Greece’s economy plays role in German election

BERLIN — In Germany, rumors of yet another Greek bailout and the escalating conflict in Syria could prove to be the greatest threats to Angela Merkel’s re-election campaign, just two weeks before voters head to the ballot box.

The German chancellor enjoys a big lead in polling and has brushed off earlier criticisms that she helped the National Security Agency spy on her own citizens, an issue that at one point seemed as if it could derail her campaign.

But there are two things Germans hate more than an invasion of their privacy: They do not like giving away money to perceived freeloading countries like Greece, and they do not want to be involved in any wars in the Middle East.

Mrs. Merkel has successfully dodged discussions about the war in Syria, but she hasn’t been so fortunate when it comes to bailing out Greece.

“I think the voters are worried about that whole situation,” said Ferdinand Fichtner, head of the forecasting and economic policy department at DIW Berlin, also known as the German Institute for Economic Research.

Mrs. Merkel’s conservative Christian Democratic Union leads in the polls with 40 percent, compared to 25 percent for the center-left Social Democratic Party.

But that could change. Talk of a third Greek bailout has flared up in recent weeks with Mrs. Merkel’s finance minister, Wolfgang Schauble, making an off-the-cuff remark at a campaign rally that deviated from her plan to avoid the hot-button issue until after the Sept. 22 election.

“There will have to be another program in Greece,” he said.

Since then, Mrs. Merkel has tried to distance herself from Mr. Schauble’s comments, going as far as to say that it was a mistake to admit Greece into the eurozone in the first place, an obvious shot at her predecessor from the rival Social Democratic Party who welcomed Greece a decade ago.

“The crisis emerged over many years, through founding errors in the euro — for example, Greece should not have been admitted into the euro area,” she said at a campaign event.

Greece has received nearly $300 billion in public bailout money in the past few years and has even more debt in the hands of private lenders, but “patience is running out,” said an analyst with close ties to the CDU.

“Now, most Germans think Greece should stay in the eurozone,” said the analyst, speaking on condition of anonymity so as to speak freely. “But, at some point, I think people will realize it can’t go on like this. The Germans will say, ’No, no further bailouts. It’s done.’”

Economists say Greece is still nowhere near to solving its financial woes.

Falko Fecht, a professor of finance and economics at the Frankfurt School of Finance & Management, called it “wishful thinking” on the part of Mrs. Merkel’s government to assume that the past bailouts would solve Greece’s financial problems.

“They underestimated the severity of the problem at that point and time,” Mr. Fecht said. “Now, it’s hard for the current government to go back and accept the view that another bailout is needed, because to a large extent, all those previous programs were made with the mindset that they wouldn’t need anymore bailouts and they wouldn’t have to write down those loans.”

Some say that expecting a third bailout to fix Greece’s problems would also be wishful thinking. Mr. Fichtner is skeptical that another bailout would solve the country’s financial woes.

“Greece is still insolvent,” Mr. Fichtner said. “So another bailout won’t help them with their debt problems, but a haircut would.”

A “haircut” would involve forgiving part of Greece’s debt, which would result in losses for taxpayers and bondholders in the eurozone and worldwide. Or Germany could restructure the debt by lowering the interest rates and extending the time Greece has to pay back the money.

But either would be a tough sell for Mrs. Merkel.

“I don’t think policymakers will be able to explain to the public that we have an actually loss of money,” Mr. Fichtner said. “Previously, they were saying, ’We are just lending money to Greece, but we will get it back.’”

Without a haircut or some sort of debt restructuring, Greece is doomed to repeat the mistakes of the past, Mr. Fichtner said.

“I would expect that the third bailout would probably not be the last one,” he added.

It’s something that Mrs. Merkel would rather not think about at the moment as she campaigns for her third term.

“You can sell these tough decisions after you have won the elections and are in office again,” said Annette Heuser, executive director of the Washington office at the Bertelsmann Foundation, a German think tank. “That’s the window of opportunity, and there is no doubt that Merkel will use it.”