MacroPolis

Departing for Berlin last week on the second leg of his last foreign trip in office, US President Barack Obama carried various policy messages for German Chancellor Angela Merkel in his hand luggage. Most importantly, his unambiguous advocacy of debt relief for Greece on his two-day visit in the Greek capital held important implications for the bilateral discussions between the two leaders.

German Finance Minister Wolfgang Schaeuble lost no time in intervening in this debate. Before Obama had even touched down in Berlin, Schaeuble let it be known, in an interview with a regional Bavarian newspaper, that debt relief would be a disservice to Greece in his view. It remains to be seen to what degree this astonishing evaluation is shared by other members of Merkel’s coalition government and inside the Eurogroup of finance ministers.

Injecting new momentum into the debt relief discussions was a major takeaway from Obama’s Athens visit. As outgoing US president, he has taken the liberty to articulate his position clearly and in agreement with the line of argument taken by the IMF. His reasoning is consistent with his earlier statements about the limits of austerity demands on Greece.

What is rather uncertain at this point is the amount of leverage he has left in his remaining days in office. Clearly, the chemistry between him and Merkel is positive and constructive. But the latter must avoid any public semblance of siding with the outgoing US president on a major European policy issue without disavowing her own finance minister.

By contrast, the president-elect, Donald Trump, will continue to remind the European creditors that Greece is the continent’s problem. He has not spoken regularly about Greece or the eurozone sovereign debt crisis during the electoral campaign. But Trump did point out in July 2015 in an interview with Fox Business that any US administration should stay out of the attempt to solve Greece’s or other European countries’ problems. Instead, he argued that Germany should deal with the challenges at hand in Athens and elsewhere in the eurozone.

More generally, Trump emphasised that, in his view, the euro currency had been created to compete against the US. This assessment underlines that a Trump presidency would rather keep a distance from internal European affairs, including fiscal and monetary policy coordination. As the US is the single-largest shareholder in the IMF, European creditor institutions may reasonably expect a less proactive articulation of policy proposals from Washington that also remain hugely controversial in Berlin, Brussels and in the ECB headquarters in Frankfurt.

The shuttle diplomacy undertaken by Obama this week between Athens and Berlin not only sought to press home the importance of identifying new avenues for sustainable Greek debt relief. Moreover, his pronouncements on the policy issue also took into consideration that a credibility deficit continues to exist in Berlin vis-à-vis the Tsipras government in Athens. That deficit still reflects the disastrous first six months of the Syriza-led administration in 2015 and the collateral damage various ministers caused with their actions and interviews.

Rebuilding trust is a fragile undertaking. The complex matter of debt relief does not easily lend itself to such an endeavour. For this reason, Obama’s debt relief message remains a delicate topic in the corridors of the chancellery and finance ministry in Berlin. The room for manoeuvre in the German Bundestag is currently very small – all the more if the IMF continues to delay a decision on whether to participate in the third programme for Greece in a financing capacity.

Various policymakers in Berlin from the CDU-SPD grand coalition government argue that the discussion about additional debt relief measures for Greece would be made easier if two preconditions were fulfilled by the current government in Athens. For one, that Prime Minister Alexis Tsipras clearly articulates Greece’s ownership of the structural reforms in the current programme instead of repeatedly remarking that he is obliged to carry out prior actions mandated by international creditors.

The second issue concerns a growing irritation in Berlin about the Greek prime minister’s public demands for debt relief without knowing what the details of such a claim look like. More specifically, continuously putting the issue on the agenda without providing a roadmap or blueprint of what the Greek government itself is prepared to negotiate leaves too much guesswork for policymakers and ample room for media speculation.

The recent pronouncements by Alternate Finance Minister George Chouliarakis during a session of the parliamentary subcommittee on budgetary affairs was a first step towards greater clarification of the Greek government’s parameters for debt relief. His outline also provided a welcome dose of realpolitik in a debate where there is a risk of focusing exclusively on debt-relief measures.

The provision of such a road map must take into consideration that debt relief is not a one-size-fits-all measure. Given the profile of Greece’s debt and the migration from the private sector to official creditor institutions, any debt relief discussion must now acknowledge that debt owed to the IMF is not the same as the maturity duration of Greek bonds in the ECB’s portfolio or bilateral credit guarantees extended to Greece in the first memorandum.

It is to Obama’s credit that he has not shied away from leading such a debt-relief discussion on his last trip abroad. He did not only come to Athens to admire the Acropolis and praise Greek civil society for its efforts during the refugee crisis. Nor did he arrive in Berlin solely to bid farewell to his most trusted political leader in Europe.

Obama sent out some signals. It is now up to European policymakers to think outside of the box. Greece needs debt relief. It does not need speculation about a fourth programme. It is important to now identify a procedure and timetable that illustrates to Greek citizens, foreign investors and European policymakers that movement on debt relief will take place before the German federal election next autumn.

*This article first appeared in last week's e-newsletter, which is available to subscribers. More information on subscriptions is available here.

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