist in their doubt and criticisms of Greece, and an already difficult situation has become even more fraught with emotion as the rhetoric escalates.

Reuters reported that late Thursday Athens managed to find extra cuts in its budget to satisfy additional demands by the troika. Yet things were far from decided, as a two-stage plan of granting, first, enough money to avoid default in March and second, an additional bailout in the wake of Greek elections was floated among eurozone ministers, as reported by AdvisorOne.

While on Friday Bloomberg reported that it appeared that Germany had backed off the two-stage plan, Austrian Finance Minister Maria Fekter was quoted saying, "The skepticism is especially strong among the triple-A states over whether Greece will be able to make it. The risk of a Greek insolvency is not off the table."

Additional criticisms were flying on both sides of the negotiation table and old resentments were on the rise, perhaps doing more to threaten the euro zone than disagreements over money. Twice in one week, German Finance Minister Wolfgang Schaeuble compared Greece to a "bottomless pit." And German officials called for greater external oversight of Greece's efforts to slash debt, as well as an escrow account to ringfence funds for debt payments.

Greek President Karolos Papoulias, an 82-year-old veteran of resistance both to Nazi occupation and a military junta between 1967 and 1974, responded to Schaeuble's comments, saying in the report, "I cannot accept Mr Schaeuble insulting my country. Who is Mr. Schaeuble to insult Greece? Who are the Dutch? Who are the Finnish?"

Already-angry politicians in Athens have said they have done everything they were asked to do, and Public Order Minister Christos Papoutsis on Thursday characterized the euro zone approach to "sheer blackmail." Protesters against austerity have already burned both German and Nazi flags at demonstrations in Athens. An anonymous Greek official was quoted saying, "We are starting to believe Germany wants to kick Greece out of the eurozone. Some recent German statements have been particularly provocative and offensive."

France has warned Europe not to push too close to the edge of a Greek default. French Prime Minister Francois Fillon warned Friday that EU officials should not "play with the default of Greece." He added, "The Greeks have promised very important reforms. The Europeans now have to keep their commitments."

Asked about a divergence in approach between France and Germany to the crisis, Fillon was quoted saying, "There is no divergence with the chancellor, who absolutely shares our positions, but we hear people sometimes in Germany express difference opinions ... within the

German government."

Chancellor Angela Merkel has repeatedly said that Greece will not be allowed to default, but Schaeuble has been far more critical, seeming to veer from the purely financial into political territory. He particularly angered Greece when he appeared to urge a delay in Greek elections with a comment that Italian Prime Minister Mario Monti has been granted a year to push through reforms by Italian parties.

That remark brought in return a rebuke from Greek government spokesman Pantelis Kapsis, who was quoted saying, "I have nothing to say in response to Mr. Schaeuble–it is absolutely up to Greece when to hold elections."

Italy, too, has concerns about Berlin's insistence on strict austerity for the southern nations of the eurozone as the solution to the debt crisis. One senior Italian official who did not want to be identified was quoted saying, "Are the Germans going to break down Europe for the third time in a century?"

Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, was quoted saying, "Germany appears to be hedging its bets: giving Greece a slim chance to stay in the eurozone while preparing the ground for its possible exit. We believe a tipping point has been reached beyond which Greece's membership of the eurozone is no longer deemed essential, or desirable for that matter."

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