Merkel Mulls Easing Greece Bailout Terms, Lawmakers Say

Chancellor Angela Merkel is considering easing Greece’s bailout terms, fanning tensions with members of her coalition who oppose giving the Greek government any more concessions, two German lawmakers said.

Merkel’s government is torn between showing some leniency toward Greece as it struggles to meet the terms of its rescues and insisting that Prime Minister Antonis Samaras deliver on his promises, Klaus-Peter Willsch and Frank Schaeffler, both of whom have voted against Merkel’s euro crisis policies in parliament, said in separate telephone interviews.

“The sensitivities among many more than just the 27 coalition members who voted ‘no’ last time are well known” to Merkel, “so the official line is to stay tough” on Greece, said Willsch, a member of Merkel’s Christian Democratic Union party. “But at the same time, some are being sent forward to test the waters on how this tough line can be abandoned.”

Almost three years after the debt crisis erupted in Greece, Samaras’s government is awaiting a report by its international creditors next month on progress made in meeting bailout goals, an assessment that will determine whether Greece receives the next instalment of aid it needs to stay in the euro. Samaras, whose governing coalition in Athens wants its fiscal adjustment program to be extended by two years to the end of 2016, is due to visit Berlin on Aug. 24 for talks with Merkel.

Samaras Compromise

While it’s too early to rule out that an example will be made of Greece if it fails to adhere to the program terms, Merkel will probably seek a compromise with Samaras that would allow both sides to save face, Schaeffler, a Free Democratic Party lawmaker, said in a telephone interview. The example offered by Spain shows that bailout terms are flexible, he said.

“We’re seeing the softening already in the case of Spain, which was given a ‘bailout deluxe’ rather than a full-fledged program,” Schaeffler said yesterday. “And since Spain will need more money, that program will also be softer than that of the others,” possibly triggering re-negotiation demands in Ireland and Portugal.

Neither Willsch nor Schaeffler mentioned any specific proposals being considered by the chancellery. Norbert Barthle, CDU budget spokesman in parliament, said in a July 25 interview that Greece may need a second debt restructuring to stay in the 17-nation euro region.

Conflicting Signals

German officials have sent conflicting signals on Greece in the past month as the so-called troika of the European Central Bank, the European Commission and the International Monetary Fund assesses Greek progress.

“If the troika says the situation there is not in order, then there can be no money,” Michael Fuchs, a deputy CDU parliamentary leader, told reporters in Berlin today. “Greece must stick to its agreements. It’s as simple as that.”

That contrasts with Michael Meister, another CDU deputy leader, who said in an Aug. 7 interview that Germany has “a certain flexibility” toward Greece. Foreign Minister Guido Westerwelle, of Merkel’s FDP coalition partner, told this week’s Spiegel magazine that time lost during two election campaigns in Greece must be taken into account in any easing of rescue terms.

“Everything can be put on the table,” Steffen Seibert, chief German government spokesman, told reporters on Aug. 15, referring to Merkel’s meeting with Samaras next week. All agree that a third Greek bailout would have trouble gaining approval in the lower house, or Bundestag.

Merkel ‘Committed’

Merkel, speaking in Canada yesterday, said that euro-area policy makers “feel committed to do everything we can to maintain the common currency.”

Easing Greece’s bailout terms would make it difficult for Germany to maintain pressure on countries to carry out the reforms Germany sees as necessary, Willsch and Schaeffler said. A Greek default would be manageable and “could be an example for the others to see what can happen if the treaties are violated,” Willsch said.

Both Willsch and Schaeffler have consistently refused to back Merkel’s line on the euro crisis. They voted against the temporary euro-area rescue fund, its permanent replacement and Greece’s second bailout in separate Bundestag votes.

“As long as the government isn’t ready to question the composition of the euro zone, there is no other choice” than to save Greece, said Willsch. “That, at the same time, is the source of the failure of these rescue policies. If you impose conditions, monitor them, realize they’ve been violated and shy away from drawing the consequences, you have a blunt sword.”

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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