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Decisions that will shape Greece's future are being made in Frankfurt Decisions that will shape Greece's future are being made in Frankfurt
(35 minutes later)
When Alistair Darling was faced with the hair-raising news in autumn 2008 that Royal Bank of Scotland and Halifax were on the brink of being forced to close their cash machines, there was never a serious doubt that, whatever Mervyn King’s moral qualms, the Bank of England’s job was to underpin the UK’s financial system as “lender of last resort”.When Alistair Darling was faced with the hair-raising news in autumn 2008 that Royal Bank of Scotland and Halifax were on the brink of being forced to close their cash machines, there was never a serious doubt that, whatever Mervyn King’s moral qualms, the Bank of England’s job was to underpin the UK’s financial system as “lender of last resort”.
Yanis Varoufakis, the Greek finance minister, and his colleagues in Athens have also faced the prospect of a total financial collapse this week – but key decisions about whether, and on what terms, to prop up its struggling banks are being taken thousands of miles away in Frankfurt. Yanis Varoufakis, the Greek finance minister, and his colleagues in Athens have also faced the prospect of a total financial collapse this week, but key decisions about whether, and on what terms, to prop up its struggling banks are being taken hundreds of miles away in Frankfurt.
And that is the desperate background against which the Greek prime minister, Alexis Tsipras, urged voters on Wednesday night to strengthen his negotiating hand by delivering a clear rejection of the latest bailout plan. That is the desperate background against which the Greek prime minister, Alexis Tsipras, urged voters on Wednesday night to strengthen his negotiating hand by delivering a clear rejection of the latest bailout plan.
Greek bank branches are already closed, a powerful symbol to citizens of a government that has lost control of events. But Tsipras and Varoufakis know that without support from the European Central Bank, capital controls and withdrawal limits would just be the start. The Syriza government faces presiding over total financial collapse. Greek bank branches are already closed, a powerful symbol to citizens of a government that has lost control of events, but Tsipras and Varoufakis know that without support from the European Central Bank, capital controls and withdrawal limits would just be the start. The Syriza government faces the prospect of presiding over a total financial collapse.
As the Greek bank run continued in recent weeks, the ECB had repeatedly extended the ceiling for its crisis loan scheme, known as emergency liquidity assistance (ELA), which permits the Greek central bank to prop up Greek lenders. As the Greek bank run continued in recent weeks, the ECB had repeatedly extended the ceiling for its crisis loan scheme, known as emergency liquidity assistance (ELA), which permits the Greek central bank to prop up the country’s lenders.
When the ECB opted to leave the ELA ceiling unchanged on Sunday, it didn’t amount to pulling the plug on the banks – that would be a “political” decision. But as Darling, King and their colleagues discovered during the credit crunch, in times of deep crisis, every decision becomes political. When the ECB opted to leave the ELA ceiling unchanged on Sunday, it didn’t amount to pulling the plug on the banks. That would be a “political” decision, but as Darling, King and their colleagues discovered during the credit crunch, in times of deep crisis, every decision becomes political.
The ECB’s choice clearly delivered a warning that Frankfurt – and by extension Brussels – might be willing to watch the Greek banking sector fail. The ECB’s choice clearly delivered a warning that Frankfurt, and by extension Brussels, might be willing to watch the Greek banking sector fail.
So perhaps we should not be surprised that there are signs of Greek resolve starting to crumble. Despite the fiery rhetoric including the call on the Greek public to reject the bailout terms in Sunday’s poll, a leaked letter from Tsipras has emerged in which he accepts many of the conditions of the deal his government rejected so vehemently just a few days ago. So perhaps we should not be surprised that there are signs of Greek resolve starting to crumble. Despite the fiery rhetoric, including the call on the Greek public to reject the bailout terms in Sunday’s poll, a leaked letter from Tsipras has emerged in which he accepts many of the conditions of the deal his government rejected so vehemently just a few days ago.
It may already be too late. Rather than glorying in what looks like the abject capitulation of the radical Syriza government, Wolfgang Schäuble, the German finance minister, told reporters in Berlin he had not even read the letter, and didn’t consider Tsipras and his colleagues to be trustworthy negotiating partners.It may already be too late. Rather than glorying in what looks like the abject capitulation of the radical Syriza government, Wolfgang Schäuble, the German finance minister, told reporters in Berlin he had not even read the letter, and didn’t consider Tsipras and his colleagues to be trustworthy negotiating partners.
Some of his eurozone partners appeared to see things differently, with the French president, François Hollande, calling for a new deal to be done “tout de suite!”.Some of his eurozone partners appeared to see things differently, with the French president, François Hollande, calling for a new deal to be done “tout de suite!”.
But Germany – and particular Angela Merkel – has always been in the driving seat during this crisis. Despite France’s concerns, and similar sympathetic noises from Italy, Wednesday’s meeting of eurogroup finance ministers culminated – predictably – in an insistence that talks cannot resume until after the poll is over. Germany, however, has always been in the driving seat during this crisis. Despite France’s concerns, and similar sympathetic noises from Italy, Wednesday’s meeting of Eurogroup finance ministers culminated – predictably – in an insistence that talks cannot resume until after the poll is over.
Germany is backed by other key EU decision-makers, including the European council president, Donald Tusk, who adopted the same tone of parental disapproval favoured by the eurogroup president, Jean-Claude Juncker, tweeting: “Europe wants to help Greece. But cannot help anyone against their own will.” Germany is backed by other key EU decision-makers, including the European council president, Donald Tusk, who adopted the same tone of parental disapproval favoured by the Eurogroup president, Jean-Claude Juncker. He tweeted: “Europe wants to help Greece. But cannot help anyone against their own will.”
So having taken the gambit of calling a snap referendum, and failing to tempt creditors back to the table, Syriza was left with little option but to ramp up the rhetoric. Yanis Varoufakis, Greece’s finance minister, wrote a defiant blogpost calling on the Greek public to vote no in Sunday’s referendum. So having taken the gambit of calling a snap referendum, and failing to tempt creditors back to the table, Syriza was left with little option but to ramp up the rhetoric. Varoufakis wrote a defiant blogpost calling on the Greek public to vote no in Sunday’s referendum.
He claims a rejection of the terms that are on the table – or at least, were on the table before last weekend’s dramatic events – will help his government to return to negotiations, and secure a better deal, including debt relief. He claims a rejection of the terms that are on the table – or at least, were on the table before last weekend’s dramatic events – will help his government to return to negotiations and secure a better deal, including debt relief.
The International Monetary Fund repeated that debt relief must be a part of any sustainable solution to Greece’s five-year crisis. As Varoufakis put it, “the IMF, the United States’ government, many other governments around the globe, and most independent economists believe – along with us – that the debt must be restructured.”The International Monetary Fund repeated that debt relief must be a part of any sustainable solution to Greece’s five-year crisis. As Varoufakis put it, “the IMF, the United States’ government, many other governments around the globe, and most independent economists believe – along with us – that the debt must be restructured.”
How the Greek people respond to their combative finance minister’s call to arms is likely to depend on whether they blame him and his colleagues, or Frankfurt and Brussels, for their shuttered banks and €60-a-day cash withdrawal limits. How the Greek people respond to their combative finance minister’s call to arms is likely to depend on whether they blame him and his colleagues, or Frankfurt and Brussels for their shuttered banks and €60-a-day cash withdrawal limit.
Yet the truth is that even if Varoufakis and Tsipras are emboldened by a ringing rejection of austerity in Sunday’s referendum, as they hope, they may find it hard to persuade Germany, which believes there has been a fundamental breakdown of trust, to reopen the door to negotiations. The truth, however, is that even if Varoufakis and Tsipras are emboldened by a ringing rejection of austerity in Sunday’s referendum, they may find it hard to persuade Germany, which believes there has been a fundamental breakdown of trust, to reopen the door to negotiations.
And if Greek voters deliver anything but a resounding no, Tsipras and Varoufakis will surely have to step down – as, indeed, Tsipras has already suggested he would. If Greek voters deliver anything but a resounding no, Tsipras and Varoufakis will surely have to step down – as, indeed, Tsipras has already suggested he would.
Berlin appears to have decided that no matter what message the Greek people think they’re sending to the world, it can’t get down to serious talks until there has been regime change in Athens. Berlin appears to have decided that no matter what message the Greek people think they’re sending to the world, it will be unable to get down to serious talks until there has been regime change in Athens.