The Greek crisis has pitted Athens against the rest of the eurozone. But Germany’s proposal for Greece to leave the euro has portended a deep split between two key creditors of the indebted country.
France brusquely dismissed the German ultimatum, revealing the potential for a serious rift between Paris and Berlin should moves to kick Greece out of the single currency succeed.
Responding on Sunday to proposals from the German finance ministry that Greece could be expelled from the currency union for five years if it is impossible to agree on a new bailout, the French president, François Hollande, declared there could be no temporary Grexit. His finance minister, Michel Sapin, mocked the German suggestion as “gallery entertainment”.
“There is no provisional Grexit. There’s Grexit or no Grexit,” said Hollande. “Or to put it simply in French, there is Greece in the eurozone or Greece outside the eurozone and that would be a Europe that is regressing, not advancing. I don’t want that.” Nonetheless, a Greek “time out” from the eurozone was still on the negotiating table on Sunday night.
The divisions among Greece’s eurozone creditors were evident elsewhere on a weekend of intense negotiations. For one creditor country, the conflict was internecine. This was evidenced by the behaviour of one eurozone finance minister on the “doorstep” – a curious Brussels media ritual where journalists camp outside the conference rooms to catch the politicians’ often banal remarks as they enter.
Alexander Stubb, the finance minister of Finland, is a doorstep devotee. Telegenic, media savvy, always the first and the last to tweet, Stubb is not known to shun the cameras, microphones and notebooks.
But on Saturday afternoon Stubb stayed stumm. He swept into the critical session of eurozone finance ministers from his car without a word. The reason was that in Helsinki, a “grand committee” of 25 MPs of the Finnish parliament was simultaneously taking a decision that would tie Stubb’s hands.
Timo Soini, the Finnish coalition’s foreign minister and nationalist leader, threatened to bring down the government if Finland doled out any more money to Greece. The Brussels meeting was to decide whether to negotiate a new third bailout worth up to €86bn (£62bn). Without it, according to the assessment of the European Central Bank and the European commission, Greece’s bankruptcy was very certain, the entire Greek banking sector would collapse, and “Greek citizens would suffer significant income losses”.
The sole purpose of the emergency meeting on Saturday, which lasted nine hours and broke up without agreement, was to decide whether to try to reach a deal with Athens on the new rescue package. But Stubb had no mandate to say yes to that. It was not even clear why he was present when the decision had already been taken in Helsinki.
That was one bombshell that exploded in mid-evening. The other sensation was Wolfgang Schäuble, the German finance minister. Long the eurozone’s leading fiscal hawk, he has regularly used the doorstep as a stage for his caustic and withering remarks on Greece. This time there was an even sharper, more hopeless edge to his predictions. The government of Alexis Tsipras in Athens, he said, had spent its six months in office “destroying hope in an incredible way”.
His officials then leaked a one-page German finance ministry paper which was seen by the French and the Italians as a brutal attempt to impose total surrender on Greece, almost gleefully. Schäuble is often mischievous. This time he was not joking.
The document dismissed the Greek reforms and cuts proposals, lauded by many, as woefully inadequate. It said the commission should be put in charge of supervising any new bailout in Greece and demanded that €50bn of prime Greek property assets be lodged in a trust fund outside the country, which would first serve as collateral for new loans and then be sold off for debt servicing.
“The existing risk of not concluding a new [bailout] programme should rest with Greece, not with eurozone countries,” said the paper.
If such draconian measures prove unacceptable to Athens, then Greece could stay in the EU but with its euro membership suspended for at least five years.
Schäuble, who went into the meeting declaring that there could not be a haircut on Greek debt because it was illegal under EU treaties, conceded in the paper for the first time that a writeoff of Greek debt was possible after all – but only if Greece was no longer in the euro.
The German paper was neither formally presented nor discussed during the nine hours of fraught negotiations. But it hovered over the meeting like a large primed weapon.
The Finnish bombshell, the German ultimatum and the Greek predicament combine to highlight how the euro crisis has shifted from a financial and economic disaster to a full-blown political crisis taxing the calibre of European leadership, by default most acutely in Berlin and in Paris.
In January, the Greeks reacted to five years of wrenching austerity by electing leftwing radicals who rejected eurozone and creditor prescriptions in the name of democracy while still requiring bailout funds.
But on the Baltic in April, in a mirror image of the Balkans, the Finns elected a rightwing nationalist government which – also in the name of democracy – declares it will not take part in any more bailouts. It is a catch-22 situation where the straitjacket of the euro regime is neither supple nor flexible enough to accommodate voters’ political and policy choices.
The euro’s budgeting rules and the ECB’s monetary stability mandate have long been seen as a one-size-fits-all problem denying diverging national economies the room to breathe. Since the debt crisis erupted in 2010, the response has been to enshrine austerity overall through fiscal pacts, debt brake rules, and a panoply of punitive options for sanctioning the miscreants and the recalcitrants.
These fiscal measures have not been accompanied by the creation of political mechanisms or instruments that would even begin to try to reconcile the conflicting wishes of Finnish and Greek voters sharing the same currency.
There have been half-hearted and half-baked calls for creating a separate eurozone chamber in the European parliament, for a new form of linkage between national and European parliaments. But they are going nowhere and in their recent big report on the future of the euro, the five presidents of the EU institutions kick the can down the road until 2025. Austerity is needed now. Democracy will have to wait.
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