Germany Buckles on Greece Already; Advantage Syriza

Now that Germany's ridiculous bluff  that "Greece does not matter any more" failed to produce the desired reaction, German Lawmakers Say Greek Debt Talks Possible After Vote.

Germany is leaving the door open to discussing debt relief with Greece’s next government, lawmakers in Chancellor Angela Merkel’s coalition said, signaling a more flexible stance than her administration has taken publicly.

While writing off Greek debt isn’t on the table, talks on easing the repayment terms on aid that Greece received from European governments are possible after the country’s parliamentary elections on Jan. 25, the lawmakers from Germany’s two biggest governing parties said. The condition is that Greece sticks to its austerity commitments, they said.

“There should be talks with any government that emerges from the election,” Ingrid Arndt-Brauer, a Social Democrat who chairs the lower house’s finance committee, said in an interview. “You can talk about extending maturities and easing the interest rate on loans with a left-wing government, too.”

A senior lawmaker from Merkel’s Christian Democratic Union said Germany will talk with any elected Greek government, including about an easing of aid conditions, as long as Greece doesn’t renege on its austerity commitments. The lawmaker asked not to be named because coalition discussions are private.

The comments by lawmakers suggest there’s leeway in German policy even as CDU leaders publicly refuse to offer Greece concessions. Merkel’s defense of the euro is under attack by Alternative for Germany, an anti-euro party founded in 2013 that’s won seats in three state assemblies and the European Parliament. A Finance Ministry spokeswoman in Berlin declined to comment on possible Greek debt relief.

Merkel Displeased

Speculation about Greece’s future in the euro area surged after Der Spiegel magazine reported this week that Merkel would be prepared to let the most-indebted country leave the bloc. Her comments today were her first on Greece since the report.

Merkel’s spokesman, Steffen Seibert, says Germany’s goal remains for Greece to pursue its economic overhaul and stay in the euro, and the chancellery’s “political leadership” isn’t working on blueprints for a Greek exit.

Merkel was displeased with the Spiegel report because market turmoil may drive more voters to Syriza, according to a person with direct knowledge of her views who asked not to be named citing internal discussions.

Advantage Syriza

The immediately preceding paragraph seems backwards.

I suggest those statements by German politicians will allow Alexis Tsipras, head of the Greek radical-left party Syriza, to make the claim "See... I was right. We can renegotiate the debt".

And if that is how Greek voters take it, those statements should all but seal the election for Syriza. In fact, if Tsipras plays his cards properly and avoids fatal gaffs in the coming days, I now expect him to win enough seats outright as opposed to him needing to reach out to coalition partners.

For coalition possibilities, please see Greek Polls Show Syriza on Cusp of Victory; Greek Political Party Analysis; Intentions Matter Not.

Grexit Likely?

The likelihood of Greece’s leaving the euro is “very low,” Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, said in an interview with Bloomberg Television yesterday. “The reality is that the vast majority of Greeks want to stay in the euro. I think they correctly realize that if they drop out, the situation is going to get much, much worse.”

Questions of the Day

Since when do the opinions of citizens matter?

The US attacked Iraq against voter wishes. Obamacare was rammed through against voter wishes. Massive bank bailouts took place in the US and elsewhere against voter wishes. Voters wanted criminal prosecutions of bank fraud. Did that happen?

What voters wanted didn't happen. And what they didn't want, did happen. Why should voter opinions matter in Greece when they don't matter anywhere else?

Hardball

This is all about hardball and how much Tsipras wants to press the issue. If Germany agrees to cut interest to zero, delay the start of payments, and stretch out payments for decades, Tsipras is likely to say OK, even if he has to agree to more austerity for a while.

However, every financial improvement in Greece gives it more and more leverage down the line in further requests.

Let's return to a statement from the article "While writing off Greek debt isn’t on the table, talks on easing the repayment terms on aid that Greece received from European governments are possible ... lawmakers from Germany’s two biggest governing parties said."

Excuse me for pointing out that changing the terms are in fact bondholder haircuts. Thus, Tsipras already got some of what he promised, and that will strengthen his hand.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com