Monday, September 10, 2012

Angela Merkel's change of heart on Greece

An article in Spiegel on September 10, 2012 describes how Angela Merkel has changed her mind on Greece and now wants to do everything within her power to avoid a Grexit. Merkel, the argument goes, had pondered the consequences of the eurozone losing one member and decided it would be unhelpful for her re-election prospects in 2013. Ever the pragmatist, the German chancellor is now prepared to accept Greece being given a bit more help, even if the Troika report into its finances is not favorable. Not a full third-bailout, but some tweaks to its existing programs
An excerpt from the article:
"Attentive observers already noticed the chancellor's apparent change of heart two weeks ago. Merkel, whose father was a pastor in communist Eastern Germany, has suddenly discovered a deep affection for the downtrodden people of Greece. She compassionately expressed empathy for "what many in Greece have to suffer," and said that "it does make one's heart bleed." Up until this point in time, Merkel and her finance minister, Wolfgang Schäuble, were seen as supporters of the "chain theory." According to this theory, the monetary union is a chain in which each individual country forms a link. Since Greece is the weakest link, if it leaves, as the theory has it, the chain will become stronger overall. But since this summer, the majority of Merkel's advisers have now become supporters of the "domino theory," which postulates that the monetary union would not become stronger if Greece exits. On the contrary: If Greece falls, one country after the other could then be in danger of toppling. Domino theorists argue that the impact on the economy, growth and employment would be catastrophic and incalculable. But one thing remains clear: If Greece falls, Germany will have to pay -- and the bill will come to almost exactly €62 billion ($79 billion). This is the colossal sum that the Greeks and their central bank owe the Germans. The entire amount would all have to be written off."
So, potentially an important change of policy in Berlin. If true, it could support the "muddle through" theory of how the euro crisis will play out (namely that Europe could bumble along with a new rescue plan here, some tighter political union here, as much austerity as can be tolerated, and avoid the system melting down). The word last month was that the White House was terrified of the eurocrisis flaring up before the presidential elections in November, and had begged euro leaders to prevent an early Grexit. Now it's the German elections that could affect Greece's fate. If important elections kept looming on the horizon, perhaps there'll never be a right time for a Grexit....
- The Guardian

No comments:

Post a Comment