‘Grexit’ struggle tests Germany’s power duo

Reuters — On July 17th, her 61st birthday, Angela Merkel stepped to the podium in the Bundestag and urged German lawmakers to approve a new round of bailout negotiations with Greece, warning of “chaos and violence” if Athens were pushed out of the euro zone.

The chancellor had worked long hours the blueprint of a deal with Greek Prime Minister Alexis Tsipras, forcing him to make major reform concessions at a marathon summit in Brussels days earlier. On the face of it, the deal looked like a victory for Merkel.

Yet the only enthusiastic applause she heard during her 18-minute speech came halfway through when she paused to thank her finance minister, Wolfgang Schaeuble, for his role in the talks.

The ovation from conservative parliamentarians thundered through the glass-domed chamber for nearly a full minute. Schaeuble, sitting on the coalition benches to the right of Merkel, stared straight ahead with a frown on his face.

The scene was telling. Schaeuble had made it abundantly clear over the previous week that his preferred solution was the very one Merkel had worked so hard to prevent — namely a Greek exit from the single currency bloc.

By applauding Schaeuble, lawmakers were sending a message to Merkel: their appetite to help Greece had reached its limits.

Schaeuble’s frown was a signal that he was less than pleased with the outcome he was forced to defend in parliament. The Bundestag gave a green light for the talks,  but 65 of Merkel’s conservative allies broke ranks and refused to back her.

“Until now Merkel and Schaeuble were seen as a good cop, bad cop act that worked together to get the most favourable deal for Germany,” said a senior official who has worked closely with both. “But that was always premised on the idea that they had the same goal. This time on Greece they didn’t. We got the result that the bad cop didn’t want.”

Schaeuble may not have got his “Grexit”, but the 72-year-old doyen of German politics, has emerged strengthened and unbowed. If Greece slips again, his Plan B is on the table.

Plan B

Gruff and irascible, Schaeuble is the longest-serving member of the German parliament. He led the negotiations on German reunification in 1990 only to be shot and crippled by a ‘deranged man’ a week after the merger of East and West was completed.

In recent weeks he has surged past Merkel in popularity polls and solidified his cult status in the conservative wing of her Christian Democratic Union (CDU). Some German media are calling Schaeuble the “shadow chancellor”.

Merkel looks more vulnerable than at perhaps any time in her 10-year reign. She is more dependent on Schaeuble than ever to hold the party together. At the same time, the past weeks have shown that she has very little control over her minister.

After the Bundestag  vote, he issued a thinly-veiled threat to Merkel, telling Der Spiegel magazine that he would sooner resign than carry out policies he did not believe in.

“On a tactical level, Schaeuble has won out over Merkel – 100 percent,” said Gero Neugebauer, a political scientist at Berlin’s Free University.

“She has a wait-and-see approach, breaking down complicated issues into smaller problems that are tackled step by step. Schaeuble is just pressing ahead. He has the advantage because he is acting, not hesitating.”

Schaeuble’s stance raises uncomfortable questions for Merkel, who has talked tough in public, but shown a preference for compromise with Greece behind closed doors in Brussels, according to people who have witnessed her at recent summits.


Merkel and Schaeuble were proteges of Helmut Kohl, Germany’s longest-serving post-war leader, but it was Schaeuble, not Merkel, who was long seen as heir apparent.

Kohl lost in the 1998 election and Schaeuble became head of the CDU, with Merkel as his deputy. A little over a year later he was forced out over a party funding scandal and Merkel had an indirect role in his fall. Years later, having taken his place as party leader, Merkel refused to support his bid to become German president.

“It’s wrong to think that between Schaeuble and Merkel there is a friendship,” Schaeuble biographer Hans-Peter Schuetz said. “He can’t forget that she outmaneuvered him in the battle for the CDU nor her behaviour when he was a candidate for the presidency.”

One senior German official who has witnessed the two over the years and described their relationship as “the most complex” in Berlin, went further.

“If he could kill her politically without leaving his fingerprints on the gun, he would do it,” the official said.

The differences over Greece are not the first between the two since the euro crisis erupted. Back in 2010, Schaeuble was dead-set against giving the International Monetary Fund (IMF) a role in euro zone bailouts and was overruled by Merkel. He now acknowledges that she was right to involve the global lender.

But the “Grexit” conflict is potentially far more explosive.

Like Schaeuble, Merkel does not believe Athens should be kept in the euro zone at any price.

Her aides signed off on a controversial finance ministry paper Schaeuble took to the crucial Brussels summit which raised the idea of a five-year euro zone “time-out” for Greece. So she is prepared to go down that route as a last resort.

But for the chancellor, the risks associated with a Grexit — for Europe and her own reputation — are high.

Grexit  could be devastating for Europe at a time when Britain is debating whether to stay in the EU, a standoff with Russia over Ukraine remains unresolved and the continent is struggling with a migration crisis and threats from Islamist militants.

Schaeuble sees it differently.

He is passionate about European integration but has come to see Greece as an impediment

Schaeuble was already flirting with the idea of a Greek exit back in 2012, former U.S. Treasury Secretary Timothy Geithner wrote in his 2014 memoir “Stress Test”.

But his stance has hardened, officials close to him say, since the left-wing Tsipras government came to power in January, flouting rules that Schaeuble holds so dear, threatening not to pay Greece’s debts and making bold promises they couldn’t keep.

A majority of Germans seem to agree with Schaeuble. An INSA poll for Focus magazine this week showed 56 percent disapproved of parliament’s decision to authorize talks on a new bailout for Athens.

What does this mean for Greece’s future in the euro?

In the Bundestag debate on July 17th, Schaeuble described the bailout talks as a “last chance” for Greece. That too was a message to Merkel.

“This is a crusade for him,” said a cabinet colleague who requested anonymity. “He is an unguided missile.”