Berlin toughens its stance towards Greece

Wolfgang Schauble's tough talk this week - ruling out a near-term deal between Athens and its creditors - was more than a statement of the obvious by the German finance minister. It reflected a hardening of German political opinion that will make any agreement that much more difficult to achieve.

German chancellor Angela Merkel is approaching the point at which her natural tendency to defuse tensions and find accommodation could be overwhelmed by the lack of progress in the negotiations between Greece and its eurozone partners - and by growing opposition in her conservative CDU/CSU bloc.

"Berlin is much more prepared to let Greece go than people [outside Germany] believe," says a European diplomat. "Listen to Wolfgang Schauble and you can see that . . . he is completely despairing about Greece."

Mr Schauble's spokesperson said the eurozone finance ministers' meeting on April 24 was not a final deadline to strike a deal with Greece. The negotiators have until the end of June to decide whether they can come to an agreement with Athens that would allow them to unlock some €7.2bn in frozen bailout funds, she said.

But it is widely feared Greece may run out of money sooner, as is shown by the urgent bid Athens made to delay repayment of International Monetary Fund loans.

In the meantime, distrust towards Greece is growing among politicians in Germany, its biggest creditor. They bemoan Athens's failure so far to put forward what they consider comprehensive proposals in the negotiations. The atmosphere has also been poisoned by a Greek push for second world war reparations. Even German MPs sympathetic to Greece insist the issue should not be confused with the financial aid talks.

"A lot of trust has been destroyed in the last few months," Hans Michelbach, the CDU/CSU bloc's whip on parliament's finance committee, told the FT. "We can see no credibility in the negotiations with Greece. So we are losing support for Greece day after day in Germany."

Kurt Lauk, president of the CDU's economic council, a hawkish business lobby group, agreed, saying: "In Germany a Bundestag majority to make further loans to Greece is highly questionable."

In February, the government won support for a renewal of the existing package, which had been suspended just before elections brought in the new radical Greek government. If the negotiators strike a new deal that does not breach that package's parameters, Ms Merkel does not need to return to the 598-seat parliament.

But the chancellor and her aides have been acutely aware that 29 of the 32 MPs who voted against the February plans are from her CDU/CSU bloc. Even if Greece now secures a deal, it will almost certainly need another big aid programme later this year, requiring the Bundestag's support.

Ms Merkel is known for watching public opinion carefully. In a poll this week by Penn Schoen Berland, a market research group, 44 per cent of those surveyed favoured Greece leaving the euro, against just 20 per cent backing its continued membership, with 36 per cent undecided.

In public, Berlin remains committed to concluding the negotiations and avoiding a Greek default and possible Grexit.

Officials deny they are working on any Plan B, such as a managed default that would keep Athens in the euro or a managed exit. But politicians and their advisers are increasingly ready to break ranks - and some are now openly calling for such preparations. "We must discuss the implications because otherwise we cannot understand what may happen," Mr Lauk said.

Others are more sanguine. Henrik Enderlein, economics professor at Berlin's Hertie School, believes Mr Schauble is simply posturing. "Schauble is the bad cop. His negotiation tactics can only succeed if everyone believes he is serious about throwing Greece out," he said. "Sure, the Greek government will have to make a first step, but then a compromise is possible - even with Schauble."

If Mr Enderlein is right, then Mr Schauble is a convincing actor. In one of his more telling comments this week, he said: "Whatever happens in Greece, Greece remains a part of Europe and the European Union." Deliberately or not, he neglected to mention the eurozone.

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