I doubt that Angela Merkel is looking forward to the G8 summit very much. It will mostly consist of the other world leaders telling her to give ground on austerity. But I suspect that Merkel won’t budge much, if at all. She clearly believes that the Greeks can be whipped into line by telling them that the election is really a referendum on euro membership. Hence both her suggestion of a simultaneous referendum on election-day and her backing for the European Central Bank cutting off support to Greek banks which shows that while there’s no formal mechanism for ejecting a country from the single currency there are ways of doing it.
The German government, intriguingly, seems more accepting of the idea of the Greeks leaving the Euro than others do. Merkel eevn floated the possibility in front of an audience of school children this week. Although, David Cameron’s make up or break up line indicates that the British government is moving to seeing Greece leaving the euro as the most probable outcome. As one Tory source put it to me, ‘it is now so likely that we had to say something.’
One of the things guiding Merkel’s approach is a fear that if she grants the Greeks any concessions, every other country in Europe that has been bailed out will demand the same. She’s also acutely aware of the domestic politics of the situation. The SPD and the Greens might back Eurobonds. But the CSU, her Bavarian sister party, are adamantly opposed to them. If Merkel backed them, that would place huge strain on the CDU, CSU alliance. Merkel’s decision to fire the environment minister Norbert Röttgen, one of her closest allies, in response to poor election results in North Rhine Westphalia suggests that the Chancellor’s political attitudes are hardening. She knows that avoiding becoming the latest incumbent to be gobbled up by the Eurozone crisis is going to require her to pose as a flinty defender of the German taxpayer.
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