Europe Economy

How German Politics Deepened the Greek Crisis


Those who remember the communications war in the trenches between Number 10 and Number 11 Downing Street in the days of Tony Blair as Prime Minister and Gordon Brown as head of the Treasury might have a sense of déjà vu.

German Chancellor Angela Merkel and her finance minister Wolfgang Schaeuble seem to have had so many disagreements over the handling of the Greek debacle that Schaeuble at some stage last month ordered staff of his ministry to "stop all direct communication" with the chancellery.

Schaeuble, a man who has from the start very much shared "his" then Chancellor Helmut Kohl's vision for Europe and European Monetary Union, had to watch with growing exasperation how Merkel sat on the fence and just let "the mosquito of small Greek problem turn into an elephant of a euro crisis", a well-placed source in the finance ministry told CNBC.

Schaeuble, who sadly is frequently incapacitated by the lingering health issues stemming from the attempt on his life in the 1980s, had seen the Greek problem coming for a long while and warned Merkel that "clear words and maybe action" were needed from Germany and the EU as a whole.

But Merkel chose to stand by and watch and concentrate on domestic matters such as the North-Rhine Westphalia elections next week.

When the finance minister presented his federal budget to the lower house, the Bundestag last month, he wanted to include a spending buffer for Greek aid.

Rumor has it that Schaeuble had penciled in up to 10 billion euros ($13.3 billion) for a possible euro rescue - in order to avoid precisely what is happening now: the government having to back to parliament and bring in legislation for an additional budget.

Grin and Bear It

But Merkel (and also Vice Chancellor Guido Westerwelle of the Liberals or FDP) wanted to hear nothing of it. They wanted to avoid a lengthy budget debate and were loathe to give the opposition ammunition about squandering tax euros for potentially unconstitutional maneuvers.

Schaeuble had to grit his teeth and present a budget without Greece provisions, with the by now very well-known consequences.

Schaeuble wanted to handle the Greek issue inside Europe - by the ECB and the Eurogroup. He wanted to keep the IMF out and kick into motion discussions about institutional progress such as the setting up of a European Monetary Fund (EMF) to deal with future crises of this nature.

Frau Merkel demonstratively showed this notion the cold shoulder and pushed for an IMF involvement.

And she suggested that the Maastricht Treaty for Growth and Stability needed an amendment or at least some additions to it, with provisions to penalize budget offenders such as Greece to be kicked out of the euro zone.

Debtor Nations

Schaeuble, who helped write that pact under Kohl, was ill-pleased; he knew untying the Maastricht pact might also put the role of the ECB and its guaranteed independence up for scrutiny and maybe in some jeopardy.

That's when her finance minister shut the doors and raised a communications wall between his ministry and the chancellery.

Under the fire of crisis, they seem to have opened again. At the end of the day, both Schaeuble and Merkel are pragmatists.

But had Frau Merkel listened to Herr Schaeuble from the beginning, a lot of time and money would have been saved. Even by, and especially for, the German tax payer.