Merkel’s First Greek Crisis Visit May Mark Turning Point

German Chancellor Angela Merkel will travel to Athens for the first time since Europe’s financial crisis broke out there three years ago, a sign she’s seeking to silence the debate on pushing Greece out of the euro.

Merkel’s visit to the Greek capital Oct. 9 to meet with Prime Minister Antonis Samaras underscores the shift in her stance since she held out the prospect last year of Greece exiting the 17-nation currency regime.

“The meeting could mark the turning point to the Greek crisis,” said Constantinos Zouzoulas, an analyst at Axia Ventures Group, a brokerage in Athens. “This is a very significant development for Greece ahead of crucial decisions by the euro zone for the country.”

Merkel’s demand for budget cuts in return for bailout packages has stoked public resentment, with the German chancellor depicted in some Greek media and on protestors’ placards wearing jackboots and an SS uniform because of her insistence on austerity. While Samaras welcomed Merkel’s visit as a “very positive development,” union walkouts and public protests were immediately called to coincide with the event.

Two bailouts and the biggest debt writeoff in history have so far failed to halt Greece’s slide into a fifth year of recession, prompting Christine Lagarde, the International Monetary Fund’s managing director, to signal last month that another writedown might have to be considered.

Help Greece

“We want to help Greece stabilize within the euro zone,” Steffen Seibert, Merkel’s chief spokesman, told reporters in Berlin today as he announced the trip, saying that is the main message Germany can give to Greece. “We do this by contributing massively to the rescue programs Greece I and Greece II.”

He said Merkel’s trip to Athens, her first since July 2007, reciprocated a visit by Samaras to Berlin in August this year. The full program for the trip has yet to be completed, he said, describing the visit as “normal.”

Greece’s ability to stabilize and stay in the euro “will only be possible if Greece makes great efforts of its own,” Seibert said. “We see that under the Samaras government there’s a strengthened reform effort and we want to support that.”

Merkel has softened her tone on Greece since Samaras’s election earlier this year. He managed to form a coalition after beating off a challenge by parties that advocated tearing up the terms of Greece’s rescues and calling the bluff of the so-called troika of international creditors -- the IMF, the European Central Bank and European Commission -- at the risk of triggering global meltdown in financial markets.

ECB, IMF

ECB Executive Board member Joerg Asmussen said Sept. 29 that Greece may need more outside aid as growth fails to meet projections, joining the IMF in expressing doubt two bailouts will suffice. That followed Lagarde’s comments that the level of Greek debt would have “to be addressed.” Thus two of the three troika members have publicly called for more help for Greece.

Members of Merkel’s coalition have raised options for Greece that include front-loading aid payments to help it over liquidity hurdles and lowering the interest rate or extending maturities on loans.

A third option in the form of a second debt writedown focusing on bonds held by public institutions, notably the ECB, was ruled out by President Mario Draghi yesterday. European policy makers aren’t considering a rescheduling of any Greek debt held by the official sector official, a European official said separately today.

Weighing Words

Merkel has yet to show her hand beyond slapping down lawmakers from her coalition who suggested it was time for Greece to quit the euro, telling them to “weigh their words very carefully.” Germany will stand behind the Greek government as it strives to overhaul the economy, she said during Samaras’s Berlin visit.

“I want Greece to stay in the euro zone and that’s what I’m working for,” Merkel said on Aug. 24, adding that she is “deeply convinced” he will make every effort to solve Greece’s problems. The goal of austerity measures is to help Greece reach “the light at the end of the tunnel.”

That contrasts with a threat she delivered in November 2011, when former Prime Minister George Papandreou proposed a referendum on austerity measures. She said the ballot, subsequently rescinded, “will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no.”

Samaras, who formed a governing coalition with two rival parties after winning the country’s second set of elections this year, is trying to convince Greece’s creditors that his government has done enough to secure its next bailout payment.

A Real Partner

“The question in German leadership circles is do we have a real partner,” said Alexander White, European political analyst at JPMorgan Chase & Co. in London. “If they do, then they are in for the long term.”

Samaras echoed Merkel’s language on the need for a sign of hope for the Greek people, comparing their struggle with economic hardship and political turmoil to the conditions that led to the collapse of the Weimar Republic in post-World War I Germany and ushered in the Nazi era.

His interview, published today in German newspaper Handelsblatt, came hours before Independent Greeks, the fourth- largest Greek parliamentary party, called a protest outside the German Embassy in Athens during Merkel’s visit to reject her “transforming Greece into a German protectorate.” A petition to be handed to the ambassador will also call for World War II reparations, the party said an e-mailed statement.

“Greek democracy stands before what is perhaps its greatest challenge,” Samaras said in the interview. If his government were to fall, “chaos awaits,” he said. “The people know this government is Greece’s last chance.”

To contact the reporters on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net; James Hertling in Paris at jhertling@bloomberg.net

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

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