'We're on a Slippery Slope' Will the Greek Bailout Destroy the Euro Zone?

The Greek government's appeal for help is putting Chancellor Angela Merkel under pressure. With Germany required to provide billions over the coming years to pay for the Greek bailout, there are growing calls in the German government for Greece to withdraw from the euro zone. By SPIEGEL staff.


Wolfgang Schäuble looked pale. His face seemed drawn and his gray suit hung loosely over his thin shoulders. After spending eight weeks in the hospital for a wound from an earlier surgical procedure that had failed to heal properly, the German finance minister seemed tired and haggard.

It was the beginning of last week, and Schäuble was briefing the financial experts in Germany's coalition government of the center-right Christian Democrats (CDU/CSU) and the liberal Free Democratic Party (FDP) on the latest developments in the Greek crisis, which had been intensifying on a weekly basis for the last six months.

Schäuble informed the members of parliament that it had now been firmly established that Athens could apply for financial assistance from the International Monetary Fund (IMF) and the European Union. But, he added, there was still some time left. Schäuble predicted that it would take another two to three weeks before the Greeks officially submitted their request.

'Activation of the Support Mechanism'

He was wrong. Last Friday, Greek Prime Minister George Papandreou, standing in front of the picturesque backdrop of the Mediterranean island of Kastellorizo, announced that his country could no longer fend off the attacks of international financial speculators and had to solicit help from its European partners.

A short time later, a sparsely worded, four-line announcement by the Greek finance minister came fluttering out of fax machines in Brussels. In the notice, the Greeks requested "activation of the support mechanism."

Things could hardly have turned out any worse -- not for Greece, not for Europe and not for the German government.

For weeks, Chancellor Angela Merkel had promised citizens that she would only be disbursing German taxpayer money to Greece as a "last resort." And if the assistance did become necessary, Merkel said, trying to reassure the members of her own party, Greece was not expected to ask for help until mid-May. It was Merkel's way of keeping the sensitive issue out of the campaign for a key state election in North Rhine-Westphalia on May 9.

Completely Failed

But now Athens' call for help has made it clear that Merkel's Greece strategy has failed completely. The European drama involving government debt and greedy speculators isn't sticking to national schedules. While the CDU/FDP state government in North Rhine-Westphalia worries about losing its majority, the chancellor faces unpleasant debates in Berlin.

Critics of the European common currency have already made it clear that they see the emergency aid for Greece as a violation of European treaties. They intend to file a new lawsuit before Germany's Federal Constitutional Court in Karlsruhe. CDU and FDP members of the Bundestag, Germany's parliament, caution against the development of a "European transfer union," something Merkel said she absolutely wanted to prevent.

Even within Merkel's administration, there are fears that Germany could end up footing much of the bill for a financial disaster. Experts in her cabinet suspect that many billions could seep away into Athens' morass of debt without even preventing the worst: a Greek bankruptcy and a new wave of speculation against the euro.

Not surprisingly, the mood is tense within the coalition government in Berlin. The CDU's Bavarian sister party, the Christian Social Union (CSU), is demanding that in case of doubt, Greece should leave the euro zone. The chancellor, for her part, is determined to at least create the impression of accommodating critics within her ranks.

Tightening their Belts

Before the Greeks receive any money, Merkel demanded late last week, they would first have to tighten their belts even further. But is this even possible? Or would the country be stifling what is left of its battered economy by doing so? Can the Greeks ever pay off their massive mountain of debt, which has since grown to about €300 billion ($405 billion)?

It is also a question of Merkel's reputation and of the deep-seated fears of her fellow Germans. Merkel knows that concerns about inflation are more deeply rooted among Germans than almost any other European nation. Last week Finance Minister Schäuble experienced for himself just what instinctive reactions the subject can unleash in Germany.

On Tuesday, Schäuble tried to convince the senior leaders of the CDU/CSU parliamentary group to push the European pledge of financial assistance for Greece through the parliament in expedited proceedings. He proposed simply attaching the applicable regulations to an existing bill, so as to avoid cumbersome debates in the Bundestag.

But Schäuble's idea was met with fierce opposition from members of his own party, the CDU, and its sister party, the CSU. "Do we even know how solvent the Greeks are anymore?" CSU politicians asked. Members of the CDU also voiced concerns. Norbert Lammert, the president of the Bundestag, warned that the emergency aid was too important to be hastily whipped through the Bundestag. A proper law needs a second and third reading in front of members of parliament, Lammert argued.

Now that Greece has officially asked for help, Schäuble will have to try a new approach. On Monday of this week, the minister wants to meet with the floor leaders of the parties represented in the Bundestag in order to sound out ways to bring the Greece package through the parliament as quietly as possible.


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