Berlin and Athens locked in war of nerves over bailout

Ian Traynor in Brussels and Helena Smith in Athens

guardian.co.uk, Wednesday 9 May 2012 19.53 BST

German ministers warn that Greece might have to quit eurozone over threats to renege on €130bn bargain

Alexis Tsipras, leader of the Coalition of the Radical Left party, Syriza, (right) with Antonis Samaras, leader of the Conservative New Democracy. Photograph: Louisa Gouliamaki/AFP/Getty Images

Berlin and Athens are locked in a war of nerves over the euro, with the political turmoil in Greece and threats to renege on its €130bn (£105bn) bailout triggering warnings that the country could be the first to be kicked out of the single currency.

In what appeared to be an orchestrated threat to Greece, where the radical leftist leader, Alexis Tsipras, failed in his attempt to form a government while declaring the bailout terms null and void, two German cabinet ministers for the first time spoke publicly of the possibility of the Balkan country having to quit the eurozone.

Athens is due to receive €5.2bn on Thursday in eurozone bailout funds, but sources in Brussels said several countries were reluctant to forward the money because of the political confusion in Greece.

Eurozone finance ministries engaged in heated debate over whether to release the money. But the board of the eurozone bailout fund, the EFSF, meeting on Wednesday night, decided to make Thursday'spayment to Greece but they would withhold 20% or some €1bn.

More than half of it is effectively to be returned to the eurozone next week – to the European central bank and other eurozone central banks – as part of the bailout and debt restructuring deal struck in March.

But the massive vote against austerity in the Greek general election at the weekend and the resulting challenges to the eurozone/IMF pact have left the Germans in particular and other creditor governments exasperated, close to concluding that the insolvent country is a lost cause following more than two years of rollercoaster debt crisis.

"We want Greece to stay in the eurozone, but the agreed reforms have to be implemented," said Guido Westerwelle, the German foreign minister. "If Greece halts its reform course, I can't see the corresponding tranches [of bailout funds] being paid out."

Wolfgang Schaüble, the powerful German finance minister, echoed the warning. "The Greek nation knows what it has to do," he said. "Most Greeks want to stay in the euro. We need to make it clear to them that the terms for that are the fulfilment of the reform requirements of the aid programme. You cannot have the one without the other."

Prospects of fresh elections and more uncertainty in Greece increased on Wednesday nightafter Tsipras, the leftist firebrand whose Syriza party shot to second place in Sunday's ballot, failed to convince the country's political leaders to participate in a coalition administration.

"We appear not to have been able to settle on a decision," said the socialist leader Evangelos Venizelos after refusing to accept an ultimatum by Tsipras that Athens renounce the harsh austerity measures it had signed up to in return for aid from the EU and IMF.

"I will continue these efforts when I receive the mandate [to form a government] tomorrow," Venizelos said.

The collapse in talks followed rousing rhetoric by Tsipras earlier in the day in which the 38-year-old leader likened the fiscal and structural measures being demanded of Greece to "financial barbarism".

In letters to the EU president José Manuel Barroso and Mario Draghi, the head of the European Central Bank, the Left Coalition leader – whose own efforts to form an administration began on Tuesday – reiterated that Athens could no longer commit to the arduous terms of austerity it had agreed to when it accepted the relief deal.

Antonis Samaras, the conservative leader who won the biggest share of the vote in Sunday's election but fell far short of winning a workable majority, said acceptance of Tsipras's terms was tantamount to "putting my signature to the destruction of Greece".

"The Greek people did not give a mandate for the country to collapse or exit from the euro zone. The exact opposite," he told the nation in a live TV address.

Tsipras's demand that other politicians renounce the deal was brushed off as "crazy" by cadres close to Venizelos and Samaras whose Pasok and New Democracy parties co-operated in a six-month emergency government with the sole aim of securing the rescue funds.Tsipras had sought to play a game of divide-and-rule in a Europe that is indeed split over how to manage the crisis – over the scale, depth and speed of austerity measures and how to spur growth.

The leader of the leftist coalition which came second in Sunday's election, asked to meet François Hollande, France's growth-supporting president-elect, in what looked liked a gambit to drive a wedge between the French and the Germans.

His request was rejected in what might be seen as the first sign that Hollande will elect on balance to align himself with Germany rather than with the Mediterranean debtors' club in the eurozone.

Europe's leaders are queuing up to try to get the measure of Hollande on the euro crisis. EU council president Herman Van Rompuy went to Paris on Wednesday to gauge the new French leader. Now it is the turn of Jean-Claude Juncker of Luxembourg, president of the eurogroup. Next week Hollande will go to Berlin for the first encounter with Chancellor Angela Merkel.

The anxiety in Athens is palpable. At no point in the great Greek debt crisis have the pressures been so high. In every camp of Greece's divisive political scene there is growing alarm – and panic – that the actors in Athens may be about to lose the plot. One wrong move and euro exit looms.

Panic has been reinforced by mounting concerns that after Tsipras' inflammatory statements, patience in Europe is running out.

On Wednesday senior officials voiced fears of creditors withholding. Greece is awaiting a cash injection of €5.3bn that is vital to keeping the country afloat. The nation has enough money to survive until the end of June but by 15 May it must repay €450bn in maturing debt – a decision that cannot be taken by a government that has theoretically stepped down but by its political leaders in consultation with the outgoing prime minister Lucas Papademos who remains in the job but invested with no political power.

"If we don't pay we default so resolving this issue is very important," said one official in the outgoing government. "All the political leaders have to be on board."

Hopes are now resting on Samaras reaching out to centrist parties to form a "centre right" coalition that would contest the next poll.

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