Greece: Merkel's euro headache returns

  • 8 October 2012
  • From the section Europe
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German Chancellor Angela Merkel speaks at a youth union convention in Rostock, 5 October
Image caption It will be Angela Merkel's first visit since the bailouts

The moment will be watched closely. On Tuesday the German Chancellor, Angela Merkel, will visit Athens. It will be her first visit to Greece since the crisis erupted nearly three years ago.

She is regarded by many Greeks as the author of austerity. She is held responsible for demanding that Greece make swingeing cuts in exchange for the two bailouts it has received. The German flag has been burnt at demonstrations and one paper has dressed Angela Merkel in a Nazi uniform.

The visit will spark protests. The Prime Minister, Antonis Samaras, says "we will receive her as befits the leader of a great power and friendly country".

The unions see it differently. They have called demonstrations against what they call the "neo-liberal policies of Mrs Merkel and the EU's core leadership". The radical leftist party Syriza is planning a rally against the visit. A right-wing party intends to go to the German embassy to protest the "transformation of our country into a German protectorate".

The meeting is a gamble. If there is chaos it will only underline for the German public that Greece is a lost cause. Angela Merkel, however, is making a calculation. She is signalling that she wants Greece to stay in the eurozone. She has silenced German politicians who in early summer were saying a Greek exit held no fears for them.

"This is symbolically very important," says Carsten Brzeski, senior European economist at ING. "It points clearly to the fact that Merkel is not going to drop Greece, even though things are not going well for them."

Talks between the Greek goverment and the so-called troika - debt inspectors from the EU, IMF and ECB - are continuing. Greece has to find 13bn euros (£10.5bn; $17bn) in savings to qualify for a 31bn loan.

The Greek finance minister says "there are differences that have not been settled". Without the loan Greece will run out of money by the end of November.

Today the troika will be in Luxembourg for the meeting of eurozone finance ministers. They will deliver an update. The crucial decisions lie ahead, probably later in October. Chancellor Merkel's instinct is for a fudge. But here's the problem. Greece's public debt is 346bn euros, 179% of GDP. It is heading into the sixth year of recession. There is no way it can reach the targets set for it.

Sooner or later the big questions will have to be answered. Does Greece need a further restructuring of its debt as the IMF is hinting, or even a third bailout?

In the meantime the Greek prime minister is warning that conditions in Greece are similar to those in the Weimar Republic in Germany in the 1930s. Plenty for Chancellor Merkel to think about.