Now Is the Time for Merkel to Assume Full Responsibility as Europe's De Facto Leader

THE FACTS. Greece has a debt of €315bn - about 175% of GDP - despite creditors writing down debts in a renegotiation in 2012. The average monthly Greek wage is €600 ($690). Unemployment is at 25%, with youth unemployment at 53%. The Greek economy has shrunk by 25% since the start of the eurozone crisis. Greece's debt is 175% of GDP. Greece has borrowed €320 billion from the EU, ECB and IMF. That was the problem facing the Greek electorate when they voted for the political party that understood their unsupportable suffering at the hands of the eurozone, led by German Chancellor Angela Merkel, who is driven by the desire to use structural reform and austerity to solve Greece's - and the eurozone's - problems. We asked several days ago if Merkel had the capacity to treat Greece in a civilized manner. Here is today's answer.~~~~~ DENIAL OF THE FACTS. Merkel has ruled out further debt cuts for Greece from its creditor nations, putting Greece’s new government on a potential collision course with the EU. Her unyielding statement came as Syriza insists that it will make good on its promises to halve the country’s debt obligations, while scrapping a range of choking budget measures imposed in exchange for the loans. Greece has refused to cooperate with the European Commission, European Central Bank and International Monetary Fund - the Troika overseeing the loans. Instead, the new Greek government will meet with individual creditor nations to seek concessions that are vital if Greece is to emerge from depression. Greek Prime Minister Alexis Tsipras will visit Cyprus, Italy and France next week but has no plans to visit Germany, which fiercely opposes unilateral negotiations. Merkel is adamant that eurozone creditor nations must stand fast on Greece’s debt. In a Friday interview, she said Athens had already been forgiven billions of euros by private creditors : “I don’t see a further debt haircut.” The previous day, German finance minister Schaeuble told Die Welt : “If I were a responsible Greek politician, I wouldn’t lead any debates over a debt haircut.” However, Merkel insists that she does not want Greece to leave the eurozone : "The aim of our policy was and is that Greece remains permanently part of the euro community. Europe will continue to show its solidarity with Greece, as with other countries hard hit by the crisis, if these countries carry out reforms and cost-saving measures." Schaeuble warned Greece about its negotiation tactics on writing off debt : "There's no arguing with us about this, and what's more we are difficult to blackmail." ~~~~~ COMING CONFRONTATION. Greece's current loan program ends on 28 February. A final bailout tranche of €7.2 billion still has to be negotiated, but Tsipras has refused to meet with the Troika. Greece's new prime minister has insisted his country will fulfill all its loan obligations to creditors and he has appointed private bank Lazard to advise him. In a prepared statement, Tsipras said : "I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole. No side is seeking conflict and it has never been our intention to act unilaterally on Greek debt." Tsipras said his commitment to end austerity and restart growth in Greece "in no way entails that we will not fulfill our debt obligations to the ECB and the IMF." Yet, with the Greek reality staring at them, the northern European power structure has issued inflexible warnings to Greece that Greece’s triumphant leftists must pay the country’s debts and stick to the letter of the hated 'Memorandum’ imposed by creditors. If premier Alexis Tsipras breaches the terms of the Troika bail-out -- signed by earlier Greek leaders under duress, and deemed unjust in Athens -- Europe will cut off €54 billion of support for the Greek banking system and force the country out of the eurozone. ~~~~~ THE FACE OF THE FUTURE. Germany's repetition of its desire to keep Greece in the eurozone stems from its worry that if concessions were granted to Greece, other struggling EU member states would make similar demands. This week, tens of thousands of people have marched through Madrid’s streets in a show of strength by Spain’s fledgling radical leftist party Podemos ("We Can"), that hopes to repeat the success of the Syriza party in Spanish elections later this year. However, Germany has apparently convinced France to follow its tough line on debt relief. Yesterday, French President Hollande and Merkel had dinner in Strasbourg, and a source close to the French president’s office told Reuters that Hollande and Merkel agreed that it is important to respect the choices of the Greek people and for Greece to respect its commitments to the holders of its debt. "There is a need for dialogue and exchange to better understand the intentions of the Greek government,” the source said. But, in an attempt to break the consensus among eurozone nations, the new Greek finance minister, Yanis Varoufakis, is meeting with his French counterpart, Michel Sapin, in Paris. Varoufakis seemed to rule out agreeing to the wishes of eurozone creditors : “We are not prepared to carry on pretending and extending trying to enforce an unenforceable program which for five years now has steadfastly refused to produce any tangible benefits.” Varoufakis told the BBC : "The disease that we're facing in Greece at the moment is that a problem of insolvency for five years has been dealt with as a problem of liquidity." ~~~~~ THE PROBLEM THAT WILL NOT GO AWAY. In 2012, German politicians declared that the euro crisis was over. Germany and the European Union, they said, had weathered the storm. Today, we know that the German euphoria was one more mistake in a continuing crisis in which Greece is the poster child. Even before the Syriza victory in Greece, it was clear that the crisis could worsen, although EU central bank managers and political leaders continued to spin their fairy tale. Austerity - the policy of saving your way out of a lack of demand - does not work. In a shrinking economy, a country’s debt-to-GDP ratio rises rather than falls because the growing debt numerator is divided into a smaller GDP denominator. And undertaking large-cost structural reform in a recession will raise taxes while salaries fall and jobs disappear. France is now enmeshed in such a disaster. What is needed is jobs - but austerity prevents job formation. The eurozone experience with this economic model has resulted in high unemployment, abnormal levels of poverty and lack of confidence in political leaders. The warnings of economists about pending failure and political backlash went unheeded, especially by Merkel’s government that stubbornly clings to its belief that spirit-breaking austerity is the only path to economic recovery. The rest of the EU had little choice but to go along. Now, with Greece’s vote, the backlash has arrived. Sensing what was coming, the Swiss National Bank unexpectedly abandoned the franc’s euro peg. The euro, the SNB’s move implied, remains as fragile as ever. The subsequent decision by the European Central Bank (ECB) to buy more than €1 trillion in eurozone government bonds - a move that was late but necessary - has reduced confidence. If no agreement is reached with the Troika holding 85% of Greece's debt or individual countries holding 15%, Greece will default. What would a Greek default mean for the euro? Nobody knows -- pressure on the euro? a eurozone breakup? And, Germany and prosperous Germans would be at the middle of the crisis. A compromise would result in less austerity, causing somewhat lesser domestic risks for Merkel. And, the Greek election outcome will ripple through Spain, Italy and France, where anti-austerity political sentiment is rising and political pressure on eurozone finance ministers is increasing. It doesn't take a crystal ball to see that the latest chapter of the euro crisis will end Germany’s austerity policy, unless Merkel really wants to take the enormous risk of letting the euro fail. There is no indication that she does, although rumors persist that Germany already has new Deutschmarks printed and ready for use. ~~~~~ Dear readers, the Greek election has already defeated Merkel's austerity strategy for saving the euro. Without growth, structural reform is not possible. That is Greece’s lesson. When will Merkel accept this? Will it take a similar electoral defeat for Spain’s conservatives to force Merkel to face reality? Merkel should act - assume her full leadership responsibility - while she has freedom to manoeuver. Otherwise, she may wake up to an EU of far right and far left governments elected by Europeans fed up with German austerity and determined to scrap the euro and possibly the European Union -- where all her hopes for the euro, the EU and Germany are in tatters.