Endgame Power Struggle in Brussels and Berlin over Fate of Greece
European Commission President Juncker wants to keep Greece in the euro zone, no matter what the price. Member states, though, are beginning to lose their patience. Who will ultimately have the final say?
Jean-Claude Juncker understands the importance of symbols in politics. When he became president of the European Commission last fall, he surprised the political powers that be in Brussels with a mini-coup. One of the privileges reserved for the new head of the European Union executive is that of promoting a close confidant to be his spokesman. After all, the position of spokesman is crucial for ensuring that the Commission president is seen in a positive light.
But Juncker tapped a man named Margaritis Schinas, a 52-year-old lawyer from Thessaloniki who had until that moment been just another in the unremarkable army of bureaucrats that walk the Commission halls in Brussels. Even today, Schinas remains astonished at his huge promotion. What made him, a rather reserved bureaucrat, qualified to explain the daily work of the Commission to journalists from around Europe and the world? But for Juncker, the gesture was the important thing. He wanted to show that oft-reviled Greece was a crucial part of the European Union.
It was a farsighted decision, that much can be said today. In Brussels, the endgame over Greece's continued euro-zone membership has begun. Greek Prime Minister Alexis Tsipras is trapped between his campaign promise to put an end to EU-imposed austerity and his rapidly emptying state coffers. Meanwhile, his government's tone has become increasingly shrill. Most recently, Justice Minister Nikos Paraskevopoulos threatened to auction off the Goethe Institute in Athens in accordance with his government's demands for World War II reparations from Germany. And this Thursday, the Greek government lodged an official complaint with Berlin, accusing Finance Minister Wolfgang Schäuble of insulting his Greek counterpart.
Acts of Desperation
They are acts of desperation. In recent weeks, the European Central Bank once again tightened the thumbscrews on Athens and is only approving small amounts of money at a time. At ECB headquarters in Frankfurt, officials have begun speaking more or less openly about the looming Grexit.
Now, Juncker has become Tsipras' last hope. Last week, the Commission president made clear that Greece's departure from the euro zone is out of the question. "The European Commission's position is that there will be no Grexit," he said in an interview with the German weekly Welt am Sonntag.
On Friday, prior to a meeting with Tsipras in Brussels and in the context of Greece's possible departure from the common currency union, Juncker said, "I am totally excluding failure." The comment pleased Tsipras, who said later he was "optimistic," because he was discussing Greece's future with good friends. The politicians then agreed during a two-hour meeting that the government in Athens would appoint a high-ranking politician to handle the coordination of Greece's cooperation with the European Commission.
The Greek government also wants to set up a task force of its own to serve as a partner to a similar body on the Commission, which has been providing development aid to Greece for several years now. "The moment has come -- parallel to the Euro Group process, we have to establish this track to help with jobs and growth in Greece," Juncker spokesman Schinas later said, describing the goals of this cooperation after the meeting.
Protecting His Reputation
Political leaders in Berlin understood Juncker's words just as he meant them: as a challenge. Merkel too, to be sure, would like to prevent Greece from leaving the euro zone. She is concerned about the chaos that would ensue in Greece -- and from a practical perspective, a Grexit would mean that Germany would have to write down the billions it has loaned Athens for good.
Merkel, though, sees Juncker's categorical promises as undermining efforts to force the Greek government to see reason. Merkel's advisors in the Chancellery are wondering how it is possible to take a tough negotiating stance with Tsipras when the most severe penalty has been ruled out by the Commission president. But Merkel's team suspects that Juncker also may be trying to protect his own reputation: Should Greece ultimately be forced out of the euro zone, it would be clear to all that Merkel, rather than Juncker, is to blame.
The relationship between the two is so tense that it is hard to miss during joint appearances they make. During Merkel's visit to Brussels last week, Juncker gushed that it was "a delight, a pleasure and an honor" to welcome the chancellor. He said he didn't understand the "obduracy" of some in the German media who continue to report about alleged disputes between him and the chancellor.
Merkel was so taken aback by Juncker's unctuous charm that she sought refuge in metaphor. First, she used a German saying, asserting that underscoring her tight bond with Juncker was as superfluous as bringing owls to Athens. But the reference to Greece didn't sound quite right, so she said: "or, as they say in English, refrigerators to the Eskimos." Juncker grinned impishly.
Both know that Greece's fate is in their hands. At first glance, everything seems to currently depend on the European Central Bank and its head Mario Draghi. But both Merkel and Juncker are certain that Draghi will shy away from pushing Greece out of the common currency area. Several months ago, Draghi told the chancellor that such a decision had to be made by politicians and not by a central banker.
That, though, hasn't prevented Draghi from continually increasing the pressure on Greece. Athens is only able to keep its head above water at the moment because Greece's central bank, the Bank of Greece, is providing Emergency Liquidity Assistance (ELA) to financial institutions in the country and because euro-zone members have allowed Athens to issue 15 billion worth of short-term T-bills, most of which are bought up by Greek banks.
On Thursday, the ECB only approved ELA aid for another seven days. Previously, approvals have always been made at 14-day intervals. Furthermore, the European banking supervisory body, which is part of the ECB, issued a written warning to Greek banks two weeks ago to avoid taking on additional risk by purchasing the T-bills. Now, the supervisory authority appears ready to issue stricter guidelines to specific banks, which will further intensify the Greek government's predicament. The ECB Governing Council must still authorize this step.
Many in the ECB are aware that they are operating at the very fringes of legality. French Executive Board member Benoît Coeuré issued a public warning a few days ago that the ECB is not allowed to finance the Greek government. Doing so, he said, is illegal. Draghi, said an official in Berlin, "could cut Greece off at any moment." But, the official added, he doesn't dare.
Which means it is up to the politicians to find the way forward. And finding that path has become dependent on the ongoing conflict between Juncker and the EU member states, led by the chancellor. It has long been apparent that the Commission president wants to prevent a Grexit at all costs, at least since he received the Greek prime minister in Brussels five weeks ago as though welcoming a long lost friend. Two weeks after that, Economic and Financial Affairs Commissioner Pierre Moscovici presented a plan that looked more like a package for growth than like strict requirements for Greece. Greek Finance Minister Yanis Varoufakis had nothing but praise for the paper.
The other Euro Group finance ministers weren't nearly as enthusiastic. In the end, the Moscovici paper proved largely irrelevant, but it had, from Juncker's perspective, had its effect. It was a demonstration of power; he had simply wanted to send a message to Merkel.
Breaking with the Kohl Line
The conflict between Brussels and Berlin is a fundamental one. Juncker is taking the position that Christian Democrats have supported for decades. The European Union, in his view, is the answer to the horrors of the wars that destroyed Europe in the first half of the 20th century -- and the Continent's salvation, he believes, lies in further deepening the ties that bind the European Union together. It is no accident that he presented former German Chancellor Helmut Kohl's book last fall. The book is called "Out of Concern for Europe," and many have interpreted it as indirect criticism of Merkel's approach to the EU.
Though Merkel is a Christian Democrat herself, she has broken with the Kohl line. For her, Europe is not a matter of war and peace, but of euros and cents. Merkel has used the euro crisis to reduce the European Commission's power and to return some of it to member-state capitals. From this perspective, she could be seen as a 21st century de Gaulle.
Juncker would like to get in her way and the Greece crisis is the instrument that has presented itself. "We have to keep the shop together," Juncker has said repeatedly in background sessions with journalists in recent weeks. This Friday, Juncker received Tsipras in Brussels yet again, with the Greek prime minister also holding talks with European Parliament President Martin Schulz.
Juncker entered office wanting to make the Commission, the European Union's executive body, more powerful and more political -- and thus far, he has been successful. He defanged the European Stability Pact, that German invention that was to prevent euro-zone member states from taking on too much debt. And he has ensured that France's Socialist government receive an additional two years to reduce its budget deficit. Juncker's introduction of the deal with Paris was so deft that Merkel had little choice but to reluctantly approve it.
Now, though, it is Greece's turn and Merkel wants to keep the country in the euro zone. But even if the chancellor has had to make plenty of concessions since the euro crisis began in earnest in 2010, the core of her position has remained unchanged: Those needing aid must agree to reforms. She doesn't intend to be budged from this conviction, neither by Tsipras nor by Juncker.
'Get to Work'
Merkel has plenty of allies at the moment. The finance ministers of the rest of the euro-zone member states have all begun losing patience with Varoufakis and his orations at the frequent Euro Group meetings. German Finance Minister Wolfgang Schäuble has furthermore made clear that he can imagine a euro zone without Greece and has negotiated accordingly.
Not even France or Italy, natural allies to Greece when it comes to the desire for a weaker Stability Pact, are jumping to Athens' aid. Indeed, some euro-zone finance ministers have begun complaining of Varoufakis' vanity. "We told the Greek finance minister that he should stop giving interviews and get to work," says Finnish Finance Minister Antti Rinne.
For many euro-zone governments, the conflict with Greece is also a question of survival. If Tsipras is able to get what he wants, Spain's conservative government is concerned it might lose to the left-wing protest party Podemos in elections at the end of this year.
The Finnish governing coalition, meanwhile, faces elections in April and must defend itself against the anti-EU party True Finns. The right-wing populists believe that the euro-zone is already being too understanding of Greece. As such, Finance Minister Rinne is happy that he can point to guarantees his government negotiated in return for helping Greece. "We don't want a Grexit. But if the country can no longer pay back its loans, we have the securities that we pushed through in 2011 negotiations with Greece and the euro zone," he says. Forty percent of the Finnish loans are guaranteed by bonds issued by countries like France and the Netherlands.
As such, Merkel and Schäuble don't lack for powerful allies in their battle with Juncker. Member states, who guarantee the money made available to Greece, do not want to see the Commission deciding over the fate of their taxpayers' money. "It is easy to be generous with other people's money," said a senior Finance Ministry official in Berlin.
Schäuble believes that Juncker is being far too indulgent of the Greeks. When, for example, Athens once again sought to conflate debt negotiations with the debate over war reparations, Juncker refrained from censure. The issue, he said via a spokesperson, is a "bilateral one."
The Cyprus Model
Merkel's problem is that she can't shove Juncker aside quite as easily as she could his predecessor. José Manuel Barroso was, to be sure, just as indulgent with Greece and even threw his support behind the communalization of EU debt. But when things got serious, he would acquiesce to Merkel in the knowledge that he was only still in office because of the protection provided by the German chancellor.
That is not the case with Juncker. He is the first Commission president to have campaigned as his party's lead candidate in European elections, thus allowing him to claim a modicum of direct democratic legitimation. He also enjoys the support of a majority of the delegates in European Parliament -- and works closely together with the Social Democratic Parliament President Schulz, who likewise wants to prevent a Grexit at any price.
And Juncker is determined to play a role in the Greece negotiations. Partially for that reason, he had his staff speculate about when Athens might need a third bailout package. He only backed down following fierce protests from the Spanish government. Economic and Financial Affairs Commissioner Moscovici said that a third bailout package would only be discussed once the current negotiations over Greece's reform plans are completed.
But will they ever be concluded? Central bankers across Europe are planning for a rapid Greek withdrawal from the euro zone. "In this special situation, governments and parliaments have to decide if they are prepared to further extend their Greece risks," says Jens Weidmann, president of Germany's central bank, the Bundesbank. In other words, if it were up to him, Greece would long since have ceased being a problem. It has also been reported that the Spanish central bank believes that the Grexit will take place sometime in the next several weeks.
The chance that the "risk scenario" -- as the Grexit is occasionally called -- becomes reality is now well over 50 percent, say central bankers. Though the word "risk" is not entirely accurate. Central bankers believe that dangers relating to Greece's exit from the euro zone could be contained. Other debt-laden countries, they point out, are in much better shape than they once were and the ESM euro bailout fund is ready and waiting should it be needed. Furthermore, the ECB's sovereign bond-buying program would soften the blow. Many believe that were Greece to leave the euro behind, the common currency zone would be much more homogenous and stable than it is now.
In the end, though, it is up to the politicians, like Merkel and Juncker. The chancellor is now certain that a "Graccident," or exit-by-accident, is no longer much of a danger. Her advisors have taken a closer look at the Cyprus crisis, which saw the country come within a hair of leaving the euro zone two years ago. At the time, the ECB threatened to cut off emergency aid to Cypriot banks because the country's parliament refused to accept EU austerity demands. Banks had to shut teller windows for several days and impose limits on withdrawals and transfers abroad. But even in such an extreme case, there was still enough time for the political process to run its course. In the end, the Cypriot government gave in during a dramatic nighttime meeting.
Maybe, say some in the German government, Greece needs just such a "shot over its bow."
By Nikolaus Blome, Martin Hesse, Christoph Pauly, René Pfister, Christian Reiermann and Gregor Peter Schmitz