Making sense of Merkel
There should be no doubt that Angela Merkel wants to keep the euro zone intact. Her played-up indifference to the possibility that Greece might leave if it doesn’t find a deal with its creditor partners is part of that long game. The German chancellor just wants to send an advance warning to Alexis Tsipras, the leader of the left-wing Syriza party who may emerge as the winner of the Greek parliamentary election on Jan. 25. Investors should see through the bargaining hubbub. The next Greek crisis will have its cliffhangers – but Berlin will ensure it ends in compromise.
Germany’s priorities haven’t changed in the last two years, shaped by two conflicting concerns. On one hand, it doesn’t want to become Europe’s main paymaster, funding the currency area’s stricken periphery economies, thus encouraging unsustainable policies. On the other hand, German policymakers are seriously worried about the economic and political repercussions of a euro collapse. The main fear is that the end of the monetary union will deal a fatal blow to the larger European project at the heart of Germany’s “Staatsräson” (reason of state).
Berlin’s behaviour since the start of the euro crisis has been driven by these two concerns. Hence its longstanding and tedious insistence on conditionality when agreeing on aid to indebted countries. Germany effectively trades money for reforms – and austerity.
Angela Merkel is currently sending two veiled messages to Alexis Tsipras. First, if Greece reneges on its part of that deal – such as decreeing a unilateral haircut on its debt – it cannot expect Germany to stick fully to its commitments. Second, a new government in Athens should not use the threat of leaving the euro as a bargaining chip in the unavoidable upcoming negotiations – if only because, in German thinking, such a move would be much more destructive for Greece than for the rest of the currency area.
That does not imply that the next Greek government is completely boxed in. For instance, Syriza’s intention to prune the country’s oligarchs’ vested interests should go down well in Berlin. The message Merkel wants to hammer home is that after a new government takes over in Athens, Greece will still have to trade a quid for a quo.