Why Angela Merkel may not be able to keep Greece in Europe
Chancellor Merkel, who faces elections next year, has tied her
political fate to the survival of the common currency. But despite her
efforts, Greece's economy continues to reel.
By
Michael Steininger, Correspondent /
October 10, 2012
The Christian Science Monitor
Greece's Prime Minister Antonis Samaras (r.) talks with Germany's Chancellor Angela Merkel in Athens, Tuesday, Oct. 9.//Thanassis Stavrakis/AP
Mrs. Merkel has tied her political fate to the survival of the common currency. “If the euro fails, Europe will fail,” she keeps repeating in every speech she gives about the eurocrisis. With general elections in Germany
less than a year away, the chancellor needs some progress in the
solution of this crisis, but a Greek sovereign default and subsequent
exit from the eurozone would be a huge setback for her.
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The
problem is this is still a likely scenario. After three years of
countless emergency summits, two bailout packages worth €240 billion
($308 billion), and a debt write-off of 75 percent by private creditors
as well as heavy cuts in public spending, Greece is still not safe.
“Greece will exit, and Merkel will be proven wrong – I’m willing to bet on it,” says Hans-Werner Sinn, president of the Munich-based Ifo Institute for Economic Research.
Mr. Sinn believes that Greece would need financial support for many
more years if it were to remain in the common currency – a prospect that
German voters and taxpayers would see very critically. “A Greek exit
would be better for all.”
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The current rescue measures for Greece
are scheduled to end in 2014. By 2015, the country is meant to get
access to private capital again. But few believe that this can be
achieved. “Greece’s sovereign debt is still extremely high,” says Jens
Boysen-Hogrefe of the Kiel Institute for the World Economy. “It will be
very difficult to borrow fresh money at sustainable interest rates.”
High debt rate
This
year the country's debt rose to 169 percent of GDP, so the country's
liabilities surpassed its economic performance by two thirds. The debt
rate is expected to rise to 179 percent in 2013 and decline to 152
percent in 2017, according to the International Monetary Fund (IMF). Economists regard sovereign debts which exceed 120 percent of GDP as unsustainable.
At
the same time the Greek economy keeps declining. Within the last four
years it shrank by 20 percent, this year a further reduction by 6.5
percent is estimated. Without growth Greece will be unable to reduce its
debts, in spite of severe cuts in public spending.
Merkel is
widely perceived by Greeks as the main force behind the tough austerity
measures the country has been going through in the past few years. Even
though Mr. Samaras proclaimed the chancellor’s visit meant an “end to
Greece’s international isolation,” it is unlikely she won over any of
the protesters, given that she had warm words – “My wish is for Greece
to stay in the eurozone” – but no announcements of further financial
help for the Greeks.
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At home Merkel has just entered the battle
for re-election next year. The Social Democrats, her main opposition in
Germany’s political landscape, have nominated their candidate for the
chancellery, Peer Steinbrück.
A former finance minister in Merkel’s first cabinet between 2005 and
2009, Mr. Steinbrück is widely credited with steering the German economy
relatively unscathed through the global banking crisis of 2008.
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And
Merkel faces increasing opposition to her eurozone policy within her
own ranks. Alexander Dobrindt, general secretary of the CSU party, part
of Merkel’s coalition government, was the latest of her allies to
forecast an imminent Greek exit from the eurozone. “There is no other
way,” Mr. Dobrindt told popular tabloid newspaper Bild. “Greece will
exit in 2013.”
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But Merkel fears the ripple effect of such an exit.
“As a trained scientist, she knows a thing or two about chain
reactions,” says Michael Spreng, blogger and political analyst. “She
likes to be in control. And Greece has become an risk factor on her way
to re-election."
