No miracles

There was a point in the summer when there was a barrage of indisputable information that the German leadership had concluded that a Greek exit from the eurozone was an acceptable solution that would be applauded by the markets. It is obvious that something had changed by the end of the summer, improving Greece?s outlook. People who are close to European developments believe that the Americans and the International Monetary Fund convinced Berlin that a Greek exit from the euro would be anything but simple. It is said, in fact, that the IMF drafted a confidential report proving how unpredictable and complicated such an exercise could be.

The fact is that German Chancellor Angela Merkel — and to a lesser degree her Finance Ministry — decided that Greece must remain in the euro fold, unless it openly flouts the demands of its creditors. Here, however, the Germans had two serious problems. One was the extremely negative view of Greece by public opinion and those who mold it. Merkel made an enormous effort to reverse this climate on a public and private level, and this is clear in the change of tone seen in the German media and that expressed by German politicians. The German chancellor will vie in the next elections as a champion of the euro and of its cohesion and stability. During her visit to Athens on Tuesday, her mind will obviously be on the German public and mainly on the euroskeptics who have yet to follow her lead.

Merkel?s second big problem is the fact that while Greece has made huge cuts in its public spending it is still seriously lagging on the structural reform front. Electronic prescriptions, the cadastre and the fight against tax evasion are among the areas that are still at a very nascent stage. This means that Merkel knows that Greece will only squeak by the troika?s evaluation, however harsh the new cutbacks it imposes are. Her message to the Greek leadership is bound to be clear: Make impressive and quick progress on reforms and I will reward you.

The chancellor is clearly caught in the middle between enraged Greeks and skeptical Germans.

But we should not expect magical solutions. Germany is not going to offer us a magic carpet with which to fly away from our problems and Greece is not going to become a paradigm of organization overnight. We will continue along the same difficult path, balancing between keeping a lid on a social explosion and keeping the government?s commitment. Merkel?s visit will surely bring some stability in terms of Greece?s position in the eurozone, but we should not expect any miracles.

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