German Chancellor Angela Merkel met her Greek counterpart George Papandreou here tonight to discuss Greece’s financial crisis, as tensions rise over whether Germany will provide crucial support to an EU bailout for the heavily indebted Mediterranean country.
Speaking with Mr. Papandreou by her side, Merkel said the two leaders have a "very good understanding of each other" and added: "Greece and Germany will work together toward a further modernization of Greece."
But Merkel’s show of solidarity is unlikely to quell growing anger in Greece over Germany’s refusal to send Athens a financial lifeline, and the German public’s disdain for Greek workers protesting over wage cuts. Despite pleas from Greece, Merkel has publicly dismissed talk of a bailout, and said before tonight’s meeting that a financial rescue plan would not be discussed.
After the meeting, Merkel told reporters that Europe, in consultation with the US, will fight speculators who are pushing down the value of the euro. Her comments were a criticism of traders who are betting that the euro will fail and sinking its value to the lowest level since May 2009.
Greece seeks EU assurances of bailout; Germany doesn't budge
Ever since Greece admitted the size of its debt – nearly 13 percent of its annual gross domestic product, or four times the amount EU budget rules allow – it has sought some reassurance from the European Union that a bailout would come if necessary. Germany, as the EU’s largest economy, is expected to shoulder most of the financial burden if a bailout does occur.
Merkel has steadfastly refused to offer financial support. Polls show that more than 70 percent of the German public opposes any financial assistance for Greece.
"The German reflex is to spend less and save more to prevent crisis," says Ansgar Belke, research director for international economics at the German Institute for Economic Research in Berlin. "Mediterranean EU members like Greece expect to be able to depend on German savings."
This expectation hasn’t been met.
Reopening World War II wounds
Germany’s refusal to offer financial assistance prompted Greek Deputy Prime Minister Theodoros Pangalos to allege that Greece is still owed reparations for German occupation during World War II. Greek protesters in Athens, marching the streets to protest wage cuts instituted as a cost-saving measure, have used swastikas to protest German refusal to help.
These actions have been perceived as insults here, and the war of words has escalated drastically in the last week.
"Greece has a labor force that is the most undisciplined in the world," says Rodrigo Delgado Aguilera, an international economist at the Chatham House in London. "They have been pampered for decades."
That has caused contempt among Germans, who take great pride in their culture of disciplined work and efficiency. And it has made any talk of a German bailout politically toxic for Merkel.
Uncertainty bad for the euro zone
Despite the success of a $6.83 billion Greek bond auction Thursday, says Aguilera, Germany’s refusal to publicly back Greece has allowed for uncertainty about the strength of the euro to fester and has prolonged the euro’s slide in value.
Aguilera added that without assistance, the crisis in Greece will get worse. Greece needs to pay tens of billions of dollars in amortization payments to lenders in April. Without a guarantee, Aguilera said he is doubtful there is enough confidence in Greece to be able to raise the money necessary to make the payments, and that Greece can go bankrupt trying to pay them.
"The Germans have been [refusing to back Greece] for a long time to counter some of the moral hazard" of setting the precedent of bailing out other EU members, Aguilera said. "I’m not sure they can go on much longer. I understand why the game was played at first, but now it’s not helping."