Photo Gallery: Painful Times in Greece


The Fate of Greece Decision Time for Tsipras and Merkel

Greek Prime Minister Alexis Tsipras has gambled away all support in Brussels. Now, he and German Chancellor Angela Merkel have to make a momentous decision. Meanwhile, Greece's creditors are divided about how to proceed.

It is a document that shouldn't even exist. But it does, and is kept hidden behind the gray door of a safe with a black combination lock. The paper, around 1,000 pages thick, is stored in the presidential offices of the European Commission in Brussels and contains plans for a situation unforeseen in European Union treaties: the insolvency of a euro-zone member state and its exit from the common currency regime.

Commission President Jean-Claude Juncker and his most important advisor, Martin Selmayr, recently checked to make sure the document was still there. They opened the heavy door and were relieved to see it inside. Without reading it, they locked up the safe again. The scenario of a Grexit, Juncker said at the Greece summit on Tuesday, has been "worked out in detail."

It is looking increasingly possible that the scenario will become reality, perhaps sooner, perhaps later. Once again, European leaders have granted Greek Prime Minister Alexis Tsipras a final deadline, and once again nights will be spent in Brussels going over lists of reforms and details of potential emergency bailout loans.

But last weekend, when almost two-thirds of Greek voters cast their ballots against "extortion and humiliation," as Tsipras himself characterized Europe's reform demands, it became clearer than ever that there is no basis left for cooperation between Athens and Brussels. Greece and European leaders are at loggerheads.

From the Greek perspective, the EU, German Chancellor Angela Merkel and the euro zone are all synonymous with poverty and exploitation. From the perspective of most European Union leaders, on the other hand, Greece is little more than a failed state governed by clientelism and nepotism, a country whose economy has little to offer aside from olive oil and beach bars.

A Bitter Realization

That was true already five years ago when the government in Athens admitted to having taken on three times as much debt as previously disclosed, an admission that triggered the start of the euro crisis. There has been no improvement since Tsipras' odd coalition of left-wing and right-wing populists took over, a motley collection of erstwhile communists and EU-skeptics who see themselves as the protectors of Greek civil servants and the military. The country that many in Europe see as the birthplace of Western democracy is also a place where the European Enlightenment arrived late.

It is a bitter realization. Sensible people in both Greece and in Europe tried time and time again to find a compromise in the debt dispute. The currency union binds members together in a common destiny, just as its founders envisioned. It is not a club where people can quickly become members and then, just as quickly, leave.

But relations between the Greek government and its partners in the 18 euro-zone capitals are deeply impaired. The Greek economy's slide has dangerously accelerated under the new government and Brussels has lost almost all of its trust in Athens. Even worse, Greece's creditors are also now at odds, making it seem doubtful that their alliance will hold together for much longer.

Indeed, the time has come for Prime Minister Tsipras to decide whether he wants to go down in history as a defender of Greece's membership in the euro zone or as a tragic rebel who led his country into insolvency. Chancellor Merkel has little to win and much to lose in the game. Should there be a Grexit, she will likely be blamed for Europe's split. If, on the other hand, a new aid program is assembled, she will have to defend herself from accusations in Germany that she is simply throwing billions more euros into a bottomless pit.

Worst of all, of course, is the situation for the Greek populace -- for the country's unemployed and pensioners but also for businesspeople and even those with jobs. For years, they have had to suffer under austerity, and now they are finding out what happens when an economy literally runs out of money. Might Greece's future be even worse than its present?


In the northeast of Athens, a refrigerated truck rumbles past the office window of Stylianos Bochtsatzioglou. It may be the last one for quite some time to leave his chocolate factory full of fresh product. Bochtsatzioglou's raw materials supplies will soon run out. He is short of cocoa butter, milk powder and lecithin. He is even running out of packing material due to the paper shortage in Greece. Bochtsatzioglou says he will soon feel as though he is living in a developing country.

It is an unexpected predicament for his company, Chocotime, to be in, given that it had actually managed to get through the crisis in decent shape. It sells up to 80 percent of its product outside of the country and his revenues remained relatively constant. Bochtsatzioglou is the third generation of his family to run the company, and he had been hopeful that his son Constantinos would carry on the family tradition.

But since the Greek government introduced capital controls, the economy has seized up. Bochtsatzioglou's most important supplier of cocoa butter can no longer buy supplies on the global market because of the effective ban on wiring money overseas from Greek bank accounts. Indeed, before the truck can leave Bochtsatzioglou's factory, he has to come up with sufficient cash to pay the logistics company, the driver and the fuel station: everyone has begun insisting on being paid in advance. But despite having a company to run, Bochtsatzioglou is limited -- just like everyone in Greece -- to just €60 in cash withdrawals per day.

Tsipras's leftist-nationalist government has not done much for the economy. In the six months since the election, Greek parliament has done little to simplify the tax code as promised or to streamline the country's bureaucracy. Furthermore, the man in charge of promoting international business relations in the Foreign Ministry is a cousin of Prime Minister Alexis Tsipras. But instead of boosting exports, he has primarily drawn attention to himself with his rhetoric of class struggle and his chastisements of Europe.

Recession Is Looming

Meanwhile, Greece's economic strength is waning by the day. The European Commission adjusted its forecasts back in May, from an initial prediction of 2.5 percent economic growth in 2015 to a current expectation of just 0.5 percent. But many consider even that to be too optimistic -- and recession is looming once again.

The tourism industry, recently seen by many as a ray of hope, has begun suffering of late. Last-minute hotel bookings plunged in recent days by between 30 and 40 percent while taxi drivers in Athens say that fare numbers have dropped by up to 80 percent. The latter is hardly a surprise: Two weeks ago, the government decreed that public transportation was free to all.

From the perspective of Athens-based economist Aristos Doxiadis, Tsipras' policies are akin to an all-out offensive on his own country's economy. The prime minister, he says, is effectively driving companies and highly trained workers out of Greece.

Doxiadis used to be a university lecturer in Great Britain; now he is an investor and fund manager in addition to looking after roughly a dozen start-ups in the Athens IT scene. One company under his gaze has developed a mobile phone app for people who rent out holiday apartments and the first numbers were quite promising. But if tourists stop coming, the future doesn't look rosy.

Doxiadis is concerned that his promising charges may give up soon and leave the country. That would mean a loss of his investors' money in addition to the EU subsidies that help support the fund -- as well as the jobs that the companies provide.

In the offices of the German-Greek Chamber of Industry and Commerce, the mood is terrible, almost as though the Grexit had already taken place. One of the chamber's tasks is that of attracting German companies to do business in Greece. But the chamber's head Athanasios Kelemis says he can't, with a clear conscience, advise anyone to invest in his country. Not now, not with this government and not after a large majority of the populace voted "no" in the referendum last Sunday.

Many companies urged their workers to vote "yes" in the referendum, in favor of the reform package demanded by Europe. Chocolate manufacturer Stylianos Bochtsatzioglou even went before his 30 workers to encourage them to vote "yes." But despite his speech, many of his employees took to the streets that night waving red flags, preferring instead to hold onto the hope offered by Tsipras that everything will soon improve -- even if it's not totally clear how.


Euro-zone leaders are sitting at a large wooden table that was once given to the European Council by erstwhile Italian Prime Minister Silvio Berlusconi. It is Tuesday of this week, and the mood is charged, with everyone appealing to Greek Prime Minister Tsipras.

The EU heads of government are furious that he came to Brussels without a new batch of proposals. Luxembourg's Prime Minister Xavier Bettel says that his trust in Tsipras has been destroyed because the Greek premier keeps saying different things in Athens than he promises in Brussels. "I am disappointed," says Bettel.

Tsipras is confronted by irritation from all directions. Mark Rutte from the Netherlands, Dalia Grybauskaite of Lithuania and Robert Fico of Slovakia are particularly drastic in their choice of words. Maltese Prime Minister Joseph Muscat says that, 14 days ago, he would have been prepared to sign any agreement, but that now he is fed up with Tsipras' stalling tactics.

Those who placed a great deal of faith in Tsipras in recent weeks are particularly frustrated, chief among them Commission President Juncker. Over and over again, Juncker sat down with Tsipras, spoke to him on the telephone and offered him concessions.

Now, though, he is forced to watch aghast as Tsipras is celebrated like a gladiator during an appearance before European Parliament. The Greek prime minister appears to enjoy the standing ovation he is given by, among others, the right-wing populist parties surrounding Front National boss Marine Le Pen. He soon intends to present a new list of reform pledges, but first he once again launches into a long diatribe, complaining that the austerity measures thus far imposed on his country have resulted in a "spiral of recession and deeper depression."

Such is the reality within which Tsipras lives. But there is a second reality -- the one inhabited by Greece's international creditors. They see the situation as follows: Much had improved before Tsipras took over the government, to the point that national revenues had finally exceeded spending. But the Tsipras government loosened up the austerity regime, unsettled the business sector and consumers with contradictory announcements, and refused to privatize state-run enterprises. "The political changes since the beginning of the year have led financial requirements to once again increase enormously," the International Monetary Fund wrote recently in a report.

A Poisonous Conflict

Now, the country's budgetary figures have worsened dramatically -- and Greece's creditors have begun bickering among themselves as to the conclusions that should be drawn as a result. The IMF is in favor of forgiving a portion of the poverty-stricken country's debt. But Merkel is categorically opposed: She has promised the Germans that the Greeks would pay back every euro and cent of their debt.

IMF head Christine Lagarde, for her part, is unable to agree to any program that is not consistent with IMF criteria. The most important specification: Before new money can flow, Greece must first reduce its debt so as to be able to service the new loan.

It has become a poisonous conflict, but thus far it has largely taken place behind closed doors. Lagarde has avoided talking about the issue in public and Merkel, in return, has let it be known that a kind of debt restructuring can be addressed in the fall. But that implicit deal didn't last long, made obsolete last week by Washington's publication of a new study demanding a debt haircut for Athens. European leaders were not at all pleased: Lagarde had promised not to post the study in the Internet until this autumn.

The incident shows that the climate hasn't just worsened between Brussels and Athens, but also among those who have long financed the Greek government. In Paris, for example, where leaders want to prevent a Grexit at all costs, there is growing concern about the discord among the creditors. And French politicians have already identified one potential villain: German Finance Minister Wolfgang Schäuble. The French have long believed that Schäuble has been trying to sabotage efforts to save Greece. They suspect that he encouraged Lagarde to publish the IMF report so as to reduce the chances for yet another bailout program. After all, they say, Schäuble has for some time believed that a Grexit is the best possible solution.

But the question is: Is Europe prepared?


The man is a model of inconspicuousness. No motorcycle helmet, no backpack: When Greece's new finance minister, Euklides Tsakalotos meets with his euro-zone counterparts, he is particularly careful to avoid any hint of arrogance of the kind displayed by his predecessor, the glamorous master of self-promotion, Yanis Varoufakis. Only one thing was the same when Tsakalotos made his first official appearance in Brussels on Tuesday: He did not bring along a list of possible reforms, despite having promised to do so.

Whether the time has come to talk about plans for a Grexit, Schäuble wanted to know from the Austrian Thomas Wieser, who chairs the Eurogroup Working Group. With a clear glance in the direction of the newcomer from Athens, Wieser says there is no call for concern. The Euro Group is well prepared for Plan B, he says.

He is not wrong: Preparations for the Grexit are well underway. The plans include short-term measures, such as efforts to stabilize financial markets, and long-term measures, such as deepening cooperation within the euro zone. Should the weakest link be removed, the ministers believe, the rest of the chain will become stronger.

To keep it that way, they also want to construct a financial barrier around the country that is most vulnerable to potential contagion: Cyprus. The island nation's economy is deeply intertwined with Greece's, which is why euro-zone finance ministers want to make additional funding available to Cyprus by way of the ESM bailout fund.

Furthermore, the Euro Group insists that, once Greece is no longer a member of the euro zone, it will be possible to increase the cohesion of the currency union. "The Grexit will create momentum for decisive euro-zone reform," said one participant in the Tuesday meeting. "It is unavoidable."

A New Framework

There are a number of steps under consideration. One envisions euro-zone countries agreeing to integrate economic and financial policy to a much greater degree. Currency union finance ministers also want to examine whether savings deposits should be insured Europe-wide. It is also possible that the Euro Group will install a full-time chair, who would then act as a kind of euro-zone finance minister with the ability to intervene in national budgets.

The rules governing the euro zone are also to be expanded to include regulations for national insolvencies. The new framework is to ensure that a country can become insolvent without being made dependent on foreign assistance and without having to leave the euro zone. Furthermore, in order to prevent a repeat of the Greece fiasco, officials in the German Finance Ministry are working on a more radical solution. It foresees the ability to expel countries from the euro zone should they, like Greece, refuses to adhere to agreements and rules.

Because a national insolvency would also worsen the social situation in Greece, the EU is developing plans for emergency aid. The money is to come from a variety of sources: There is the Globalization Adjustment Fund, the European Social Fund and the "Fund for European Aid to the Most Deprived," which contains €3.8 billion. Even funds that are otherwise reserved for natural disasters could be tapped. European parliamentarians are currently preparing for a special session to approve the funding.

But EU diplomats believe that it wouldn't be even close to sufficient. "If the negotiations fail, much more than just humanitarian aid will be needed," says one EU diplomat. "State structures will also have to be propped up." The country's social welfare system could collapse and the borders would have to be guarded as well, the diplomat says. It is possible, he continues, that a failure of state structures in Greece could also result in a new wave of African immigrants heading north from Greece.

A Weighty Decision

The chancellor didn't go into great detail. Every Wednesday before her cabinet meeting, Angela Merkel meets for breakfast with conservative ministers. Last week, inheritance tax was on the agenda as was, of course, Greece. Merkel didn't beat around the bush. There will soon be clarity on Greece, she said. "We're not talking about weeks." Those present did not ask too many questions.

Merkel is faced with the most difficult decision of her chancellery. The chances are slim that Greece can leave the crisis behind with the help of just one more aid package. Its economy isn't strong enough and its government, which rejects the policies demanded by the country's creditors, is standing in the way.

Merkel's goal was long that of keeping Greece in the euro zone. And fundamentally, that hasn't changed. A Grexit is would be extremely risky and Merkel is a politician who seeks to avoid risk at all costs. For a long time, she saw the negotiations with the Greeks as being consistent with the typical decision making process in Brussels: tough negotiations with a room full of vain men capped by an 11th hour agreement. Merkel knows the procedure well, and has often emerged as the victor.

But the chancellor misjudged Tsipras. The man is a gambler and he has little respect for the complicated mechanisms of European consensus-building, without which the European Union cannot function.

Merkel realized as much only when Tsipras told her of his intention to put the results of the Brussels negotiation up for a national referendum. What he didn't tell her is that he was planning on asking the Greek electorate to vote "no." Tsipras' politics are "hard and ideological," a frustrated Merkel recently complained in a meeting of Christian Democratic Union (CDU) leaders. He is steering his country into a brick wall "with his eyes wide open."

The chancellor knows that Greece's departure from the euro zone would be a painful defeat for her. She has repeatedly worked to keep Greece in the common currency area, often against the advice of many experts. Her mistake was to let things go on for too long. The chancellor has never had any illusions about the situation in Greece: She is familiar with all of the numbers that prove just how slow progress has been. And she knows how unwilling Tsipras' predecessors were to end cronyism in Athens.

At the meeting with party leaders, she even allowed her frustration with Tsipras and his government to briefly boil over. "Greece will not adhere to European principles with this government," she said. "It violates the principles of cooperation."

By Peter Müller, Alexander Neubacher, René Pfister, Christian Reiermann, Michael Sauga and Christoph Schult