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By Szu Ping Chan 04 July 2015
After trust between the two broke at a key moment, the Telegraph travels to Frankfurt and Berlin to ask those in the know what will – or should – happen next
German Chancellor Angela Merkel, right, and the Greek prime minister Alexis Tsipras brief the media during a bilateral meeting at the chancellery in Berlin
Things are hotting up in Berlin – quite literally. Inside Jakob-Kaiser-Haus, which houses the offices of around 60pc of Germany's MPs, staff are sweltering.
Its modern walls contrast with the Reichstag – Germany's parliament building – just a few hundred yards away. The gigantic glass roof that fills the building with natural light throughout the year has turned it into a greenhouse on this summer's day.
Parliament is due to stop sitting, and policymakers should be thinking about their holidays. Instead, many are preoccupied with Greece, and not because it's their holiday destination.
Michael Fuchs is no exception. The deputy chairman of the ruling CDU-CSU coalition is in the middle of a two-hour debate in the Reichstag about events in Athens.
"He'll be about 10 minutes," says his press secretary, who orders an assistant to get Fuchs some water. There are already half a dozen bottles placed on the table. "Get the ice-cold one," he says. "It's hot out there".
He's right. When Fuchs finally strides into his office, his face is flushed, and not just because of the heat.
The debate has exposed short tempers and hardened stances within the Bundestag. Patience is in short supply.
The minister takes his jacket off, sits down and lets out a sigh. "OK," he says. "What do you want to want to know?"
Happier times? Italian Prime Minister Matteo Renzi, centre, speaks with Greek Prime Minister Alexis Tsipras, left, and German Chancellor Angela Merkel during a round table meeting at an EU summit in Brussels in June (Photo: AP).
Moment of change
The message from last Wednesday's session was clear. Germany would not consider the Greek government's 11th-hour request for another bail-out before the country held its referendum on creditor demands.
Angela Merkel repeated that there could be no further aid before today's referendum. Hours later, the euro group of finance ministers released a statement singing from the same hymn sheet.
In a noisy Bundestag debate, the German chancellor suggested that the game had changed. She declared that Europe could not compromise at any cost. The bloc would be "lost" if it did so.
Some in Germany have given up on this Greek government. Most of their vitriol is directed at Yanis Varoufakis, Greece's finance minister. "Crazy" and "offensive" are just two of the words one official uses to describe him. Varoufakis, meanwhile, was insisting that he would rather cut off his arm than sign another deal that left Greece with an unsustainable debt pile.
For many, the plebiscite was the straw that broke the camel's back. The move blindsided most in Brussels and Berlin.
German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras listen to their countries' national anthems upon his arrival for talks in Berlin this March (Photo: Getty)
The EU doesn't like surprises. The last time a Greek leader – George Papandreou – tried to hold a referendum, the Brussels machine, led by José Manuel Barroso, shut it – and him – down.
"Trust is very difficult," says Fuchs. Look at [the referendum]. Mr Tsipras [the Greek prime minister] called Ms Merkel and told her of the referendum but he did not tell her that his government is telling the Greek people to vote no."
Frustrated, he repeats: "He never told her he would vote no."
One CDU member who used to work with Mrs Merkel agrees. "[The announcement of the referendum] was the moment that things changed. Up until then we'd all agreed to work with the Greeks, support the Greeks, pay for the Greeks. All that was OK if they were willing to reform. Many Germans go to Greece to enjoy the culture, the food, the history.
"But they also go there and see what the government has wasted its money on. You see these huge air-conditioned Daimler buses which go to nowhere with just one passenger. We've all seen them."
Many in Germany highlight that Greek people enjoy higher minimum wages and living standards than in other Eurozone countries paying for their bailout or rescued themselves. The minimum wage, both in nominal terms and when adjusted for living costs, is higher in Greece compared with countries such as Portugal and Slovakia.
"How can [people in Slovakia] accept that they pay for higher minimum wages and higher pensions in Greece?" says Fuchs.
Merkel's former aide adds: "We are all European. And we were prepared to work with them, but everything changed when they announced the referendum. The tone of dinner table conversations changed completely after that."
Greece's firebrand prime minister remains defiant. Today, Greeks will either vote "Nai" – which, just to add to the confusion, is Greek for yes, in favour of the bailout and creditors' prescription of austerity, or "Oxi" – no.
Syriza is urging people to vote for the latter, which it has put at the top of the ballot paper. They believe this is the only way Greece can escape "financial asphyxiation".
Fuchs describes the current situation as ridiculous. "We didn't leave the negotiating table, the Syriza government did this. And the situation has completely changed now.
"Playing by the rules is important. Everybody has to play by the rules."
Rules
It's a word you hear a lot in Germany. Berlin says rules are there to be obeyed. Athens says Europe has been making them up as it goes along.
Constant repetition has reinforced certain animosities. Greeks, who work the longest hours in Europe, according to the OECD, are branded lazy. Germans, the first to break the bloc's rule that deficits should stay below 3pc of GDP, are obsessed with discipline. After all, debt and guilt – "Schuld" – are the same words in German.
There are some stereotypes that will never be overcome. On the four-hour train journey from Frankfurt to Berlin, a woman places a green beach towel on a seat before stowing her luggage on the racks. Old habits die hard.
Germany and Greece also have similarities. Both know what crisis is like, and both have received debt relief, although some in the Greek government have called for a London-style accord similar to that agreed in 1953 to write off more of its debt pile.
How can [people in Slovakia] accept that they pay for higher minimum wages and higher pensions in Greece?
Michael Fuchs, CDU-CSU deputy chairman
In Germany, demands are rising for an end to the five-year drama. The anti-euro AfD party even wants the Deutschmark back. But while many say Greece's turmoil is self-inflicted, the attachment to Europe remains strong.
Fuchs certainly likes to show it. In his office overlooking the Reichstag building, stand two giant flags: one representing Germany and one the EU.
Wolfgang Schaeuble, Germany's stony-faced finance minister, is considered to be one of the last true Europeans in the German government. The elder statesman grew up in the Black Forest along the French border, in the post-war era.
Much has been made of a recent rift with Merkel. But the fire fighting duo are made of sterner stuff. Schaeuble, who survived being shot in the face in 1990, almost resigned in 2010 because of health complications.
One Merkel ally recalls how the German chancellor refused to let him go, even phoning his wife a couple of times to ensure she would support his return to office.
A woman passes by a poster bearing a portrait of Wolfgang Schaeuble, Germany's finance minister in Athens and a slogan which translates as "Five years he has drunk your blood. Now tell him No" (Photo: Reuters)
Banks 'insolvent'
But are Europe's creditors sticking to their word? Mario Draghi, the president of the European Central Bank (ECB), has described the single currency as "irreversible". Europe would do "whatever it takes" to save it, he declared in London three years ago.
It was also a Bundesbank president who said monetary union required "the degree of solidarity characteristic of a nation". Hans Tietmayer said it represented "a sworn confraternity, all for one and one for all".
This concept has now changed, officials insist.
"The euro is not irreversible just by saying it, just by writing it in a contract," one says. "The euro is irreversible only if politicians do everything to make it irreversible and to guarantee that national parliaments live up to their responsibilities.
"Of course a country can leave if it wants to leave. The national sovereignty is still there – we are not a political union. And if a country doesn't have sound policies for years, and it doesn't have a sound banking system and is ruining its economy then they will have to leave, even if they don't want to."
A placard that reads "OXI is everywhere!" is seen on a euro sign during a Blockupy demonstration at the former headquarters of the European Central Bank (ECB) in Frankfurt, Germany, on Friday July 3 (Photo: Reuters)
Others are even more scathing about the rules that have been bent.
"Basically banks are insolvent, but we maintain the fiction of saying they are still solvent and guarantee them liquidity," says one source close to
the ECB."You will never find this in any document or protocol, but if you say they are insolvent, you can't grant them any more liquidity. But saying they are solvent is fiction."
So should the EU cut its losses? Despite his despair at the situation, Fuchs is not ready for separation just yet, even if Europe could organise an orderly break-up.
"Of course the door is open to the Greeks for another bail-out, but it's very difficult, because there needs to be conditionality."
There is also a growing school of thought in the Bundestag that money aside, Germany cannot release Greece into the clutches of radicals in the Middle East or Russia, where Tsipras has already begun batting his eyelashes at the Russian president, Vladimir Putin.
If the Greek people read correctly Argentina's experience after exiting the dollar, Greeks should vote 'yes'.
Domingo Cavallo, Argentina's former economy minister
Domingo Cavallo, Argentina's former economy minister who introduced capital controls to the country in 2001, months before the end of the peso's peg to the dollar, warns of the consequences for Greece of a "no" vote.
"If the Greeks vote 'no', this will be a tragedy for the Greek people," he says. The fiscal adjustment they have been resisting will end up being much larger and painful.
"It will come from devaluation of the drachma and inflation. Salaries and pensions will fall in real terms much more than they would have fallen as a consequence of the austerity measures proposed by the institutions.
"Greece will become a stagflationary economy isolated from the capital markets. It is very likely it will also exit the EU and enter into the Russian geopolitical area.
"If the Greek people read correctly Argentina's experience after exiting the dollar, Greeks should vote 'yes'."
Others say the relationship – happy or not – is likely to continue, whether or not a "no" vote leads to Grexit.
One official says: "We can separate from Greece but in a way it's different, because if you divorce from a man you are married to for a long time, you go away and he's not there any more. But Greece can't go away. They will be there on the map no matter what. They are a country of the EU, and they are in this situation so we have to deal with them anyhow.
"It will be like you're divorced but still living under the same roof."