CRASH 2: Berlin ‘the only force blocking tranche payment to Athens’.

Angela Merkel….in charge or not?


German Chancellor’s claimed desire for unity in stark contrast to her utterances

Sources in Brussels yesterday evening suggested that opposition to paying the next Greek bailout tranche stems largely from German officials there. “I have no doubt that, without German opposition, the tranche would have been paid by now,” said one, a person close to events. But an overall picture is emerging of conflicting signals from the German capital.

The most likely cause of this equivocating is the cornering of Chancellor Merkel by her colleagues, allies and central banker last week. She herself, in a speech last night, vociferously pointed out that “No one can say with certainty what would happen if Greece defaults….before getting  into that, German must consider the consequences.” Greece defaulting inside the eurozone, however, remains her finance minister Wolfgang Schauble’s preferred option.

Dismissing any idea of debt restructuring for Greece, Merkel added, ““If we tell a country ‘We cancel half of your debt,’ that’s a great deal,” she said. “Then the next guy will immediately show up and say he wants the same.”

During the speech( to CDU delegates in eastern Germany) Angela Merkel isolated herself and Germany still further by referring to both joint bonds and “big bang borrowing” as “economically clueless”. This is not going down well in the Elysee Palace, where Sarkozy and his aides are frantically thrashing around for solutions to their growing banking crisis.

But a few minutes later, the German Chancellor told her audience that she was “deeply convinced Europe’s problems can only be solved jointly”.

Confused? Me too….as are most other people in Brussels. Said a senior UK financial journalist last night, “The big question is, what would Merkel like to do? She offers only opposition, not ways out. Probably because there are no ways out.” Asked if he thought a return to the Mark was a real possibility, he said, “Of course, on paper it’s the best way out for [the Germans] and the other EU members. But dear God, it wouldn’t just change the game – it’d destroy France”.

In Brussels, the EU’s finance ministers are trying (without success) to at least get to some kind of Greek agreement, but The Slog’s sources there insist that, until Germany budges, there is deadlock. Frau Merkel will be going there this morning in order to discuss with European Commission President Jose Barroso the EU’s failure to agree on a Greek strategy .

“Nobody knows what on earth the point of that is,” said a senior EU-based credit manager last night, “Barroso is a big fan of eurobonds, which she doesn’t want to hear about, and as for the banking transaction tax, well that’s more her style….but the timelines are just a fantasy. It is far too late to be talking about taxes that will take months at least to legislate and collect. You really do have to wonder now first what game is Merkel playing? And second, does she really control her own destiny any more?”

Merkel will also be meeting French President Nicolas Sarkozy in Berlin on Oct. 9 (next Sunday). An informant in Paris insisted last night that the two leaders “are in constant touch”, but Washington diplomatic sources laughed that off as spin. “The relationship is dire,” one told me yesterday afternoon, “and Sarkozy is livid. The Germans have screwed him, and he knows it.”

Who knows what events might occur before Super Sunday? Stay tuned.