Greece’s growing rows with Germany over austerity and euro-referendum boosts support for anti-bailout party

Mrs Merkel has insisted she wants Greece to remain within the eurozone, but
that it must meet commitments to cut its defecit. But sensitivity over what
many Greeks see as Germany’s high-handed attitude was further heightened
when a German MP from Mrs Merkel’s Christian Democratic Union contradicted
her, calling for Greece to exit the eurozone.

“That could open the path to growth. We could also negotiate a sort of
European Marshall Plan for Greece,” Wolfgang Bosbach said in a magazine
interview to be published on Monday. He said that a further aid package
would only make things “more expensive, not better”.

The German chancellor’s refusal to bend on the terms of the “fiskalpakt”
treaty signed by 25 EU countries in March – but not by Britain – has led
diplomats to warn of a German government “death wish” that is pushing
Europe’s economy to the brink of disaster.

The Sunday Telegraph has learned that the German attitude contributed directly
to the collapse of Greek attempts last week to form a national unity
government, sparking market turbulence that now threatens Spain and Italy.

At a meeting of EU officials 11 days ago Wolfgang Schäuble, Germany’s finance
minister, told his audience that after the success of anti-austerity parties
in the first Greek election, contingency plans were being drawn up for
Greece to leave the euro. “He horrified his audience by saying that, unless
the Greeks toed the line, life would be made so unpleasant for that Greece
would be left with no option but to ask to leave,” said one EU source.

Mr Schäuble suggested cutting off the EU financing on which Greece depends to
prevent it going bankrupt, thus pushing it into default and out of the euro.

In the event representatives of the eurozone bailout fund decided instead on a
less dramatic course: witholding €1bn of the €5.2 billion instalment of aid
due to be paid to Greece on May 10.

But that signal backfired, however, when Mr Papoulias convened talks with all
his country’s political parties last weekend. On the table was a secret deal
from the EU that would have given Greece a breathing space to pay back its
debts, and some new investment to help kick start its ravaged economy. He
said, according to official minutes, that Herman Van Rompuy, the EU
president, had told him that the election of Francois Hollande as France’s
new socialist president meant “a new climate is forming in Europe and it
will be a shame if we do not take advantage of it”.

Other European governments are sympathetic to the need to tone down the
rhetoric, rather than aggravate Greek voters further. But Mr Van Rompuy’s
promise was not enough to sugar the bitter pill of the aggressive German
threat to push Greece out of the euro unless its politicians surrendered.

“Even the mainstream Greek parties could not swallow such naked threats, let
alone the anti-austerity leftists,” said one diplomat close to the talks.

A senior European diplomat said: “There was a deal on table but the Germans
made it impossible for anyone to take the step. It’s a death wish. Politics
is about adapting to changes in order to manage them, not defying reality
because it’s inconvenient for some EU deal that was a compromise anyway.

“Some European leaders and officials are so doctrinaire about keeping promises
that they risk destroying everything.”

The debate will come to a head at an EU summit on Wednesday, which the new
French government hopes will show backing for Greece. “All issues must be
put on the table: finance, the banking system, growth, protectionism,” the
country’s new prime minister, Jean-Marc Ayrault, told Liberation newspaper
yesterday. “We must send a strong signal to the Greek people and to all
Europeans…. No subject is taboo.”

The Brussels meeting is expected to focus on new Mr Hollande’s call for
measures to kick-start growth across the EU, especially within the 17-nation
euro zone, while maintaining efforts to cut budget deficits. But Germany
will demand that any such approach – including proposals, supported by
Britain, for new eurobonds backed by the European Central Bank – is matched
by moves to closer political and economic union, which will mean challenging
choices for Britain.

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