Merkel gearing up for a confrontation with Greece

Angela Merkel is staking out her hardline austerity negotiating position in preparation for the possibility of an anti-austerity Greek government headed by Alexis Tsipras and his SYRIZA party coming to power in Greece with the Greek elections scheduled for January 25.

Griechenlands Austritt aus dem Euro verliert seinen Schrecken Rheinische Post 31.12.2104 reports on a statement by the deputy head of Merkel's CDU caucus in the Bundestag, Michael Fuchs, laying out Angie's threats. (The English-language biography on his website gives his party position as "Vice-Chairman of the CDU/CSU Parliamentary Group.")

Reuters provides an English-language report, Euro zone no longer obliged to rescue Greece, Merkel ally says 12/31/2014:

"If Alexis Tsipras of the Greek left party Syriza thinks he can cut back the reform efforts and austerity measures, then the troika will have to cut back the credits for Greece," he said.

"The times where we had to rescue Greece are over. There is no potential for political blackmail anymore. Greece is no longer of systemic importance for the euro."

The remarks are the clearest warning yet to Greek voters from a senior German politician that Athens might lose support if it flouts the terms of its 240 billion euro EU/IMF bailout after early elections next year. ...

On Monday, German Finance Minister Wolfgang Schaeuble warned Greece against straying from a path of economic reform, saying any new government in Athens would be held to the pledges made by the current government of premier Antonis Samaras.

Of course, the assistance Greece is receiving is designed to allow it to keep paying on the enormous and unsustainable debt it has, not to stimulate its depression-devastated economy. So losing that kind of aid doesn't necessarily look to all Greeks as the kind of threat the German government imagines it to be.

It's grim irony in Fuchs' bullying statement is that he accuses Tsipras and SYRIZA of "blackmail." Reuters renders it as "political blackmail." But Fuchs' statement as quoted by the Rheinische Post is more direct, "Es gibt kein Erpressungspotenzial mehr" ("There is now no potential for blackmail").

In reality, it's Merkel and her "Troika" of the European Commission, the IMF and the ECB that blackmailed Greece into accepting the assistance which came at the price of requiring them to load up with an even higher burder of debt, the problem they were officially trying to solve.

Tsipras takes the position that Greece should remain in the EU and the eurozone. But their EU partners also have to recognize that Greece's main problem is the economic depression that needs a Keynesian stimulus for the eurozone economy. He also is insisting that Greece's creditors recognized that Greece cannot repay the amount of debt it is carrying, which in the most recent estimate I saw was around 200% of Greece's GDP. The country has to "take a haircut" on the debt, i.e., a major portion of that debt has to be written off and not paid back.

Merkel and her austerity supporters have been claiming that Greece was showing a major improvement in 2014. Yanis Varoufakis explains in Greek and European prospects for 2015 – Interview in L’Antidiplomatico 01/01/2015:

Over the past two years, no fact could get in the way of the EU propaganda machine which, approximately eighteen months ago, went into overdrive in an attempt to shore up the Samaras government, terrified at the prospect of a new government in Athens that insists of speaking truth to power. Have you noticed how the ‘Greek Success Story’ narrative disappeared once elections became inevitable? What kind or ‘recovery’ was it that went up in a puff of smoke the moment an election appeared over the horizon?

The answer is: a ‘recovery’ that existed only in the realm of propaganda. A ‘recovery’ that was engineered by means of two new bubbles, one in the bond market the other in the market for Greek banking shares – bubbles that burst the moment the Greek people seemed as if they were to have a chance to express what they felt about the said ‘recovery’ in the polling stations. A ‘recovery’ evidenced in one quarter’s positive GDP growth (equal to 0.7%), after seven years of continuous decline, which was due to the sad fact that nominal GDP fell – but for the first time it fell less than average prices did.

He also addresses the blackmail issue:

Exit from the euro is not an idea that a SYRIZA government will ever entertain or use as a negotiating strategy. While it is clear that Greece should never have entered the Eurozone (and, indeed, that the Eurozone should never have been designed the way it was), exiting would inflict massive damage upon everyone. At the same time, the ‘logic’ of the current agreement is busily working toward dismantling the Eurozone. Italy’s social economy for instance is unsustainable under policies inspired by those first tried in Greece in 2010. To save the Eurozone, and indeed to save Europe’s integrity and soul, we need a New Deal for Europe. SYRIZA is determined to kickstart the conversation on what this New Deal should be. Naturally, the outcome of such a debate will be a compromise. Alexis Tsipras, SYRIZA’s leader, knows this: When you are entering a negotiation, you are aiming at a compromise with which all sides can live. To bring it about, you must stake your initial position – which is what the party’s platform does – and set thin red lines which, if the other side crosses, you walk out. One such line, in Greece’s case, must concern the demand that Greece borrows from, amongst others, the ECB to repay the... ECB for bonds that the ECB bought in 2010/1. If Berlin continues to insist on such illogical transactions, a SYRIZA government must simply say ‘No’ and refuse to do it. Whatever the threats. [my emphasis]

Harold Mayerson has a good piece explaining the background of European drama over the Greek elections later this month, Squeezed By Austerity Imposed By Germany, Greece and Spain on Verge of Revolt The American Prospect 01/02/2015:

The policies that the European Union — that is, Germany — has imposed on southern Europe run counter to every lesson history teaches us about how to counter a prolonged economic crisis. In the 1930s, Franklin Roosevelt devised the New Deal not merely to counter the Depression’s effects but specifically to bolster what was then the underdeveloped economy of the American South and Southwest. His remedies extended beyond such successful stimulus programs as the Works Progress Administration, which gave millions of Americans jobs building needed public infrastructure. His policies also were crafted to bring the Southern economy into the 20th century through such programs as the Tennessee Valley Authority and rural electrification. The Jeffersonian anti-statism of today’s South notwithstanding, it was the New Deal and postwar military spending, as well as minimum wage and civil rights legislation, that enabled the Southern economy to catch up with the rest of the nation.

A similar understanding of the economics of depression and under-development could have yielded more successful economic outcomes in the European south over the past few years. German Chancellor Angela Merkel also could have learned a lesson closer to home: It was the austerity policies enacted by Chancellor Heinrich Brüning in the early 1930s that plunged Germany deeper into depression and paved the way for the Nazi takeover. Say this for the German misunderstanding of macroeconomics: It’s consistent. [my emphasis]