Merkel praised in Germany for hard line on Greece debt crisis
German Chancellor Angela Merkel received wide praise at home ahead of May elections for negotiating a bailout package for Greece that limits the costs to Germany.
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In recent days Ms. Merkel faced down critics from within her coalition government and from other European allies, who sought to keep the bailout package within the eurozone. Yet, before leaving for Brussels yesterday to conduct final negotiations, Merkel said Greece would be helped only if all other options were exhausted and if the International Monetary Fund (IMF) provided financial backing. Merkel got her wish.
"It's simply a fact that because at present the handling of deficit procedures isn't sufficiently regulated, Europe isn't in the position to solve such a problem on its own," she told reporters today at the end of the two-day summit of EU leaders in Brussels. They hatched a bailout plan containing all of the provisions she demanded, including veto power for Germany over any financial aid.
It's a political victory for Merkel as she prepares for May elections. A newspaper here today called her Germany's "iron chancellor."
Yet this praise shields the fact that Merkel, under political and economic strain, had softened her stance on the bailout in recent weeks. Agreeing to any bailout plan, no matter the provisions, is an about face from her earlier stance that any IMF involvement in the eurozone would be an embarrassment, and that Greece should bear responsibility for its own debt.
Internal pressures force Merkel to change course
As the severity of the crisis emerged in January, the immediate reaction from Greece and other EU members was that Germany, as the largest economy in the eurozone, should publicly assure investors that Berlin would provide assistance to Athens if necessary. This guarantee would calm investors and allow Greece to raise money through bond issues, they argued.
No such assurance came. The German public was opposed to providing help to what they considered a corrupt Greek government with lavish social welfare spending. Merkel, citing a clause in the European Constitution that prevented one member from bailing out another, repeatedly dismissed calls for German action.
In the following weeks, however, economic and political realities forced Merkel to change her position. Greece needed to raise $26.6 billion in April and May to make loan refinance payments – money that could not be raised without some kind of guarantee of an outside party. If Greece were to default, it would drag down the value of the euro and undermine confidence in the euro zone. The German economy would in turn suffer.