Guest article: Why Merkel and Hollande may make concessions to Greece post Varoufakis
A follow up by David Schane MA Int. Relations, San Francisco Bay Area, USA, July 6 2015
The resignation of Varoufakis is a very interesting development (in the name of sacrificing a personality whose “style” may have made him an unacceptable negotiating partner to key Euro ministers he faced off with, in the hopes that his successor can have a fresh “start”). While I applaud the maturity of the move, the problem I foresee is that his message (as encapsulated on his blog entry below), requires the Troika to make substantive concessions (which the IMF surprising and “contested” report release from last week endorsed itself).
http://yanisvaroufakis.eu/2015/07/06/minister-no-more/
The best chance of a more conciliatory message prevaling comes from tonight’s Merkel/Hollande meeting as most positive developments in EU unity over the decades have come from a Franco/German entente. While the French have made soothing statements over the past week, even the Social Democrats in Germany (who are Greece’s best friends in Germany) reacted negatively to the “NO” result in Greece last night, showing just how hard it will be for Merkel to move domestic Germans to pragmatic conciliation (as creditors are understandably unhappy with last night’s referendum developments).
So I feel tonight’s dinner that Merkel and Hollande are having will be key. And, the results may well come down to whether Merkel has the leadership to act more European and less German. Ordinarily, I would say it’s not too likely that Merkel will rise to this challenge (as she has shown herself generally to be a cautious and non-visionary leader, in my personal opinion). Moreover and from an economics perspective, I’d add that Merkel seems to subscribe to a rigorous vision of economic austerity (which has some logic but can kill the patient in the interim – as I believe there always need to be strong, targeted “pro-growth” measures as part of the mix).
Hollande and the French are not in a strong position tonight, as I don’t believe his administration is even respected politically within most German circles close to Merkel. (Remember how OVERTLY Merkel supported the re-election of Sarkozy in the last French elections when Hollande won). Plus, Hollande, in my opinion, has been a weak leader who has been reluctant to tackle economic reforms (and has presided over largely disappointing French economic performance as well).
Yet, there are two reasons for cautious optimism that tonight’s Merkel/Hollande meeting will produce some soothing pragmatism. First, Merkel as the ultimate cold war leader (with personal roots in that era like nobody else in the West) is very mindful that Euro chaos and possible disintegration would be a great opening that Vladimir Putin could and would exploit (and would be a huge geopolitical disadvantage for Germany).
Second, a modicum of perceived cooperation coming from the political authorities (especially Hollande and Merkel) would give Mario Draghi enough of a fig leaf and political cover to keep the ECB in the game – and potentially expand its assistance to the Greek banking industry. Indeed, I don’t think Draghi wants to cut the cord at all (and he’s strong enough to win against voices like Weidmann if he can point to support within the national sovereign political establishment). So, I think Merkel and Hollande will do their best to give Draghi his fig leaf – and be just supportive enough to keep the ECB in the financing game as they try to craft wider measures in the weeks to come (which they might be able to engineer with time). All this though is contingent on Greece not imploding over the next days, as that would risk wider contagion and the opening of “Pandora’s box” (which Draghi has desperately tried to keep closed in so many ways during his tenure).
So, I see Merkel going into her meeting tonight with Hollande trying to find a way to produce just enough forward progress for Draghi, with US Treasury Secretary Jack Lew pressuring the IMF (of which Washington still has inordinate influence) and a willing French born Lagarde to seek more concessions.
And, that’s probably why markets are somewhat calm right now too.
David Schane, MA in International Relations – San Francisco Bay Area, USA
( from the editor: we thank Mr. David Schane for sharing with us this follow-up on the EU-Greece Crisis. The opinions are his own though. Having traveled the world and lived in Europe as well, we believe Mr. Schane’s thoughts are vey valuable. They convey both a historical global view and a differentiated U.S. perspective on the unfolding crisis in Europe )
No comment here should be seen or construed as an investment recommendation!