Greece's rebellion will only harden Germany's approach

If Angela Merkel has her way, the euphoria in Athens about Sunday’s referendum result will prove short lived: far from forcing the rest of the eurozone to compromise, there’s a discernible hardening of attitudes in Berlin.

“The door is still open,” the German chancellor claimed last night, but she has also made it clear that the chances of Greece staying in the euro will diminish by the hour unless Alexis Tsipras and his new Finance Minister Euclid Tsakalotos come up with new proposals for economic reform here in Brussels today. In other words, the ball is not in the eurozone’s court but has been quickly knocked back to Mr Tsipras again.

Early indications are that Tsipras will not give Merkel what she wants. It is reported that he wants Greece’s debt to be cut by 30 per cent. In other words, for Greece’s creditors to take another financial “haircut”.

Even if Tsipras now agrees to the fiscal and pension reforms he angrily rejected last month, Merkel surely could not agree to a further write-off of Greek debt.

It would appal her Finance Minister, Wolfgang Schauble, and the risk to Merkel is that he would resign, signalling the beginning of the end of her own chancellorship. Her Vice-Chancellor, Sigmar Gabriel of the Social Democrats, has also hardened his position.

“The political costs of doing a deal with Germany are very large,” as Alex White of the Economist Intelligence Unit put it to me.

Merkel doesn’t want to go down in history as the woman who pushed Greece out of the eurozone; but nor does she wish to remembered by Germans as the chancellor prepared to do a deal with Greece at any price – a legacy which could destroy her political career.

So what happens next? Serious talks in Brussels about keeping Greece in the eurozone are very unlikely even to begin today unless Greece makes a positive first move.

Instead, Greece may be left to stew in its own juice, its banks continuing to run out of capital, the European Central Bank unlikely to extend a further financial lifeline unless the eurozone’s political leaders signal that negotiations have begun again in earnest.

The French, Spanish and Italians are more inclined to give Tsipras some of the relief from austerity that he has been pleading for for months. But the Germans are not.

Berlin’s hope is that as this week progresses, and the crisis deepens, the Greeks will be forced into doing a deal. Greece has already begun to leave the Eurozone, with its banks shut and dispensing little cash and last week’s default on an IMF loan. So the pressure is certainly on.

Though this strategy of isolation might well underestimate the determination of Alexis Tsipras, who still seems to believe that the cost of Greece leaving the Eurozone is so very high and so unknown that Merkel and others will eventually give him more of what he wants.

So another few days of dangerous brinkmanship lie ahead. A deal is certainly possible – a restructuring of Greek debt, tied to economic reform, worded in such a way that both sides can claim domestic political victory. But it is also conceivable that Angela Merkel will decide that Greece should be “let go”.

And though Greeks would never forgive her for that, Germans would say they did their best to revive the patient, who failed to respond to treatment and eventually slipped away.

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