During an emergency telephone conference with Greek Prime Minister Georgios Papandreou on Wednesday, the German chancellor and the French president said that Greece is an "integral" part of the euro zone and that its future remains in the common currency. Angela Merkel and Nicolas Sarkozy also told Papandreou that "it is more indispensable than ever to fully implement the decisions adopted on July 21 to ensure the stability of the euro zone," a reference to emergency measures agreed upon to expand the euro rescue package.
At the same time, the German and French leaders called on Athens to "strictly and effectively" implement the reforms it had agreed to in exchange for billions in aid from the European Union and the International Monetary Fund (IMF). "This is a pre-condition for the payout of any future tranches," they said.
The statement helped to diminish fears of an imminent insolvency in Athens and buoyed markets in Europe and around the world in early trading on Thursday. What it didn't do, however, is ease a heated debate between Merkel and her government coalition partners in Berlin, who have been sparring all week over whether it is acceptable to publicly discuss the possibility of Athens going bankrupt -- statements that have unsettled markets and which, according to commentators, could cost Germany " billions ."
'A Government Has To Say What It Considers to Be Correct'
Earlier this week, Merkel issued forceful words in an attempt to bring the junior partners in her coalition government, the business-friendly Free Democratic Party (FDP), into line after Philipp Rösler, the vice chancellor and FDP leader, said it should no longer be a "taboo" to talk about a Greek insolvency. Days later, Rösler is still pursuing his critical line, telling a Berlin daily that if one is convinced of the necessity for a discussion, then one needs to be public about it.
While the German federal government may have a strong interest in Greece remaining in the euro zone, he told the Tagesspiegel newspaper, "the country must also get back on its feet again economically." He said there could be no taboos in the discussion about how that "difficult task" could be achieved.
"A government has to say what it considers to be correct and in doing so cannot allow itself to be driven by the markets," he told the newspaper. "We belong to different parties and assess the things on our own with the goal of acting together. That's how coalitions work."
Rösler further stated that the goal of an orderly bankruptcy for Greece must be the reestablishment of its ability to function economically. "There are options for debt relief for Greece that don't need to be expensive for German taxpayers," he said, mentioning a voluntary participation of private creditors.
Reaction Is 'Totally Exaggerated'
Observers believe that Rösler's statements are aimed at assuaging his increasingly restless party base. A group surrounding one prominent FDP member of parliament, Frank Schäfler, is seeking to force Rösler to reject the introduction of the permanent euro rescue fund, the European Stability Mechanism (ESM), which is expected to come into operation in mid-2013, through a poll of its roughly 66,000 members. If one-third of party members take part in the poll and the majority votes against the ESM, this will be the party's official position. If that happened, it could spell the end of Merkel's current government coalition.
The FDP's Rösler has drawn both support and criticism within his party for his statements. FDP national treasurer Patrick Döring said he believed the anger over the party leader's statements on Greece had been silly. "The reaction of some critics, also within the ranks of (Merkel's) Christian Democrats, is totally exaggerated," he told Hanover's Neue Presse newspaper. He said the discussion prompted by Rösler had been correct.
But another prominent party member, European Parliament representative Jorgo Chatzimarkakis, admonished Rösler in an interview with the daily Die Welt not to repeat his statements about a possible Greek bankruptcy. "The debate over a Greek insolvency needs to be ended immediately before any further damage is done," he said. "As a German economics minister, one cannot talk about insolvency without knowing how it is going to play out. That's fatal." Chatzimarkakis said it wasn't a question of having "taboos," but rather what helps Greece and what doesn't.
Damaging to Germany
In the meantime, criticism of Rösler is growing within Merkel's CDU. The governor of the eastern state of Saxony-Anhalt, Reiner Haseloff, called for Rösler to remain disciplined on EU policy issues within the government. "Rösler needs to fall back into line," Haseloff told the Mitteldeutsche Zeitung newspaper, adding that the FDP chief's statements were damaging to Germany.
"As (the EU's) number one exporting nation, we are the ones who are most dependent on the euro," he said. Haseloff said Merkel's calls for more caution in public statements was justified. "The chancellor speaks for Germany and has reached agreements in Brussels," he said. "We will be measured by whether we adhere to these agreements."
Germany's opposition parties have also had harsh words for Rösler this week. Speaking on Thursday to German public television station ARD, the head of the center-left Social Democratic Party (SPD) in parliament and former chancellor candidate, Frank-Walter Steinmeier, speculated over Rösler's possible dismissal. But even that step, he said, "wouldn't be enough to heal this cabinet, it seems to me." At the same time, he sought to ward off speculation that Merkel might seek to dissolve her government and form a grand coalition government with the SPD, like the one that governed the country under Merkel from 2005-2009. Steinmeier, however, said his party was not currently prepared to enter into such a government.
On Wednesday, the co-head of the Green Party in parliament, Jürgen Trittin, called on Merkel to "fire" Rösler.
Skepticism of ESM
Meanwhile, a second prominent member of the Christian Social Union (CSU), the Bavarian sister party to Merkel's CDU, which is also part of the government, has spoken out in support of Rösler. In an interview published in the weekly newspaper Die Zeit on Thursday, German Transport Minister Peter Ramsauer said that, while Greece's exit from the euro would certainly be risky and painful, "it would not be the end of the world."
He said the CSU is seeking to create the possibility of excluding countries that have chronic debt problems from the euro zone. His party introduced a draft resolution earlier this week that it expects to vote on at a CSU party congress at the beginning of October. Earlier this week, CSU leader Horst Seehofer raised the possibility of a Greek exit from the euro zone.
Ramsauer also expressed skepticism about the planned longterm euro rescue fund, the European Stability Mechanism. In the interview, he said the ESM would in part dictate payment obligations which the German federal parliament would no longer have any possibility to control. He argued it would violate parliament's sovereignty in determining budgets and warned against an "overly hasty" decision.
The transportation minister also warned that anyone who said that Greece's bankruptcy must be prevented at any price, was also eliminating any means left for putting pressure on Athens. "That would mean that the country would have to be repeatedly supplied with fresh money, regardless what happened there."