Berlin uncertainty causes concern in Athens

Breakdown of talks to form coalition government in Germany could have detrimental impact on Greece

The breakdown on Sunday night of talks to form a new government in Germany is threatening to put discussions about the key Greek demand of debt relief, and the deliberations over what will happen after the country’s bailout expires in August 2018, on the back burner.

The concerns about the impact on Greece have been fueled by a general awareness in Europe that as long as there is no government in Germany, and no replacement found for ex-finance minister Wolfgang Schaeuble, the Eurogroup will not be firing on all cylinders, thus stalling major decisions with regard to the eurozone’s future – including matters pertaining to Greece, which is eager to wrap up the third review of the bailout as soon as possible.

More specifically, the uncertainty may derail the agreed roadmap concerning Greece, whereby talks on debt relief and the post-bailout economy will take place in February and end in the spring so that Athens can, in the meantime, proceed with the issue of two to three bonds before its third bailout expires.

The issuing of bonds is considered imperative so that Greece can create a cushion of liquidity which will in turn allow its unimpeded access to international markets.

But for this to happen, investors must have clarity with regard to Greece’s post-bailout economy.

The detrimental effect on the eurozone was not lost on French President Emmanuel Macron, who said as much yesterday, noting that the German impasse “is not in our interests.”

A government official, who is involved in negotiations with Greece’s lenders, said Athens aims to reach a staff-level agreement in December so that January’s Eurogroup will approve a new loan tranche. But if there is still no government in Germany at that time it will be highly unlikely a caretaker German minister will approve the disbursement of funds to Greece.