Merkel’s incredibly stupid New Year Grexit bluff

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It’s understandable why German chancellor Angela Merkel doesn’t want to cut any deals with Greece — no matter who wins the snap elections later this month.Greece Flag IconGermany Flag Icon

Making concessions, especially to a far-left, anti-austerity figure like potential prime minister Alexis Tspiras, could embolden every recession-weary country from Portugal to Romania to demand relief from Brussels and Berlin, and it could give substantive figures on the European left, including Italian prime minister Matteo Renzi, French president François Hollande and even German social democrats in Merkel’s own grand coalition, a platform to doubt the Berlin-dominated approach to fiscal policy throughout the eurozone.

According to Merkel (pictured above, right, with incumbent Greek prime minister Antonis Samaras) and much of the German electorate, the troika of the European Commission, the European Central Bank and the International Monetary Fund has already been too soft on Greece, lowering the interest on over €240 million in bailout funds and extending the repayment schedule.

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RELATED: What to expect from Greece’s January 25 snap elections

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Nevertheless, it’s incredible that Merkel and her aides take such a cavalier attitude to a potential Greek eurozone exit, which they apparently haven’t ruled out in the event that Tsipras’s leftist SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς) wins national elections in 18 days. Three years after ECB president Mario Draghi promised to do ‘whatever it takes’ to save the eurozone, Merkel now believes that Greece is expendable, that the eurozone is no longer subject to the domino theory that would make a ‘Grexit’ calamitous and that the eurozone is now governed by a chain theory that suggests a Greece-less eurozone will be rid of its weakest link.

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It may be smart domestic politics in Germany, where the anti-euro Alternative für Deutschland (Alternative for Germany) is gaining support on Merkel’s right flank in both state and federal politics, but it’s an incredibly tin-eared intrusion three weeks before Greeks vote. It certainly won’t help the beleaguered coalition government of center-right, pro-bailout prime minister Antonis Samaras, whose New Democracy (Νέα Δημοκρατία) narrowly trails SYRIZA in most polls. Greeks already realize that a vote for Tsipras (pictured above) brings with it greater uncertainty, so Samaras has some hope that the electorate will have doubts about handing power to SYRIZA. He certainly doesn’t need Merkel to make that point for him. 

Every time that Merkel, the symbol of much of Greece’s imposed-upon austerity, speaks about Greece between now and the election, it can only help send voters into the arms of SYRIZA — or worse, clinging to the neo-facsist, ultranationalist armbands of Golden Dawn (Χρυσή Αυγή).

Even if Merkel truly believes that the eurozone is in less danger today than it was in 2012 at the time of the last pair of Greek elections (the country held a second one after the first one failed to yield a working majority coalition), that thesis might not hold up in a few weeks’ time.

What happens if Tspiras becomes prime minister and the threat of ‘Grexit’ becomes a global headline for a week? It’s easy to dismiss contagion fears today, when global investors have barely returned back to their offices from the holidays.

But what happens when Italian and Spanish yields rise to 7% or 8% or higher?

When Portugal all of a sudden requires a second bailout?

When investors also start wringing their hands about French economic ennui or Belgian political dysfunction or the uncertainty of a UK referendum on EU membership and bond yields start rising in countries far from the unemployment-plagued Mediterranean?

When investors start worrying again that the European Union has no rulebook for the eurozone’s breakup or for Greece’s return to the drachma?

When investors worry that new eurozone members like Latvia and Lithuania, to say nothing of Cyprus and others, are one financial crisis away from eurozone exit?

When Russia or China start making overtures to Greece, including possible debt relief, just to test the geopolitical stability of NATO and the European Union? Though both countries are enduring economic downturns, the financial costs of floating the Greek treasury pale in contrast to the strategic possibilities for Russia or China.

That’s all against the backdrop of a eurozone battling back a double-dip (or is it triple-dip) recession and the threat of deflation, which Draghi is desperately trying to combat with aggressive US-style bond-buying ‘quantitative action,’ if only Jens Weidmann, the inflation-hawk president of Germany’s central bank, the Bundesbank, would let him.

Not to worry, Merkel and her allies say, Tsipras has no leverage, and there’s no room for negotiation.

That’s so ridiculous because Greece’s next government is going to have to negotiate with the troika, including top EU officials and member-state leaders like Merkel and finance minister Wolfgang Schäuble. Greece is scheduled to exit its bailout program in February, but will still need to secure a €22 billion loan to cover its costs in the 2015 and 2016 budgets. Realistically, neither Tsipras (or Samaras or any Greek leader) nor the troika has an unassailable upper hand in those negotiations.  

It might have helped Merkel’s cause (and Samaras’s) if she hadn’t delivered such a lopsided deal to Samaras just weeks after his election in June 2012.

It would also help if Tsipras and SYRIZA were actually as radical as their detractors say. Under economist spokesperson George Stathakis, the opposition’s economic program has become remarkably sane, much more so than in 2012. Tsipras doesn’t want to leave the eurozone, and he doesn’t want to backtrack completely from fiscal discipline or even, completely, from the kinds of austerity measures that Greece has endured for the past half-decade. SYRIZA is calling for a balanced budget, in contrast to the 4% or 5% primary budget surplus planned under the current government’s budget. Though Tspiras’s demands for a 50% haircut of Greece’s debt and a 60-year repayment plan are probably best considered ‘starting points’ for talks rather than ‘red lines,’ both ideas follow from the reality that neither Merkel nor Samaras have publicly acknowledged — notably, there’s no way that Greece, even as it begins to post GDP growth for the first time in six years, will be able to service its staggering debt in the decades ahead.

That all, of course, depends on Greece electing a prime minister. If Golden Dawn, treated by both left and right as untouchables, increases its representation in the Hellenic Parliament, it will become more difficult for either Samaras or Tsipras to build a 151-member majority.

Samaras’s junior partner in government, the traditionally center-left  PASOK (Panhellenic Socialist Movement – Πανελλήνιο Σοσιαλιστικό Κίνημα) is split between two competing factions, a pro-bailout group led by deputy prime minister Evangelos Venizelos and an anti-bailout spinoff led by former prime minister George Papandreou. It realistically means that neither group could meet the 5% threshold to win seats in the Hellenic Parliament.

On the left, SYRIZA itself is a coalition of disparate parties, and the pressures of governance could easily cause a Tspiras-led government to crumble. But before it gets to that point, even if SYRIZA narrowly wins the election and takes the 50-seat ‘winner’s bonus,’ it might be hard-pressed to find allies, especially if voters punish Fotis Kouvelis and the reeling Democratic Left (DIMAR, Δημοκρατική Αριστερά), which joined Samaras’s coalition in 2012 and left it in 2013. That would leave SYRIZA potentially dependent upon the unpredictable and unreliable Communist Party (Κομμουνιστικό Κόμμα Ελλάδας), hardly a great result for Greece or for Merkel.

It’s easy to bluff today, when no one’s focusing on the eurozone’s pressures. By February, if Greece is facing a Tsipras administration or inconclusive coalition talks, Merkel isn’t likely to be as flippant — and may come to regret intruding in such a close election.

Germans don’t hesitate to mention that Greece fraudulently fudged its way into the eurozone in 2001. But it’s also true that German and other European leaders didn’t stop Greece from joining, either. Now that it’s been a part of the eurozone for 14 years, it’s impossible for Merkel to pretend that Greece’s failure won’t boomerang on the rest of the eurozone.

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