June 18, 2015
Germany’s chancellor Angela Merkel said an agreement to resolve Greece’s five-month stand-off with bailout creditors remains possible if its leaders show the will to implement structural reform.
Speaking hours before eurozone finance ministers are due to hold crunch talks on Greece’s bailout, Ms Merkel said in the German parliament on Thursday that Germany’s goal was to keep Greece in the euro.
Unless Greece agrees economic reforms with its creditors by the weekend, officials believe time will run out for Athens to receive a desperately needed €7.2bn remaining in its bailout programme before it expires in two weeks.
Without the funds, the government will probably default on its debts, a move that the country’s central bank has warned would trigger a “painful course” leading to exit from the eurozone and “most likely” from the EU.
Yanis Varoufakis, Greece’s finance minister, said on Wednesday he does not expect to reach a deal at the meeting in Luxembourg on Thursday evening, adding that only heads of government could break the deadlock.
The German chancellor told legislators, many of whom are sceptical about further aid to Greece: “We are convinced — where there’s a will there’s a way. When the politicians in Greece muster this will, then an agreement with the three institutions is still possible.”
She added that the single currency was a crucial emblem of the European project. “The decision to have a single currency in Europe stands symbolically for the idea of European unity like no other European decision,” Ms Merkel said.
Michel Sapin, France’s finance minister, stepped up the alarmist rhetoric on Thursday, saying it would be a “complete catastrophe for Greece” if it left the single currency.
“Greece has been insolvent for five years,” Mr Sapin told France Info radio. “It survives thanks to European taxpayers. But if it were to leave the euro, that would be a complete catastrophe for Greece.
“It’s the European project that would be affected. We are not here to lose eurozone members but to enlarge their number.”
Germany’s finance minister Wolfgang Schäuble is among those who doubt whether Athens will deliver the reforms needed to stay in the euro.
The Bundestag would have to be called back from a week’s recess, which begins on Friday, to approve any new Greek deal.
The lower house of the German parliament approved an extension of the Greek bailout in February but 29 members of Ms Merkel’s conservative alliance voted against and three abstained.
While Ms Merkel held out hope of agreement, she chided Greek politicians. To applause, she said: “Greece has constantly delayed several essential structural reforms.”
These reforms are not just intended to satisfy the conditions of Greece’s bailout, but are prerequisites for a sustainable recovery, she said.
Ms Merkel said that Greece had benefited from European solidarity in “unparalleled measure”, but contrasted the country with Ireland, Spain and Portugal, which she said had successfully implemented reform.
Jens Weidmann, the president of the Bundesbank, signalled the European Central Bank should withdraw all support for Greece should Athens fail to repay its debts to the International Monetary Fund which fall due at the end of this month.
Mr Weidmann said in an interview published on Thursday, which took place last Friday: “If the political discussions fail, the ECB will have no other option but to take appropriate action.”
The ECB’s policy makers on Wednesday sanctioned an increase in the amount of emergency loans the Bank of Greece can provide to the country’s lenders, raising the ceiling on emergency liquidity assistance from €83bn to €84.1bn.
But the central bank’s willingness to provide a lifeline to the Greek banking system is expected to change should the Syriza-led government renege on a commitment to honour its debts to its international creditors, such as the IMF.
Mr Sapin’s warning echoes that made by Greece’s central bank on Wednesday, which urged the country’s leaders to agree to a deal offered two weeks ago or risk an “uncontrollable crisis” that could force Athens out of the EU.
The unprecedented statement, issued as part of a regularly scheduled report from the Bank of Greece, marks the first time any Greek authority has publicly broached the possibility that the country could face ejection from the 28-country club it joined in 1981, seven years after its return to democracy.
It was also a severe blow to a week-long effort by Alexis Tsipras, the Greek prime minister, to shore up domestic support for his brinkmanship tactics against his country’s creditors, whom he has accused of “pillaging” Greece and of “criminal responsibility” for the country’s economic plight.
The Syriza government faces resistance to its plans to tackle the country’s huge debt burden
Despite the warning, there were no signs Mr Tsipras was backing down. The premier insisted that he would continue to resist cuts to public-sector pensions that are being demanded by creditors, adding he was prepared to take responsibility for a failure to reach a deal.
“If we don’t have an honourable compromise and an economically viable solution, we will assume the responsibility to say ‘the great no’ to a continuation of the catastrophic policies,” Mr Tsipras said.
On Thursday the prime minister wrote in the German newspaper Der Tagesspiegel that the Greek social security system was “unique” in that it was the “institutionalised mechanism of intergenerational solidarity, and its sustainability is a main concern for society as a whole”.
“The pensions of the elderly are often the last refuge for entire families that have only one or no member working in a country with 25 per cent unemployment in the general population, and 50 per cent among young people,” he wrote.