For Germans, the Greek crisis is again the single most important political topic. The German government finds itself in a difficult position after the Greek ‘No’ to the financial aid package. Whatever will be the result of the renewed negotiations after Sunday’s summit – a new rescue package, some form of a haircut or debt restructuring, or even Grexit – it will be very hard to sell as a success both at home and abroad.
A new level of opposition in Merkel’s own ranks
Opposition to further support for Greece is rising within Angela Merkel’s own party and among the public. Possibly the most likely outcome of next Sunday’s summit, a new rescue package under the ESM, will be met with considerable opposition in the Christian Democratic Union CDU and its Bavarian sister party, the Christian Social Union CSU. Merkel, who needs parliamentary backup for the negotiations on a new programme, will find it more difficult than ever to garner support for her political course. A haircut or debt restructuring – the deep red line for the German position and nevertheless next to unavoidable – may lead straight to mutiny.
Usually the chancellor can rely on tightly closed ranks. Even when the government performed U-turns which were most controversial in the party – such as in 2011 when it decided to phase out of nuclear power after the disaster in Fukushima – party discipline was extraordinary. Not so with the EU rescue policy. From day one of the crisis there was hesitation, doubt and even open criticism regarding Merkel’s political course in her own ranks. For many in the party the financial aid for Greece or other EU countries through the ESM was and is a fundamental violation of the No-Bailout clause in the EU Treaties. Already in 2012 26 MPs of the CDU/CSU group in the German Bundestag declined their support for the establishment of the ESM – a seemingly small number, but a publicly displayed affront to the government loaded with symbolic weight. Those frictions, which some in government may have seen as collateral damage in the early days of the debt crisis, led in 2013 to the founding of the eurosceptical AfD that calls for the unravelling of the eurozone. They also resulted in what was the largest collective constitutional complaint filed with the German Constitutional Court to date, when Karlsruhe was asked to decide on the constitutionality of the rescue measures. With every renewal of the financial support to Greece this opposition to the Government’s rescue policy has been growing. Earlier this year 29 MEPs voted against the latest extension of the rescue measures. But more importantly, a much larger numbers had their disagreement recorded and only grudgingly supported the government’s course. Now, after the referendum and the latest escalations, tempers are running very high in the CDU and CSU. More openly than ever prominent heads question further support for Greece. In their eyes, the Greek ‘No’ is the final proof that the Government’s rescue policy failed.
And the public mood, too, has turned more hostile towards further support measures for Greece. At the beginning of July an overwhelming 85 per cent of the Germans opposed further concessions of the EU to the Greek government and a majority of 52 per cent even supported a Grexit. If in this situation, the chancellor on Sunday will have to communicate another multi-annual rescue package, let alone any form of haircut, it may make for the biggest power test of her tenure. To be sure, under the current oversize grand coalition of CDU/CSU and SPD the German government is likely to get the needed parliamentary majority. But Angela Merkel for the first time appears vulnerable, has lost authority in her party and could lose her strong standing with the German public. If renewed aid will be linked with a debt restructuring she might even have to resort to a vote of confidence to close her party ranks behind her.
A choice between extremely bad or worse
In this situation, the German government’s room for manoeuvre to find compromise in the upcoming negotiations will be more limited than ever. Does that make a Grexit more likely? It doesn’t, as a Grexit would plainly stand for a complete failure of Merkel’s policy of the last five years. Political circles in the EU were quick to call it a collective failure, but the German chancellor is the very face and voice of the EU’s rescue policy. If Greece leaves the eurozone, Germany, which took an unprecedented leadership role in the crisis, will lose standing in Europe and beyond.
The chancellor would go down in history as the one orchestrating a milestone in the roll-back of EU integration. A Grexit and its economic and (geo)political fallout that is despite all preparations so hard to foretell and control would add fuel to the ongoing process of the EU coming undone. Not in one big blow, but step by step. A steady rolling back of integration with a Brexit already looming on the horizon, and a club of politicians so focussed on their narrow national interest that they decided to ignore the refugee crisis at the EU’s southern borders – the biggest humanitarian crisis to date, which will soon and certainly become the next big political challenge to the European project, when Schengen will finally break down. Therefore, a Grexit cannot be in the German interest. For the German chancellor, the options for the way ahead in the Greek crisis – be it rescue packages, haircuts, or a Grexit – are thus a choice between extremely bad or worse.
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