Post-Athens After Greece, Merkel Looks Ahead

For months, tiny Greece has monopolized much of Angela Merkel’s time and energy. Once she gets past the Bundestag vote on Wednesday, can she finally turn to the many other pressing issues?
Chancellor Angela Merkel will be hoping to look beyond Greece in the coming months.

In all likelihood, Angela Merkel would dearly love to avoid a massive party rebellion this Wednesday, when the Bundestag votes on the third Greek bailout in five years.

Back in July, 60 of the lawmakers in both her Christian Democratic Union and their Bavarian allies, the Christian Social Union, voted against even opening up negotiations with Athens over a third bailout. Another five abstained.

Many in her party simply question the wisdom of throwing more money at a Greece they feel has for years failed to follow through on the reforms that were the condition of the almost €240 billion (or $266 billion) Athens has received in two bailouts since 2010.

Yet, regardless of how many of her own party reject the bailout, it is all but guaranteed to pass. Merkel's party, as well as her junior coalition partners, the Social Democrats, and the opposition Greens, will vote in favor of the package.

The chancellor must be hoping that with the vote, the Greek issue will finally be put to rest, and she and her ministers can have some relief from constant summits and conference calls.

And the German chancellor has no shortage of other issues to worry about, from the increasingly unstable situation in Ukraine, deteriorating relations with Russia, the huge increase in those seeking asylum in Germany, to the pursuit of a binding agreement at the upcoming United Nations climate change conference in Paris.

But the issue of keeping Greece in the euro zone has consumed a disproportionate amount of time and energy from Ms. Merkel and other European leaders.

I believe that after weighing all the issues, it is the right decision. Wolfgang Schäuble, German finance minister

Within Germany, her battle for a third bailout package for Greece has been controversial and, among her own hard liners, unpopular.

Ms. Merkel has had to use up quite a bit of her own political capital to persuade reluctant euro-zone partners and her party that keeping Greece in the euro zone made sense.

The months of uncertainty and bickering have sapped energy and good will in the European Union, as the radical left Syriza party coalition in Greece fought tooth and nail to end the yoke of austerity mandates imposed by creditors.

It was only in July that the Greek prime minister, Alexis Tsipras, capitulated, after realizing that the lenders – the European Union, the European Central Bank and the International Monetary Fund – were serious about letting Greece leave the euro zone rather than ease its bailout conditions.

The country has now signed up to a slew of new tough austerity and privatization measures in exchange for a €86 billion bailout over the next three years.

With €13 billion due to be disbursed on Thursday, to avoid the latest repayment crisis, the country will be able to meet a looming ECB repayment of €3.4 billion.

For the debt crisis issue to finally be put to bed, however, Ms. Merkel will need to see Greece actually implement its reform program as promised. The IMF, a key lender, must also commit to participating in the third Greek bailout, which it hasn't done yet.

That has long been a red line for the chancellor and her finance minister, Wolfgang Schäuble, the defender of the zone's austerity-driven negotiations with Greece.

The IMF's existing financial support program for Greece is to run out in March 2016. The IMF has said it will wait until October's review of the bailout program’s implementation measures before deciding over the third bailout package.

The IMF director, Christine Lagarde, has insisted Greece get some form of debt relief. That is a taboo topic in Germany, and to avoid a last-minute resurgence of the Greek issue, Ms. Merkel will have to persuade Ms. Lagarde.

In the meantime, the first €26 billion tranche of aid going to Greece under the third program is only coming from the European bailout fund, known as the European Stability Mechanism.

Many lawmakers in Ms. Merkel's CDU are uneasy about this.

They regard IMF participation as essential to saving Greece, and worry about voting in favor of the bailout now before the issue over the IMF's support is clarified.

The CDU leadership has been trying to persuade reluctant lawmakers that the IMF will get on board eventually.

On Monday, Mr. Schäuble sent an e-mail to all the lawmakers representing the CDU and the CSU, which included the language of the legislative bill to be voted on by parliament on Wednesday and other documents related to the bailout.

Mr. Schäuble asked lawmakers to back the government and sought to reassure the doubters.

In the e-mail, the finance minister said that he was optimistic that the IMF would participate in the third Greek bailout. He had “a positive evaluation of the reforms, whose formulation the IMF also worked on.”

Back in July, Mr. Schäuble had still been highly skeptical of the wisdom of another bailout for Greece. At a key summit he even brought up the possibility of a temporary exit from the euro zone.

However, Mr. Schäuble has since come round, convinced by the tough reforms that the Greek parliament passed last week, which promise more austerity and long-awaited privatization efforts of infrastructure such as airports.

These include measures to cut the budget and improve the taxation system, as well as pension and health system reforms, improved competitiveness on the product markets, the opening up of professions as well as the reversal of some measures introduced by Syriza since coming to power in January.

They have impressed the German finance ministry, from which one source said were like “an Agenda 2010 only much more comprehensive,” referring to the tough welfare and labor reforms introduced by previous German chancellor, Gerhard Schröder, over 10 years ago.

The replacement of the charismatic Greek finance minister, Yanis Varoufakis, with the far more conciliatory Euclid Tsakalotos in early July, has also helped smooth things over.

The issue of asylum could be the next major European project, in which we show whether we are really able to take joint action. Angela Merkel, German Chancellor

Furthermore, Mr. Tsipras has pushed through the measures in the face of fierce opposition from the hard-left of his Syriza party. He will probably have to call a confidence vote soon, which will likely lead to a split in his party and new elections. That could result, however, in a more stable government that is willing to push through the bailout conditions.

It would appear that some measure of trust between Greece and Germany has been restored.

And Mr. Schäuble appears to feel that Greece really has a chance of turning the economy around and so will be capable of paying back the loans.

“I believe that after weighing all the issues, it is the right decision,” Mr. Schäuble told public broadcaster ZDF on Monday.

The question is whether the IMF feels the same. Christine Lagarde has already said that Greece’s debt burden is unsustainable. A recent E.U. study forecast that by 2016 its debt would be 201 percent of GDP, something the IMF considers unsustainable.

Ms. Lagarde wants to see Greece offered some form of debt relief before she will greenlight further loans. While Germany’s opposition means it is unlikely Athens will get a haircut, there is already talk of stretching the maturities to up to 60 years, which should provide some breathing space to Athens.

And there is also the issue of ownership. While Greece has agreed to the tough bailout, Mr. Tsipras has always insisted that he has no choice, that effectively it was forced on him by the lenders. There are some doubts that this ambivalent attitude will then translate into full implementation.

Nevertheless, when it comes to Wednesday’s Bundestag vote, the CDU leadership will be hoping Mr. Schäuble’s endorsement will sway many dissenters.

“What counts in the Bundestag (much more than the IMF) … is the endorsement of Germany’s most popular politician, Finance Minister Wolfgang Schäuble, who single-handedly guarantees support from a number of skeptics within CDU/CSU,” Carsten Nickel of Teneo Intelligence, in London, wrote in a research note.

A resolution of this issue would be good news for Ms. Merkel, who is due to celebrate 10 years in power on November 22.

So far, despite the fact that the majority of Germans do not support the Greek bailout or believe the Athens government will implement it, they still back the chancellor.

Her approach to Greece has been consistent with how she approaches most political issues. She muddles through and finds a solution based on small steps, while making vague promises about a positive future outcome.

This goes down well with the electorate. The fact that the economy is relatively strong also doesn’t hurt.

The biggest issue domestically is immigration and asylum, with around 300,000 refugees already seeking asylum in the country this year. The government expects up to 750,000 to have applied for asylum by the end of 2015. Germany feels that other E.U. countries need to do more to share the burden.

Over the weekend she said that the refugee issue should “preoccupy Europe much, much more than the issue of Greece and the stability of the euro.”

"The issue of asylum could be the next major European project, in which we show whether we are really able to take joint action."

She has so far failed to persuade her E.U. colleagues to come up with an effective common asylum policy.

Yet her own popularity rating is high at just below 70 percent, although Mr. Schäuble’s tougher stance on Greece has seen him eclipse her recently in the popularity ranks. More significantly the most recent opinion poll has the CDU/CSU at 43 percent, which could theoretically give them an absolute majority in parliament.

As such, the 61-year-old would cruise to a fourth term in office in the 2017 elections, if she decides to run, which is seen as highly likely.

Yet, her legacy and reputation could be bruised by any backsliding in Greece.

It is probably only by October, with the first review of the bailout and the subsequent IMF decision, that she can finally put the Greek problem to rest and concentrate on all the other challenges that face her.

Siobhán Dowling covers German politics for Handelsblatt Global Edition in Berlin. Donata Reidel, who covers economic policy for Handelsblatt from Berlin, contributed to this piece.  To contact the author: [email protected]