The new year had barely begun when senior German politician Sigmar Gabriel wrote a letter to the boss, Chancellor Angela Merkel. The letter said Mr. Gabriel had been following the discussions about the Greek bailout program “with great concern." In particular, Mr. Gabriel was worried that the positions of the German finance ministry and the International Monetary Fund were so far apart it would be impossible for them to ever come to any agreement.
Basically, the letter from the senior Social Democrat, who is now Germany’s foreign minister but was economic affairs minister until the end of this January, was a complaint about the country’s hawkish finance minister Wolfgang Schäuble and his policy on Greece. In the missive, dated January 2, Mr. Gabriel called on the German government to "take on a constructive role."
Yet, four weeks later little has changed; Greek Prime Minister Alexis Tsipras has still not delivered the requested reforms, and it is still unclear whether the International Monetary Fund, or IMF, will be involved in the bailout package. Greece's largest daily newspaper, Ta Nea, is warning that the "nightmare of Grexit" is returning, with observers in Athens drawing parallels with the first half of 2015.
Some Greek politicians wouldn’t be unhappy with a Grexit either. The speaker for the left-wing Syriza party wants the Greek parliament to debate a return to the drachma.
Mr. Tsipras' strategy of confronting his country's financial backers drove it to the brink of bankruptcy, and he was forced to agree to an even harsher austerity program in the summer of 2015 to avoid financial ruin and obtain more loans.
Greece could face a similar situation this June if it needs fresh billions from the bailout program to pay for government bonds held by the European Central Bank, or ECB. The Greek government says it is aiming for growth of 2.7 percent in 2017, but economic research institute IOBE anticipates growth of only 1.5 to 1.8 percent. Weaker growth would make further budget cuts necessary, which could further curb economic growth, creating a vicious circle.
Greece has so far implemented only a third of the reforms required for the second review of its bailout program. The mood in the country is low, with surveys showing that eight out of 10 citizens are unhappy with the government.
German finance minister Mr. Schäuble, a member of Ms. Merkel's center-right Christian Democratic Union, believes only maximum pressure will help force the Greek government to implement reforms, and that an escalation of the crisis must be risked if necessary. Mr. Gabriel, chairman of Germany's Social Democratic Party, wants to defuse the situation through compromise. He suspects Mr. Schäuble is deliberately drawing out negotiations in order to achieve what he was aiming for in June 2015: Greece's exit from the euro zone. Politicians in Athens have also accused the German finance minister of sabotaging the rescue program.
Sources close to Mr. Schäuble insist he is not trying to bring about a Grexit, as he knows Ms. Merkel is opposed to this and does not want to cause problems in the middle of her party's national election campaign. However, it is thought that Mr. Schäuble will push for another showdown in the hope of obtaining concessions from Mr. Tsipras. The German finance minister has imposed tough savings targets on Greece, insisting it must achieve a primary budget surplus equivalent to 3.5 percent of gross domestic product for the next 10 years.
But even the IMF believes this target is unrealistic, and has so far refused to cooperate on the new rescue program. Mr. Gabriel suggested in his letter to Ms. Merkel that a possible consensus could involve "limiting the primary surplus of 3.5 percent to three years." He added: "This could then be reduced without the need for a debt haircut."
Mr. Gabriel received a reply to his letter not from the Chancellor but from Mr. Schäuble himself, who rejected Mr. Gabriel's proposal that demands be softened. The lower they were, he said, the greater the need for debt relief would be.
Mr. Schäuble is keen to keep the cost to other euro-zone countries down; he knows how unpopular he would be in Germany if he granted Greece relief on loans paid to date. A rule of thumb used by the finance ministry is that if Greece achieves a 3.5 percent surplus for only five instead of 10 years, the country's financing requirements will increase by €100 billion ($108 billion).
The finance minister believes Mr. Gabriel's concessions would be counterproductive and claims the ministry of economic affairs has fallen victim to Greek rhetoric. At meetings of European finance ministers, the Greek finance minister Euclid Tsakalotos has himself called for the 3.5 percent surplus to apply for only three years .
The SPD has other reasons to suspect Mr. Schäuble is actually aiming for a Grexit. In two interviews, he outlined what a bailout without the IMF could look like, saying the European Stability Mechanism, or ESM, could be involved instead. This did not go down well with the Chancellor or her party, and its sister party, the Christian Social Union.
Some Greek politicians say they wouldn’t be unhappy with a Grexit either. Nikos Xydakis, speaker for the left-wing Syriza party, says he wants the Greek parliament to debate a return to the drachma, even though polls suggest that two out of three Greeks want to hang on to the euro.
International lenders have admitted the confusion Mr. Schäuble has caused has been successful in one respect: The European Commission, regarded in Berlin as sympathetic to Greece, is said to be increasing pressure on Athens, too. According to reports, Brussels is not keen on Mr. Schäuble's scenario of a fourth bailout program, featuring the ESM in a larger role, to become reality.
European finance ministers presented a united front at their last meeting, with only France continuing to support Athens – and as has been pointed out, after the upcoming French elections, nobody knows whether this support will continue. Mr. Schäuble, meanwhile, can still play for time. He believes Athens will begin to react when the money starts running out – that is not until June. So Mr. Schäuble is betting on the fact that to avoid bankruptcy, Mr. Tsipras will agree to the budget target of 3.5 percent and push all necessary cost-cutting measures through parliament.
The IMF can then participate in the bailout plan, as Ms. Merkel had promised. Even if the plan works up to that point, however, one problem remains: The IMF believes it will be imperative for Europe to offer debt relief, even if Greece does meet the strict savings targets. The IMF’s European director, Poul Thomsen, apparently made this clear during a visit to Berlin this week and will take that message to the IMF board on Monday. But he can't be too positive about it – because that too, is something Mr. Schäuble refuses to agree to.
Martin Greive is a correspondent for Handelsblatt based in Berlin. Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin and is deputy managing editor of Handelsblatt’s Berlin office. Gerd Höhler is a Handelsblatt correspondent based in Athens, Greece. To contact the authors: [email protected], [email protected], [email protected]