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03/25/2010

The European Union got its own pastoral letter this week. At least that's what diplomats are jokingly calling the official invitation letter sent to them by the EU Council president to this week's European summit meeting. As in the pastoral letter sent by the pope, the leaders of the 27 EU member states are left perplexed not by what is in Herman Van Rompuy's letter, but rather by what is conspicuously absent. Namely, the word Greece doesn't appear a single time in the letter from the Council president describing the agenda of Thursday's summit meeting.

That's exactly what the German government had hoped for. For weeks, the government in Berlin has been arguing that talk of financial aid for faltering Greece should not dominate the summit on Thursday and Friday. Of course, it has been clear to Germany all along that it would be impossible to avoid the issue -- after all, European governments have been bickering for weeks over a possible emergency bailout package for the Greeks. But that's also why they don't want the discussion to be official -- a major scene on the public stage is exactly what they want to avoid.

But it remains unclear what channels will be used to hold those discussions. One possibility would be a joint dinner on Thursday evening, which is traditionally used to discuss current issues. A special summit of the 16 euro zone member states just before the start of the main summit, as Council President Van Rompuy has suggested, is also an option.

'This Can Only Be a Last Resort'

The German government is sticking to its hard-line political course, and officials are feeling increasingly affirmed in their political position.

Hours before the start of the EU summit in Brussels, Merkel told the German parliament: "A the summit today and tomorrow, the German government will push its view that any emergency support should come from a combination of the IMF and joint bilateral help from the euro zone. But again I say, this can only be a last resort." She said the most important thing at the summit is to agree to an emergency plan and coordinated procedures for dealing with a worst-case scenario. She warned that the European Stability and Growth Pact should not be weakened, and that European treaties should be altered to permit tougher sanctions for serial fiscal deficit offenders. "We must put an end to trickery," she said.

While acknowledging Germany's historical responsibility and the grave risk to other euro countries of a national insolvency, Merkel also warned: "A good European is not necessarily one who offers help quickly. A good European is one that respects the European treaties and national rights so that the stability of the euro zone is not damaged."

Initially, other euro zone countries feared that involving the IMF in a bailout for Greece would tarnish the sanctity of Europe's currency union and that it could open the door to the United States, the greatest political shareholder in the IMF, to take an indirect hand in euro zone fiscal policies -- a concern echoed by critics within Germany, including, reportedly, Merkel's own finance minister.

No Plans for Concrete Deal in Brussels

But German government officials have been conducting an intensive round of telephone diplomacy in the run-up to Thursday's summit, and there has been movement within recent days. Without offering anything more concrete, government representatives have spoken of positive "signals from a number of European capital cities," saying openness to an IMF solution is growing. At the same time, officials in Berlin would not confirm that Merkel and French President Nicolas Sarkozy, who generally tightly coordinate their positions before EU summits, have come to an agreement. "We have the feeling that we are increasingly moving in the right direction," the source said.

If, on the margins of the conference, a political statement is formulated that, for the most part, represents the German position, then Merkel is likely to sign it. For the time being, though, it is important to the chancellor that no concrete promise of financial aid be given to Greece. And government sources said there are no plans within the German government to reach an official deal at the Brussels summit. After all, the Greeks themselves continue to claim that they do not need any money from the EU at the moment. They are simply seeking to send a message to speculators trying to drive up interest rates and make it difficult for the troubled country to obtain credit needed to refinance its debt. They want the EU to make clear that it will never allow Greece to go bankrupt.

"Greece wants political support," German government sources said, "and it will be provided." But concrete pledges of aid are only being envisioned for a worst-case scenario -- under strict conditions and with more serious possibilities for imposing sanctions against each state in the mid- and long-term. This also includes Merkel's suggestion that the EU should be able to kick deficit repeat offenders out of the euro zone. But doing so would require a change in the EU treaties -- and undertaking that would take several years.

Germans Tire of Picking Up Europe's Tab

But it's already clear that Germany is no longer interested in carrying on in its role as the EU's paymaster. The government in Berlin sees the danger that an overly hasty agreement to provide direct financial aid to Greece would set a dangerous precedent that might motivate other countries in the wrong ways. The worry: Reform pressure in other countries would diminish and the move would reinforce the mentality in some countries that if worse comes to worst, they could turn to the EU for a handout, and that others would always be there to help.

The government in Berlin seems little concerned that other countries are now accusing Germany of economic nationalism. Instead, the government sees itself as the true protector of stability in the euro zone, the "trustee of the treaties." The debate over financial aid for Greece, they say, is a question of whether the EU is heading into a fiscal equalization, through direct aid, between countries that would violate the terms of the EU treaties. One could complete that sentiment by stating that Germany, as Europe's largest economy, does not want to be transformed into an ATM for other European countries with spending problems.

And even if the talk is of national interests, one should also take a close look at exactly who has put the German government under the greatest pressure in the last week, one high-ranking government official said, straight-faced. They include European Commission President Jose Manuel Barroso, generally known as a puppet to Merkel, foreign ministers Franco Frattini, Foreign Minister Miguel Angel Moratinos and, of course, a government leader named Giorgos Papandreou. The men originate from Portugal, Italy, Spain and Greece and lead what has been known as "Club Med" in the past, but has more recently been given the disparaging acronym "PIIGS" -- although Ireland, which also has problems, is also part of that group. They all have one thing in common: Their countries have massive budget difficulties.

Opposition Parties in Germany Criticize Merkel's Stance

Still, Merkel's hardline has also drawn criticism from opposition politicians in Germany. Alexander Ulrich, the European policy expert for the Left Party accused the chancellor of the "Westerwell-ization" of German foreign policy, a reference to German Foreign Minister Guido Westerwelle. "She is now doing to Greece what Westerwelle has done to Germany's unemployed: She's picking on the weakest and threatening them with ever tougher sanctions." Meanwhile, the head of the Green Party's group in the European Parliament, Rebecca Harms, said it was "shameful" that the issue of Greece isn't even deemed necessary to be included on the agenda of the EU summit. Harms accused the chancellor of populism and of fueling negative German attitudes towards aid to Greece.

In fact, public opinion polls show that the majority of Germans oppose direct aid for Greece. The fact that it now appears Merkel will succeed with her push in Brussels will merely strengthen support for her political leadership back home.

With her party, the conservative Christian Democrats, locked into perpetual battles with its junior coalition party, Westerwelle's business friendly Free Democratic Party, and the government coalition sinking in public opinion polls, the timing couldn't be better for Merkel in the run-up to an important regional election in the state of North Rhine-Westphalia in May.