Greece exit looms as Germany stops trying to dodge the blame for disaster – Fortune

Posted: Sunday, July 12, 2015


It’s looking bad for Greece after the first day of a weekend that was supposed to determine its fate in Europe’s currency union.

Finance ministers from the Eurozone’s 19 countries broke off talks on a new €74 billion ($82 billion) three-year bailout for the troubled country, unconvinced by Athens’ promises to implement reforms that it had bitterly campaigned against until only four days ago.

The German paper said Greece’s proposals “lack a number of paramount important reform areas to modernize the country, to foster long term economic growth and sustainable development. Among these, labour market reform, reform of public sector, privatisations, banking sector, structural reforms are not sufficient.”

The full paper can be read here.

Analysts noted that the German proposals could have been meant either as a piece of grandstanding for the domestic German audience, or as a threat to Athens. The German Social Democrats, who are Chancellor Angela Merkel’s coalition partners in Berlin, distanced themselves from the proposals, in a hint that they may have been intended primarily as a piece of political theater.

The ‘non-paper’ (a piece of Euro-jargon that has become increasingly frequent as the need for unpalatable measures has increased) could equally just reflect the fact that the whole euro project is being forced to improvise after sailing into completely uncharted waters. But after the last round of crisis talks on Tuesday, European Commission President Jean-Claude Juncker had said the Commission already had a “detailed” plan to manage the “Grexit” scenario. If that’s true, then it really isn’t clear what practical purpose the German ‘non-paper’ would serve.

The proposals appear to try to break the circular logic that has made progress impossible in recent weeks: the Eurozone wants to keep the IMF on board, but the IMF has been increasingly clear that it thinks Greece is bankrupt and needs to restructure its debts to make them sustainable. Restructuring, which would most likely have to include at least a partial write-off of the official loans made by Eurozone governments, and that is politically unacceptable to many, including Germany.

One thing is now clear: the Greek government’s request for a fresh program isn’t going to be simply waved through. Reuters reported overnight that the Eurogroup is now drafting a statement requesting Greece do more, and that statement is likely to include some of the commitments that the Germans highlighted, specifically on reforming the public administration.

That will put the government of Prime Minister Alexis Tsipras in an impossible position: the Eurogroup is already unwilling to believe his promises, but appears to be on the very of asking him to do even more things that his left-wing Syriza party can’t accept. The more desperate and extreme his promises, the easier it becomes for hardliners such as Germany to dismiss them as not credible.

For the last week, it has seemed like the only thing still keeping Greece in the Eurozone was the desperation of its leaders not to be seen as responsible for breaking up Europe’s flagship project. Now that that taboo is broken, it seems anything is possible, albeit the coup de grace now seems almost certain to be delayed beyond today.

EU Council President Donald Tusk said earlier he had cancelled plans for the heads of government from the E.U.’s 28 member states to meet later. Tusk had promised earlier in the week that no steps to eject Greece would be taken without consulting other countries such as Bulgaria and Romania, which aren’t in the Eurozone.

Leaders from the Eurozone are still expected to meet in Brussels later, however. It is not yet clear whether the finance ministers will have agreed what course of action to recommend by then.



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