Greece has been left in an impossible position – and Wolfgang Schaeuble's finance ministry knows it
Customers queue to buy sacks of potatoes at cost price in Thessaloniki. Farmers in northern Greece have joined forces with residents to provide cheap produce to the people. Photograph: Sakis Mitrolidis/AFP/Getty Images
The German government has run out of patience. It was obvious at the EU summit on Friday when the German delegation let it be known that the second rescue package for Greece must be the final word. If it proves too small, and Greece cannot afford to pay public sector wages, then it must default on its debts.
Talking to senior German negotiators last week, I found a change in attitude that was shocking for its clear and cold-hearted resolution.
Not so long ago Berlin was concerned to be viewed as a champion of European unity. There was a genuine fear that a Greek default would terminate 50 years of building towards a European super state.
Now Greece, in its enfeebled state, fails two tests. First, German officials are convinced it remains riddled with corruption, grift and racketeering such that it is impossible to make any agreements stick. Second, there is a better firewall to protect the eurozone from further shocks. The firewall is the €440bn European financial stability facility and the prospect of accelerated payments by member states into its successor the ESM, which is enough to insure against a Greek bankruptcy when placed alongside the €219bn of sovereign loans by the European Central Bank and €1 trillion in ECB loans to tide the banking system through the worst of the crisis.
With a firewall in place and no confidence Athens can implement a serious reform agenda, Greece is robbed of its negotiating power.
"There is no standing still for Greece. It must either move forward with reforms or leave," said one official.
This leaves Greece in an impossible position. With sky-high debts, a five year recession stretching into at least another two and loan interest to pay, there is no way Athens can meet Brussel's demands.
Even after the deal to write down its private sector debt to 120% of GDP, the economic situation can only improve with the kind of asset fire sale and mass wage cuts that leaves the political situation desperately unstable.
As Terry Smith of money broker Tullet Prebon recently wrote: "Greek budget numbers show government revenue decreased 4.9% in January and spending rose 8%. Revenues fell from €5.122bn to €4.872bn. Spending rose from €4.967bn to €5.362bn. Apparently this is a different budget to the one that the Euro budget police look at."
The German finance ministry under Wolfgang Schaeuble knows it has failed to put Greece in a sustainable position – with a platform from which it can bring forward reforms – but it doesn't care.
In a tragi-comic twist, the view from Berlin echoes that of many Greeks, including Taki, the Spectator's High Life columnist, who took time out in his 25 February article to document his compatriots' faults. He said: "They still believe in the most thieving politicians this side of Nigeria," who, in turn, protect a vast army of overpaid civil servants that operate through patronage and bribes.
The German foreign ministry is of a similar view.
Zsolt Darvas, an economist at the Breugel research institute in Brussels agrees that the Germans have done enough to isolate Greece, but says their argument that the eurozone can now plan for growth is flawed.
There are the Spanish youth unemployment figures, at 49.9%. No wonder prime minister Mariano Rajoy has already told his German counterpart Angela Merkel he needs respite from her demands for cuts. Not for more than a century has medical science recommended bleeding patients to make them better, yet some economic scientists cling to this remedy. Germans, keen to protect their wealth, are slavish adherents.
In Italy, where a clampdown on spending has brought plaudits, unemployment is rising and national politics is becoming more polarised. The technocrat in charge, Mario Monti, has plans to end age-old restrictive practices, but there are plenty of politicians in Silvio Berlusconi's party and the leftist New Democracy waiting to wreck them: not because they are delinquent, but because they represent people who will suffer huge falls in living standards.
Portugal, the Germans reassure themselves, is knuckling down in a way the Greeks can only dream of. Likewise the Irish. Yet while many Irish politicians consider the pain of austerity a much deserved penance for past sins, the Portuguese are clear they have nothing to apologise for.
Willem Buiter, chief economist at Citigroup, points out that weaker members of the eurozone collectively need to borrow some €2tn over the next two years. He argues that the only way to borrow this sum is for a more collective plan. One that entails some form of joint liability for countries' debts. "A proposal from the German council of economic experts for a European debt redemption fund, which would mutualise all eurozone members' debts above 60% of GDP, with strict rules to pay them off over 25 years, is gaining traction in some quarters. Germany itself remains staunchly opposed to anything that smells of Eurobonds, and the current period of calm has only reinforced that resistance."
Everything the Germans want could be undone without a more forgiving attitude. If the EU presses ahead with fines for countries that fail to meet new tough deficit targets, the riots in Barcelona last week could be the first round in a widespread revolt.