Greece is the word that could sink Merkel
Published in Business Spectator (Melbourne), 29 August 2013
Ahrensburg is not the place where great political announcements are made. Usually, the small town in the North German state of Schleswig-Holstein does not generate any headlines relevant beyond the city boundaries.
But a federal election is around the corner, and so even places like Ahrensburg get to host high-profile visitors now and then. Sometimes they even have something interesting to say. And so last week, Ahrensburg – probably for the first time in its history – made the international news.
It was all thanks to a campaign visit by Germany’s federal finance minister Wolfgang Schäuble, who spoke to a small group of party loyalists. Some journalists were also in the room, and they were most surprised to hear what Schäuble had to say.
For months, the German government had been repeating its central mantra in the euro crisis: there would be no further bailout package for Greece and no haircut on Greece’s debt either. Once the current (second) bailout program ran out, the Merkel government claimed, all problems would be solved. Greece could then start refinancing itself on capital markets and even start repaying its enormous debt.
Considering that the Greek economy is still shrinking, unemployment rising and debt spiralling out of control, these claims were always a little hard to believe (New weeds choke Europe’s green shoots, August 15). But Merkel and her party were trying their best to pretend that the euro crisis was over, overcome not least thanks to Merkel’s glorious crisis management. The last thing Merkel needed was a debate on her euro policy, since this would only draw attention to the Alternative für Deutschland, a newly formed euro-sceptical fringe party.
This makes what Wolfgang Schäuble had to say all the more surprising. Almost in passing – and as if it were the most natural thing in the world – Schäuble told his audience that there would be a third bailout package for Greece and that Athens would continue to receive support beyond 2014.
Soon after reports of Schäuble’s unguarded remarks surfaced, the German government tried to limit the damage. He must have been quoted out of context; he probably didn’t say it as it was reported in the media. Unfortunately, a few days later, a recording of the event surfaced which confirmed that nothing had been taken out of context. Indeed, the finance minister had expressed very clearly that there would be a third package for Greece.
It was a major blow to Chancellor Merkel’s campaign for re-election, and it was inflicted on her by arguably Germany’s most experienced and cunning politician. Schäuble has been in politics for decades, holding high offices in parliament and government. This raises the question how such an amateurish mistake – telling the truth in an election campaign – could have been made.
There are two possible answers: either he really had a mental blackout and really forgot that he was speaking on the record, or he really meant what he said.
A slip of the tongue is highly unlikely. Schäuble may be 70, and he must be exhausted after steering his country through the euro crisis over the past four years. But he is also known for his discipline and strategy. To lose the plot like this would be a first for him.
If his remarks were no accident, then we may speculate about their purpose. It is well known that Schäuble and his Chancellor have a complicated relationship. She once replaced him as leader of the Christian Democrats and then she thwarted his ambitions to become Germany’s federal president. Tellingly, Schäuble and Merkel are still on surname terms with one another, which even in formality-obsessed Germany is quite an achievement, after having worked for almost a quarter century together.
But would that animosity be enough for Schäuble to actively sabotage Merkel’s campaign? It’s hard to imagine.
A much more likely explanation is that Schäuble, who still aims to keep his office in the next government, wants to pre-empt any accusations of electoral fraud. By hinting at the next Greek bailout before the election, no one could accuse him afterwards of breaking his word.
There is another, perhaps more plausible explanation for his behaviour. In the current German government, Schäuble is the most europhile minister. He is part of the old guard of his party that saw Europe and ever-closer integration as the final political goal of their life-defining project.
Merkel’s relationship with Europe and the EU is much more sober. She is passionate about America; she cares about the relationship with Germany’s eastern neighbours, such as Poland. But Merkel and the European Union has always been a business relationship, not a love affair.
By announcing the next Greek package before the election, Schäuble is manoeuvring Germany into his much preferred position of actively supporting closer European integration.
Whatever Schäuble’s motivations, he won. After a few days of first ignoring and then downplaying Schäuble’s remarks on Greece, Merkel grudgingly had to accept his position. Suddenly, not even Merkel rules out the next Greek bailout. For the sake of her credibility, she cannot do so any longer.
The Bundesbank has long predicted that Greece will need fresh capital. A majority of German economists agree, and judging by all available data, the next bailout is a certainty – only the size is still a matter of debate. As is the question whether beyond the bailout Greece will also need another partial debt relief. Now that her own finance minister has openly spoken about the next Greek package, Merkel would look stupid if she ruled it out categorically, only to agree to it after the election.
However, the Greek package may be Merkel’s least problem if re-elected. Ireland also looks likely to ask for more help, and Portugal is not far behind. It is also becoming clear that the first bailout for Cyprus, agreed earlier this year, will not be sufficient. Plus Europe’s planned banking union will be a costly exercise for German taxpayers.
Maybe Wolfgang Schäuble should campaign more in the Schleswig-Holstein province. There are more unpleasant truths he could reveal.