Brewing Conflict over Greece Germany's Finance Minister Mulls Taking on Merkel

Finance Minister Wolfgang Schäuble appears to have given up hope of a satisfactory outcome to the Greek crisis. Unlike the chancellor, he is willing to cut the rope on Athens. But will he dare to dig in his heels and defy Merkel?

DPA

By , René Pfister and


It was a dramatic week. One in which the rumors did the rounds that Finance Minister Wolfgang Schäuble was basically as good as gone; that he had fallen out with Chancellor Merkel and was planning a coup. Then, at the end of this turbulent week, Schäuble made a joke.

He left his office at 3:15 p.m. on Thursday and headed to the Chancellery. But before he left, he mentioned to his team that Merkel might finally be about to tell him what she has in store for him. "She's probably going to strip me of my mandate," he said. He paused briefly then laughed and said he was only joking. Of course Merkel wasn't going to throw him out!

Schäuble is extremely good at shrugging off conflict with gallows humor -- a gift that has served him well throughout his lengthy career. He is well aware that a handful of Social Democrats aren't the only ones talking about the widening rift in the government. Insiders who know Merkel well are saying the same. The chancellor has to answer one of the hardest questions she's had to face since assuming office, namely, should Greece be allowed to remain in the euro, or should the whole drama be brought to a spectacular close with a Grexit.

Merkel would like Greece to remain in the euro. Not necessarily at any cost, but she's prepared to pay a high price. Schäuble is not. He is of the opinion that a Greek withdrawal from the euro zone is in Europe's best interests. Which of them is the more intransigent? Merkel, whose popularity serves as the backbone of the EU? Or Schäuble, for whom there is considerable good will among members of parliament, fed up as they are with having to approve one bailout package after another?

Schäuble is convinced that Europe can only succeed if everyone abides by the rules and Greece is prepared to accept what he calls "conditionality," in other words, that credit depends on Greece respecting the terms of its creditors. Merkel basically agrees. But a Grexit could upset the financial markets, and then what? She is reluctant to risk looking like she prioritized national interests and undermined the founding principles of the EU.

His Own Man

It's an emotionally-charged disagreement that reflects the complex relationship between two politicians who do not completely trust one another.

Schäuble is something of an éminence grise in the German government: He became a member of parliament in 1972, when Merkel was preparing to graduate from high school in Templin. In 1998, as head of the CDU/CSU parliamentary group in the Bundestag, he made Merkel his secretary general, but then became enmeshed in the CDU donations scandal. Merkel succeeded him in 2000.

Although she's the one in charge, he intermittently makes it clear that he remains his own man; that he doesn't kowtow to anyone. Appointed finance minister in 2009, Schäuble remarked that Merkel likes to surround herself with people who were uncomplicated, but that he himself was not uncomplicated. He tends to be a little derisory about Merkel, admiring her hunger for power but deeming her too hesitant when the chips are down.

The euro crisis first drove a wedge between them in 2010, when they disagreed on the International Monetary Fund's contribution to the Greek rescue fund. Schäuble was against it, on the grounds that Europe should sort out its problems by itself. Merkel, however, was keen to enlist the help of a body that has clear criteria when it comes to offering aid, and which would therefore prevent the Europeans from making one concession after another. Merkel prevailed.

But they've now traded positions. Schäuble believes that enough concessions have been made to Greece and he's bolstered by the frustration currently rife in his parliamentary group over Merkel's strategy. It will be hard for Merkel to secure majority support if he opposes her, so her fate is effectively in his hands.

Both of them understand the stakes, which is why they are both at pains to keep their disagreement under wraps. Whenever he's asked if he has fallen out with Merkel, Schäuble likes to pull a shocked expression, respond with a barrage of insults and throw out terms such as "amateur economist" -- although this isn't necessarily as bad as it sounds, given that Schäuble describes himself as a "middling economist," at least in comparison to the "great economist" Yanis Varoufakis.

Turning to Euphemisms

When it got out that Schäuble had not been invited to a recent summit at the Chancellery of the Troika, made up of the IMF, the European Commission and the European Central Bank, his spokesman Martin Jäger played down the snub. Government spokesman Steffen Seibert, meanwhile, insisted that "the Chancellor and the Finance Minister have an excellent working relationship that is both friendly and trusting."

As it happened, Schäuble had engineered the summit himself at an earlier meeting of the G7 finance ministers in Dresden. Which isn't to say that he approved of it. His displeasure was noted at the Chancellery but met with bemusement -- after all, it is the Troika's job to reach consensus on dealing with Greece, a fact it feared the Finance Ministry had forgotten.

According to government insiders, Merkel's and Schäuble's spokesmen are now spending much of their time coming up with euphemisms to obscure their bosses' disagreement.

The conflict is not about differences in their respective assessments of the situation. Merkel's people can calculate the extent of Greece's problems exactly. It's a country that in 2012 had to spend over 17 percent of its GDP on pension payments -- a figure unsurpassed anywhere else in Europe. But Athens nonetheless refuses to makes cuts. Neither Merkel nor Schäuble believe that the privatization process is making any headway and are concerned that the Greek government's erratic policies are scaring off investors. The EU Commission has revised growth predictions for this year downwards from 2.5 percent to 0.5 percent.

Where they differ is when it comes to the consequences. Schäuble is well aware that he's the embodiment of the despicable German to most Greeks, and makes an effort to curb his trademark gruffness. When he was visited in Berlin last week by Varoufakis he began their meeting by presenting him with a gift of chocolate euros that he himself had been given by a reporter from a children's TV show. "Yanis, have this nourishment for the nerves," he said. "You're going to need it."

Refusing to be Blackmailed

But once the courtesies had been dealt with, it was down to business. Varoufakis listed his objections to the Troika's proposals for what felt like the zillionth time: No, pensions can't be cut; no, value-added tax cannot be raised as Greece's creditors are demanding -- oh, and Greece would like debt relief. Rather than agreeing to cuts to the tune of €5 billion, Varoufakis asked for a new round of aid, which Schäuble's experts calculated at some €30 billion. "We have a responsibility to Europe,Wolfgang," he told his host.

For his part, Schäuble listened patiently. But he essentially has no desire left to talk to Varoufakis. He's told his people that he feels too old to keep flogging the same dead horses. Moreover, Varoufakis no longer has much say in Athens now that Prime Minister Alexis Tsipras has begun negotiating with creditors himself.

There is nothing Schäuble hates more than being superfluous to discussions. So he told Varoufakis that he had no mandate to negotiate, nor did the chancellor. The Greeks could only talk to the Troika, he stressed, and a political decision could only be made if the Troika accepts the Greek proposals.

However, as far as Schäuble can tell, the Greeks show no signs of progress -- at least not to the extent he deems necessary. He believes that the Greek rescue only makes sense if there is a realistic chance that the country can get back on its feet. Schäuble is eager to rescue the euro, but not to rescue a country that has opted to live at the expense of others and thereby to jeopardize the currency.

Nor will he allow himself to be blackmailed, and in his eyes, that's exactly what Varoufakis' tireless reiteration of Germany's responsibility for keeping the EU together amounts to. After his meeting with Schäuble, Varoufakis gave a talk at the French Cathedral in the heart of Berlin, and called upon Merkel to make what he termed a "speech of hope" to the Greek people. To Schäuble's ears, the appeal sounded suspiciously like a call to pay up, already!

Good Cop, Bad Cop

Officially, the differences between Schäuble and Merkel are explained away as a reflection of their respective tasks. It's Schäuble's job to hold the purse strings and Merkel's to keep an eye on what's happening on the international stage. Will Putin be getting a foot in the door if the euro zone cuts the rope on Greece? Will the country turn into a failed state in the middle of Europe if it no longer has the euro?

This isn't just a matter of good cop, bad cop. Unlike Merkel, Schäuble doesn't need to worry about looking as though he doesn't care enough about Europe. He wrote the book on the EU, penning papers on how to intensify the union when Merkel was still only a freshly-minted member of the cabinet. She, by contrast, has often been confronted by accusations that her EU policy is austerity-driven and nothing else. In terms of Europe, she lacks Schäuble's street cred.

Within the ranks of the CDU, it's often been said that Merkel is squandering Helmut Kohl's legacy. But this is somewhat unfair, given that it was Kohl's often mawkish brand of politics -- that often neglected to do the math - that allowed the euro's built-in flaws. Merkel, on the other hand, turned European policy back into a national issue. She herself never harbored dreams of a European federation.

So far, Merkel has never been overly bothered about going down in the history books. But if she does end up hounding Greece out of the euro, the development will certainly be more than a footnote. Which is one possible reason for her hesitancy. She, not Schäuble, will be the one who has to deal with the inevitable criticism and attacks.

A Sinister Agenda?

That's why she's so annoyed with Schäuble. And he is suspected of having more sinister motives. Could he be out to destroy Kohl's legacy because he has been denied the opportunity to build on it himself? It's a stretch, to be sure, but the fact that many in the CDU are thinking in such Shakespearean terms suggests that they are keeping a close eye on Schäuble.

If he wanted to, Schäuble could easily drum up support for a rebellion against Merkel. In February, when the Bundestag voted to extend financial aid to Greece, over 100 members of parliament stressed it was for the last time -- and only voted in favor of the extension because Schäuble had made his position on Greece clear. Were he to give it the thumbs down, Merkel will have a tough time persuading her party otherwise.

A recent meeting of the CDU parliamentary faction illustrated the extent to which parliament is on Schäuble's side. The session would normally begin with the finance minister giving a brief summary of the state of negotiations with Athens, but this time he merely told his listeners that he had nothing to report. "The situation is the same as it was two weeks ago," he said. "There's been no change."

A wave of mirth went through the room, with parliamentarians laughing in agreement. They knew exactly what he meant: He had lost faith that the Greeks would find a sensible solution. But first and foremost, he was implying that Merkel's involvement had failed to move things along. Schäuble knows full well that the chancellor is not at liberty to bail out anyone as she sees fit. She has to take the IMF into consideration, as well as her counterparts in Germany's partner countries -- some of whom make Schäuble look like he's positively soft on Greece.

Merkel could see the effect of Schäuble's comment and chose not to respond with her own version of events. But she can only hope that he refrains from starting a rebellion. She knows how stubborn he is, but ultimately, he has always ended up toeing the line. He owes his longevity to his resilience. He put up with forever being Kohl's crown prince, and he put up with Merkel passing him over and appointing Horst Köhler president. The expectation in Merkel's circles is that he will now put up with her decision on Greece -- reluctantly, perhaps, but he will be loyal nonetheless.

There is much to back up this theory. "The finance minister needs to accept that the chancellor might not always agree with him," he said in the fall of 2009, shortly after he assumed office. But now that he will be turning 73 this September, he might no longer feel he needs to be as agreeable. Being obstinate, after all, is the prerogative of the elderly.

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nick_karamolegos 06/13/2015
1. Creditors' terms
On "Schäuble is convinced that Europe can only succeed if everyone abides by the rules and Greece is prepared to accept what he calls "conditionality," in other words, that credit depends on Greece respecting the terms of its creditors." What if the terms and conditions worsen the status of Greece? If, at the end, the process worsen the situation then it is not solidarity. Who evaluates the quality and the impact of the terms? In solidarity we have to estimate the end result in human terms also. It is not an accounting process.
fhssbs 06/13/2015
2. Merkel & Schauble
Mutti must come out of her cocoon of indecision and listen to Schauble backed by Alan Greenspan, George Soros and many others. The Greek absurdity has gone too far.
restlessboomers 06/13/2015
3. Merkel vs Schauble
Greece must severely reign in pensions and drastically reduce government as a whole if it wants creditors to continue to extend and pretend.
Gaius Baltar, USA 06/14/2015
4. Given that Schäuble does not understand economics...
...Why is he Finance Minister in the first place? Can't Germany find someone competent to fill the position? Schäuble must know that you cannot squeeze blood from a a turnip. He is not that stupid--I hope. The only way his hard line on Greece seems rational is by assuming he wants to drive Greece from the euro zone. BTW, Herr Schäuble, please discuss the austerity you forced upon the banks that aided and abetted Greece in hiding its true debt levels. Tell us how you ask nothing of Greece that you haven't asked of Deutsche Bank or Goldman Sachs.
carey.rowland.glasshalffu 06/14/2015
5. The finance ministers
In late January, my wife and I celebrated out 35th wedding anniversary with a vacation in Greece. Our flight from U.S. arrived in Athens the day before the Greek elections, in which the Syriza party was triumphant. So I followed the next week's political developments in Greece with newfound fascination. I surmised that Mr. Tsipras would be accepting quite a formidable challenge. His immediate appointment of the ebullient Mr. Varoufakis became a source of amusement for me. Since that time, I have read Mr. Varoufakis' book, the Global Minotaur, and have acquired some sympathy for the Greek predicament. Reading your above article this Sunday morning, here in the USA, I was pleased to catch a glimpse into the other side of the story. It is helpful for me, at last, to have put a human face on Herr Schauble. Now my meager yankee comprehension of this contest is, at least, a little better informed than before, and even perhaps a little more accurate. Thank you for a very informative article that is filled with human interest. Herr Schauble's assessment of himself as a "middling economist" had me laughing out loud.
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