Wednesday, March 25, 2015

Angela Merkel steps in to calm tension with Greece

March 25, 2015

The meeting between the German chancellor, Angela Merkel, and the Greek prime minister, Alexis Tsipras, in Berlin on March 23rd marked an important step in improving dialogue between the two countries. In the past few weeks many in Greece and Germany, including the two countries' finance ministers, have traded verbal blows, threatening to cause a serious breakdown in relations. In this context, the meeting between Ms Merkel and Mr Tsipras appears to have been successful. However, discussions are reported to have focused on the situation in Greece and the country's relationship with the EU, rather than the details of the reform programme that Athens must submit to its creditors by March 30th. Ms Merkel will try to find a compromise acceptable to both Greece and its creditors, but her position is constrained by public opinion that is increasingly hostile to Greece. As a result, compromise will have to come mainly from the Greek side—and this looks a daunting task for Mr Tsipras and his administration given their promises to voters before the election on January 25th. Our core view is that Greece will remain in the euro, but solutions will continue to be piecemeal, short-term and last minute in nature.

Ms Merkel and Mr Tsipras met for almost five hours in Berlin on March 23rd. According to media reports, this was a general conversation about the economic situation in Greece and its relationship with the EU. Following the meeting, Ms Merkel struck a relatively positive and conciliatory tone. She emphasised that she wants good relations with Greece, and promised to support measures geared towards helping the Greek economy to recover.

However, Ms Merkel was also keen to spell out what she considers to be non-negotiable, particularly in relation to Athens sticking to previous reform commitments agreed with its creditors. Moreover, Ms Merkel stressed that she was not in a position to promise fresh liquidity to Greece (something which has been mentioned by the Greek side in recent days, although not—at least officially—at this meeting), noting that any decision relating to the availability of short-term funds to Greece must be taken by the country's creditors, after an assessment by the "troika" of the European Commission, the IMF and the European Central Bank (ECB). These statements reflect Ms Merkel's long-standing approach to the management of the euro zone crisis (and indeed other issues, such as the Ukraine conflict): sticking to a clear, rules-based system and breaking down problems into distinct segments to be dealt with separately.


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