Tsipras Said to Risk Miscalculating Merkel on Greek Aid

Greece’s Fate: Compromise or Capital Controls?

Greek Prime Minister Alexis Tsipras is testing Angela Merkel’s patience, risking the best hope for keeping his country in the euro area.

While the German chancellor says she wants to keep the euro intact, Tsipras is probably overestimating her willingness to compromise at an emergency summit called to break the deadlock on Greek aid, according to a person familiar with the government’s thinking.

Her stance is backed by a chancellery estimate that the financial impact on Germany of a Greek default would be limited to 1 billion euros ($1.1 billion) a year, said the person, who asked not to be identified discussing government deliberations. As Merkel hardens her tone, she’ll take those calculations into the special summit with Tsipras and 17 other euro-area leaders in Brussels on Monday.

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“Merkel has still got an outstretched hand to the Greeks, but it’s pretty clear right now that she’s not going to move beyond the middle of the table to seal a deal at any price,” Carsten Brzeski, chief economist of ING-Diba AG in Frankfurt, said by phone. “The Greeks must wake up fast to the reality that Germany has done its homework and gauged that a Greek euro exit is manageable.”

Merkel’s warnings have become more explicit as the June 30 expiration of Greece’s second bailout draws closer and Greek leaders, notably Finance Minister Yanis Varoufakis, pressure her to unlock aid needed to avoid a possible default. In a speech to parliament last week, she portrayed Greece as an enduring burden on a European Union that faces “a multitude” of challenges from the Ukraine conflict to climate change.

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As she and Tsipras prepare to meet to try to resolve the standoff at the political level, Merkel still isn’t sure whether Tsipras is an ideologue or a realist interested in making a deal, another person familiar with her strategy said, asking not to be named because the talks are private.

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With Finance Minister Wolfgang Schaeuble said to be making contingency plans for a collapse of aid talks, the chancellery has sought advice from European authorities on the hole that a Greek default on aid loans would rip in Germany’s budget, the first person said.

The impact would probably be 40 billion euros over 40 years starting in 2020, when Greece needs to start redeeming its European aid loans, compared with estimates such as the 70 billion euros recently cited by Marcel Fratzscher, head of the Berlin-based DIW institute, the person said.

Sharper Tone

Merkel further sharpened her tone on Friday, telling a party gathering that Europe “will only show solidarity when individual efforts of the country are visible.” She questioned the point of the emergency summit, saying it would amount to just talk unless Greece presented reform proposals.

Asked whether Merkel was willing to rescue Greece at all costs, a government spokesman said by text message that the chancellor’s comments had made her stance clear and he would have no further comment.

At the same time, any decision to let Greece go would be a difficult one for Merkel, who has made keeping the euro region whole a pillar of her chancellorship. Known as a deliberative leader who avoids rash decisions, she has also cast the Greek crisis as a test of Europe’s ability to master “geopolitical challenges” and show it’s a global force.

Five years after the debt crisis spread from Greece, the record shows that Merkel has consistently defended the euro and backed German participation in euro-area rescues totaling 240 billion euros for Greece alone.

“The fact remains that Germany’s efforts are directed at Greece’s staying in the euro zone,” she told lawmakers Thursday.

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