Germany defeated Greece in the EU Summit and received huge concession and a humiliating capitulation. Tsipras, the hero of the Greferendum, was severely defeated by the scare of a Grexit.
However, as time passes by and despite the probable approval of harsh austerity in the parliament, there are signs that Germany’s hard line could backfire. Here are 5 fronts were the attitude of German finance minister Wolfgang Schäuble begins to take its toll:
1) Insisting on the IMF
Greece wanted the IMF out of Athens, but Germany insisted and the IMF is in. This was made to keep international legitimacy and also to share the bailout burden.
But now, not only does the IMF repeat its asking for debt relief, but also heavily criticizes the deal reached on Greece. It is basically demanding a “much higher upfront haircut than Europeans are willing to consider” or a “transfer union” – the dreaded term for the German economy. Maybe insisting on IMF participation on the bailout was not so smart. Germany gets the IMF with higher demands for a haircut and now also France sides with the IMF against Germany
2) UK involvement against Germany
Not only did Brits see the ugly works of Schaeuble, but they are now asked to pay for the deal. It’s important to remember that the deal included harsh Greek austerity to be passed in parliament only for getting a bridge loan that would enable talks for a third bailout. And where will the money for the bridge loan come from? Well, the old EFSM mechanism which includes also non euro-zone countries including Britain.
Despite some objections, it seems that the UK could give in. After all, this is only a bridge loan that will be repaid by the full bailout. Let’s assume we will see a full bailout come to life after 2-4 weeks of negotiations. The UK will keep the pressure to conclude a deal quickly (being drawn by the Germans into the Greek crisis) and their stance will not be very favorable for Germany.
3) Strained relations with the ECB
The European Central Bank is the only organization with real tools: it enforced the closure of Greek banks when Greece went to a referendum and was probably active in markets to prevent contagion to other countries.
During the negotiations, Germany insisted on no haircut because it is against the rules. ECB president Mario Draghi noted that there was already one restructuring and Schaeuble got mad telling him something like “I’m not stupid”.
While German influence is still strong within the ranks of the Frankfurt based institution, such relations do not help anybody.
4) Chances of a successful implementation in Greece
Greek finance minister Tsakaltos said in parliament that the deal is recessionary and he is a soft spoken person. Actually, no one believes this is a good deal that will help Greece grow. Less growth means less money paid back.
In addition, Tsipras gave in to the worst humiliation and said it out loud on TV: “I had a knife held to my throat”. Anger towards Germany is mounting in Greece. So even if the plan is perfect for everybody, what are the chances for full implementation?
5) Even damage at home
There is no appetite for another bailout for Greece in the euro-zone’s locomotive. But there’s also not appetite to see the local government damage relations within the EU. The hard line by the German finance minister Schaeuble was criticized by many, who wish to see Merkel “rein him in”. He went too far, and now his influence could be diminished.
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