Cold comfort for Greece as Germany, ECB spurn request for time

February 5, 2015, 4:27 PM UTC

Last night, the Frankfurt-based European Central Bank refused his plans to keep the new Greek government funded for a few months while it puts its new economic policies into effect. Today, it got worse, as finance minister Yanis Varoufakis got an even sterner rebuff from his German counterpart Wolfgang Schäuble.

In a joint press conference after talks in Berlin, the two ministers laid bare the gulf between the left-wing Syriza-led government and Germany, the conservative guiding spirit of the Eurozone’s debt-crisis strategy–a strategy that has had mixed results at best, and disastrous ones in Greece, where the economy has shrunk by 25% since 2010.

Varoufakis at one point even took issue with Schäuble’s summary that the two had “agreed to disagree” on key issues.

It was a clash of style as much as substance: Schäuble, a gnarled veteran of five previous bailouts, was made to look mean-spirited and peevish by the youthful, eloquent and–inevitably–open-collared professor from the University of Austin, who spoke fluent English throughout but still struggled to convince that this Greek request for money was any different, in essence, from all those that have gone before it.

The 73 year-old Swabian said the root cause of Greece’s troubles was “in Greece, not in Europe, and definitely not in Germany,” and was scathing about Syriza’s election pledges to end austerity, saying that “promises made at others’ expense aren’t necessarily realistic.”

Varoufakis, for his part, didn’t shy away from mentioning the role played by German companies in exploiting Greek corruption and, even more controversially, warning that the current bailout program had fostered the rise of Nazi-style fascists in Greece (the Golden Dawn party came third in last month’s elections, despite criminal charges outstanding against most of its deputies).

 

Greek Finance Minister Yanis Varoufakis Attends News Conference With Germany's Finance Minister Wolfgang Schaeuble
Eurozone finance ministers know what that look means.Bloomberg via Getty Images
Photograph by Krisztian Bocsi — Bloomberg via Getty Images

 

But there were also flashes of a possible rapprochement, Varoufakis promising that Greece would act “for the benefit of the average European, and Schäuble acknowledging “a moral duty to understand each other and also a moral duty to find solutions.”

For Varoufakis, the way to that solution is a big bridging loan to cover the government until its new policies–so it hopes–restore growth. “All we are asking for is time,” he said, pledging that the government “will do everything we can to put the D-word (i.e. ‘Default’) out of court for good.”

“You may not like the fact that we were elected and we’re a left-wing party, but use us in the context of the European project to turn the page in Greece and in Europe,” Varoufakis said.

Christian Schulz, an economist with Berenberg Bank in London, said the ‘reality shock’ for the new Greek government is already starting to show: not only has it abandoned its call for up to half of its €240 billion ($270 billion) in bailout loans to be written off, and put a stop to a brief flirtation with Russia’s Vladimir Putin; Varoufakis said he could accept two-thirds of the program laid down by the creditors (despite intending to stop privatizations and re-hire government employees).

The gradual concessions, Schulz said in a note to clients, “should avoid an accidental Greek default and euro exit,” by allowing talks to continue.

After a bout of optimism earlier in the week, fear returned to Greece’s financial markets Thursday. The Athens stockmarket lost 3.4%, while government bond yields jumped (although they rebounded later as investors took on board the apparent softening of the government’s position). Significantly, there was no sign of panic spreading to any other markets in the Eurozone, reflecting confidence that whatever happens in Greece will stay in Greece.