Greece's Prime Minister Alexis Tsipras has locked horns with Germany's Angela Merkel amid an argument about a Christmas bonus payment for poor Greek pensioners in December. On Friday he visited Berlin to discuss the matter, but no progress was made.
The plan triggered euro zone lenders to suspend a new debt-relief deal. On Wednesday they halted 45 billion euro ($47.7 billion) in short-term debt relief to help the indebted country, which is suffering from a deep recession and high unemployment. In response, the Athens stock market fell sharply.
Freezing the flow of funds to Greece now threatens to trigger a renewed flare-up of the Greek debt crisis and would create a further test for the cohesion of Europe. The debt relief was intended to shore up liquidity.
Just as worrisome is that it precludes Greece from participating in the EU's quantitative easing program.
The harsh move by the EU came after Tsipras announced last week that 617 million euro ($654) will be distributed to 1.6 million low-income pensioners as emergency support. Currently, 1.2 million Greek pensioners live below the poverty level.
Tsipras told reporters before the meeting with Merkel that he would emphasize the "spectacular overachievement" Greece made on revenue targets. As he explained, "We want to heal the wounds of the crisis and help those who have made great sacrifices." He noted that the projections for the Greek economy are 2.7 percent growth in 2017 and 3.1 percent in 2018.
Greece infuriated Germany after announcing and legislating a one-off pre-Christmas payout for low-income pensioners without being consulted. It has asked the institutions involved in Greece's aid program — the IMF, European Central Bank and the ESM — to assess whether Tsipras' actions are compatible with its EU bailout obligations.
At a joint press conference, Merkel reiterated that decisions on the Greek bailout program lay in the hands of these institutions and the Eurogroup.
So far, preliminary assessments by the institutions has raised significant concerns. But a full evaluation will not be released until next week, and any final decision will not be made until the next Eurogroup meeting, which will take place at the end of January.
During the press conference, Merkel said that Greek-German cooperation is now characterized by "good and close relations," while ticking off a list of matters to be discussed, including the cost of the ongoing refugee/migrant crisis.
"We are trying to support Greece. ... We want a fair distribution of refugees throughout Europe," she said.
She also mentioned the Cyprus issue and efforts to find a solution to the decades-old problem of division of the island, a statement that signals a more pronounced German involvement regarding an issue that Berlin previously kept at arm's length.
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Tsipras thanked Merkel for the opportunity to exchange views in person, saying relations with Berlin are characterized by a "sincere exchange" in opinions between the two EU states.
Speaking in broader terms, he called for a "new vision" for Europe, based on courageous decisions, good faith and mutual respect between partners, in order to avoid further uncertainty and consolidate security. "
He also expressed concerns over the resurgent nationalist language emanating from Turkey, especially with recent revisionary statements over the landmark 1923 Lausanne Treaty. "Greece will not accept any questioning of its sovereignty rights," he said, adding that Greece steadily supports Turkey's European prospect but with strict focus on the criteria."
Finally, he said Turkey's volition to support a viable and just solution to the Cyprus issue will soon be ascertained, reminding that Athens is backing a solution without third-country guarantees and occupation troops. "We support a fair and viable solution without guarantees, without occupation troops and without fear for the citizens of Cyprus," said Tsipras in his joint statements with Merkel.
— By Nasos Koukakis, special to CNBC.com