ATHENS, Greece – Last summer, as a team of top European leaders huddled in a Brussels ballroom to discuss the continent’s deepening debt crisis, Antonis Samaras walked into a hostile reception.
As the conservative party leader in Greece took to the floor to argue assiduously against austerity, France’s Nicolas Sarkozy razzed him. Italy’s Silvio Berlusconi sneered at him. And eventually, German Chancellor Angela Merkel, Europe’s tough-talking austerity hound, interrupted him.
“What, Antonis, is it that you want?” she asked, thumping her hand on the banquet table.
“Look,” said Samaras, exasperated by the heated exchange, “you are my ideological siblings. We’re supposed to be on the same page on this. But if this is the path you want to follow, then at least do not hike taxes further, in Greece, and do not stifle investments.”
Today, 18 months later, the tables have turned dramatically across Europe: The French have sacked Sarkozy. Berlusconi has bowed out. Samaras, who has become prime minister, is now advocating austerity. And Merkel, Europe’s undisputed leader — who once seemed squeamish about Samaras — is now playing cheerleader to crisis-choked Greece.
On Tuesday, during the German leader’s first visit to Athens since the debt crisis erupted here three years ago, she moved to console Greeks, encouraging them to keep to the path of austerity.
“I know… that [it] has been difficult,” she said after two-hour talks with Samaras. “Still the strides that have been made are worth being completed.”
Her uncharacteristic compassion revealed the somewhat softer side of the iron-fisted leader. But moral encouragement aside, Merkel offered no promise of further debt-relief or added aid to Greece.
In fact, she snapped back at a German journalist, “I’m not here as a school teacher to hand out grades, but rather to offer encouragement and support.”
Since Samaras rose to power in June, his shaky coalition has struggled to agree with creditors from the European Commission, International Monetary Fund and the European Central Bank on a fresh batch of $14 billion in budget cuts.
Last week, in fact, after the team of inspectors, commonly known as the troika, returned to Athens for a third time in four months to review the cuts, officials reported an impasse over a third of the budget cuts — or about $5 billion.
The stalemate has set up another tricky trip-wire for Europe – this one, potentially dangerous for the United States, also.
Indeed, failure to reach an agreement on the budget cuts could force European leaders meeting on October 18 to hold off on some $40 billion in rescue funds to Greece. That in turn could push the tiny Mediterranean nation to bankruptcy. And that could wreak financial havoc on both sides of the Atlantic, upstaging even the U.S. presidential race.
“From the first moments of taking office and from the first signs of problems in the troika talks,” a senior government aide said, “it became clear that Samaras had to put aside any remaining strand of rivalry with Merkel and rise above the circumstances.”
Pundit, politicians and skittish market investors were hoping for more from Merkel on Tuesday. They expected the German leader to give the troika the political cover it needs to conclude the stalled budget talks as well as offer a wink of hope that Berlin would consider granting Greece a two year extension in implementing the $14 billion spending cuts to ease the pain of a deeper-than-expected recession.
With such support, Samaras could strong-arm his squabbling coalition partners and face down swelling social unrest, pushing the controversial austerity package through parliament well ahead of the crucial European Union summit.
“Anything less” warned Farmakis ahead of the talks, “would mark a muddle and that could easily turn into a mess.”
Markets on Wednesday will show whether they bet on Merkel’s optimism — or remain skeptical.