One month to get out of trouble

“It is vital that we reach a global agreement at the next European Council meeting on 25 March. If we do not, things will be very diffcult both for Europe and for Greece," said Prime Minister George Papandreou yesterday in his summary of the situation after a year of austerity delivered before German Chancellor Angela Merkel. Emphasising that “Europe must assume its responsibilities,” he argued that the time had come “to put this story behind us and to turn over a new leaf so as to avoid another protracted crisis.”

For the Prime Minister, the main priority is an agreement that will allow him more time to repay the loan of 110 billion euros from the EU and the IMF. This option is already on its way to being approved, “but the decision should not be rushed, and ought form part of an overall response to the crisis. That is what is best for Greece.” However, as it stands, Angela Merkel, who is doubtless still smarting from the humiliating defeat of her party in Hamburg regional elections on 20 February, is reluctant to back an overall solution to the problem of the eurozone, which includes the “Greek problem.”

As a government source has pointed out, this effectively means that “everything remains on the table” for negotiation. Although the Chancellor has acknowledged the “difficult” decisions faced by the Greek government, she is refusing to grant more time for repayment, which she argues should be authorised by a European decision, and the stand-off will likely continue because the Council summit at the end of March will coincide with regional elections in Baden-Wurttemberg, which will place Angela Merkel under renewed pressure from her party. Given that the German press already expects her to face “punishment” at the polls for her shifting position on the issue of Greece, she is highly unlikely to come forward with a policy that is more supportive of the single currency before the end of March.

With regard to the time frame for the reimbursement of the Greek bailout, Angela Merkel “is considering” the available options which are “all up fordiscussion.” At the same time, she will be evaluating the results of austerity measures to see if Greece should join the “competitiveness pact”, while Greece has continued to argue that it will be unable to meet the onerous conditions required by the proposal for fiscal convergence, which was presented in collaboration with France’s Nicolas Sarkozy.

At the meeting with Papandreou, the German Chancellor voiced her support for Greece and insisted that “many Germans are convinced that Greece will succeed, but that continued effort will be required”— a remark that predictably provoked an outcry in Greece where people are convinced that further austerity measures are on the cards in spite of assurances to the contrary from their Prime Minister. In the wake of visits to Germany and Finland, Prime Minister Papandreou is expected to travel to other European countries. At the same time, social dissent in Greece continues to grow. The country is now in the grip of its eighth general strike since the introduction of austerity measures.

Currency

Time to exit the euro?

"Bankruptcy and a return to the drachma": for the daily Avriani, the economists and Bundesbank President Axel Weber have left Greece with no other choice. In an opinion piece published by the Financial Times, Weber has announced that he will oppose the purchase of sovereign bonds by the European Stability Mechanism, a measure that could have relieved the pressure on Greek debt. At the same time, Süddeutsche Zeitung reveals that a report from the European Economic Advisory Group predicts that Greece will probably need another bailout before 2013, and argues that the country should exit the Eurozone and go back to the drachma.