German chancellor Angela Merkel has made it abundantly clear that Germany has no interest in renegotiating the austerity plan that the Eurozone agreed to with Greece. And while it may seem that her position is unassailable, that’s not quite true.
If Greece were to decide to default on its loans from the European Central Bank and other Eurozone central banks, the loss would amount to more than $500 billion according to a report at Bloomberg News. It’s not just about the money either.
Should Greece default on its debts and leave the Eurozone, the loss of face and political power for Merkel and the austerity hawks would be severe. In the recent Greek elections, five of the seven parties offering candidates rejected the austerity measures and want to renegotiate the deal.
Greece’s position at this point is not so much as a supplicant, but as an equal with a different set of cards to play from the cards held by Germany and the rest of the Eurozone. Given the unpopularity of the austerity measures among Greek voters, the country’s politicians may have no option but to play those cards.
And it’s also worth recalling that Merkel’s position on austerity is based on her desire to protect Germany’s big banks, a position that is unstated, but nonetheless central to the austerity demands.
German voters in Germany’s North Rhine-Westphalia region go to the polls this coming Sunday in what is seen as a referendum on Merkel’s demands for austerity. The election is cliff-hanger and Merkel’s Christian Democrat party is facing popular coalition of the Socialist and Green parties that could win a majority in the region and add strength to their national position in next year’s national elections. The coalition parties take a much softer line on austerity, arguing for growth as well as spending cuts.
Finally, though, Greece is stuck between a rock and a hard place. Either it must accept austerity measures that will stunt growth and which the country probably won’t be able to meet, or it must at least threaten to default on its debts and leave the Eurozone behind. Merkel, who has led the calls for austerity, may have to soften her position a bit, especially if the weekend elections don’t go her way.