Waiting for a German move
The US elections are over and the Greece situation did not blow up just as it wasn?t supposed to before the polls there. Now we may have a new milestone to wait for, as sources in Europe suggest that German Chancellor Angela Merkel will not be looking for a comprehensive solution for Greece before the elections in her country, which will take place some time in the fall of 2013. By ?comprehensive solution,? we mean whether Greece will exit the eurozone or a long-term answer will be found to its debt problem.
The leadership of the International Monetary Fund and the Americans convinced Berlin that a Greek exit might seem cheap in terms of absolute numbers, but the repercussions may be unpredictable, and Merkel seems to have decided that she does not want to take such a risk before federal elections. On the other hand, she cannot offer a definitive solution to the problem of Greek debt sustainability, as she is being pressured to do by IMF Managing Director Christine Lagarde and the US government. For this to happen, Greece must be granted a haircut on debt held by the official sector. German Finance Minister Wolfgang Schaeuble, meanwhile, has said that if this were to happen, Germany would not give Greece any more assistance. Merkel is afraid that such a move would either be blocked by the German parliament or would come at a high political cost.
And so the German chancellor has stuck to the middle ground and Berlin will do everything in its power to put off a solution to the Greek problem until after fall 2013. The troika, for its part, will be convinced to draft reports that are not so openly negative in order not to put Berlin on the spot and so that the Greek debt can be sorted out temporarily using various tricks and half-measures.
In politics, though, and especially at times of crisis, you can rarely plan strategy with German precision. Greece may still blow up at the worst possible time for Merkel if the problem of liquidity in the real economy is not solved or if Schaueble insists once more on a supervisory mechanism for Greece that is deemed unacceptable by the IMF and other European leaders.
For Greece, Germany?s stance means that it will continue to exist in a state of uncertainty. If the threat of a euro exit is not completely dispelled, there will be no foreign investment and the mood in the domestic market will never change. The disbursement of the bailout loan will certainly provide some breathing space, but no spectacular changes, while there is also a danger that Greece itself will upset the cart in one way or another as it is wont to do. In Greek political time, 11 months is a very long time, especially given the situation right now.