German domestic worries cloud Greek bailout hopes

  @ibtimes on February 18 2010 7:44 AM

Should Germany ride to Greece's rescue if it can't even provide for its own?

Behind a facade of principled opposition to bailing out debt-stricken Greeks, the question increasingly haunts the corridors of power in Berlin.

Chancellor Angela Merkel's government has so far resolutely deflected appeals to promise aid despite fears that failure to help Athens could threaten the euro -- the stability of which has long been held sacrosanct by Germany's political elite.

Merkel's stance has been vindicated by opinion polls showing that a vast majority of the public oppose a bailout. The Greek crisis could become an issue when her center-right coalition faces a key regional election in Germany's biggest state in May.

Of almost 31,000 votes cast in an online survey by mass-selling German daily Bild, 82 percent of respondents said the European Union should not rescue Greece.

The proud, cheating, profligate Greeks ought to be thrown out of the euro on their ear because of their finances, the influential newspaper said in a recent editorial.

In public, Germany argues that leniency would take pressure off Athens and other euro zone debtors to cut their deficits. Behind the scenes, lawmakers acknowledge that Berlin has prepared measures if a rescue becomes inevitable.

For now though, it has become almost impossible for Merkel to hold out any prospect of aid for Greece because of a storm over the future of Germany's welfare system, said Dietmar Herz, a political scientist at the University of Erfurt.

The highest German court last week ruled that minimum jobless payments -- known as Hartz IV -- were unconstitutional, fuelling expectations that they will be raised, a step that surveys suggest a large majority of the public would support.

Guido Westerwelle, head of Merkel's coalition partners, the pro-business Free Democrats (FDP), sparked uproar last week when he compared the existing benefits to late Roman decadence.

Things like the welfare state decide elections in Germany, said Herz. It's very hard to sell the idea of aid to Greece just now. Germany will allow time for the Greek cuts to work, and if they pay off, the government will soften its stance.

GREEK JOKE

Skepticism about Greece has spread to Germany's neighbors, notably in other countries deemed by the European Commission to have run tighter finances such as the Netherlands and Austria.

A poll for Dutch daily De Telegraaf on Wednesday showed some 92 percent of Dutch wanted Greece out of the euro, while over 90 percent favored the Netherlands and Germany exiting the euro area and getting their own currency back.

Austrian business daily WirtschaftsBlatt this week told readers a new wisecrack was making the rounds in Brussels: What's the shortest joke in the eurozone? Greek statistics.

The German government has repeatedly stressed it means to be an anchor of stability in the euro area, but criticism of the lax budgetary policy of other member states is creeping more and more into the domestic political discourse.

If we start (to help Greece) now, where does it stop? Michael Fuchs, a senior lawmaker in Merkel's Christian Democrats told Welt am Sonntag. I can't tell a Hartz IV claimant he's not getting another cent but that Greeks can retire at 63.

Germans retire at 65, but the age is being raised to 67.

The tone of media attacks on Greece has taken on a harder edge in recent weeks, encouraging those who want Germany to pursue its own national interests to speak out.

A reader's editorial in the Rheinischer Post daily entitled Hartz IV and Greece urged Germany to pull out of the EU to escape the clutches of lying and cheating partners.

HISTORICAL FEAR

Policymakers who played a key role in the introduction of the euro such as former Finance Minister Theo Waigel and the European Central Bank's first chief economist, Otmar Issing, have scolded Greece and urged the government to hold firm.

Wolfgang Gerke, president of the Bavarian Financial Center, said Greece should get ready to return to its old drachma currency, at least temporarily.

Herz of Erfurt University said the views reflected fears rooted in Germany's troubled past that the euro had to be vaccinated against the Greek disease.

After two world wars, partition and re-unification in the 20th century, Germans crave nothing more than stability.

It goes back a long way: from the hyperinflation of the early 1920s to the postwar currency reform, right up to when Germany gave up the deutschemark, said Herz. Now they are worried Greece could spark a new financial crisis.

Merkel's ruling coalition faces a key test of its popularity in May when a state election is held in North Rhine-Westphalia, home to more than one in five of the population.

If a big Greek aid package is suddenly announced a lot of voters will ask 'What's all this?' said Herz. The government is simply trying to keep this under wraps for now.

(editing by Paul Taylor)

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