The PJ Tatler

Administration Urging EU to Keep Greece in Eurozone Until After Election

There has been a lot of brave talk coming from Chancellor Merkel of Germany and President Hollande of France about keeping Greece in the Eurozone lately.

The two leaders met yesterday to discuss what to do about Greek President Samaras’s campaign to get the EU to ease up on the requirements of the $170 billion bail out package that is keeping Greece afloat while they deal with their massive budget deficit and debt. Greece has very specific deficit reduction targets it must meet over the next two years if they expect to get the cash to keep their heads above water. But Samaras wants to extend the timeframe out to 4 years — something that would almost certainly require additional bailout funds from the EU. Both Merkel and Hollande are prepared to tell the Greek president that isn’t in the cards and that he must stick with the timetable as is.

Now the UK Independent is reporting that Obama administration officials are urging the EU not to kick Greece off the euro until after the election, fearing the resulting chaos could put the US economy into a tailspin:

The Obama administration will pressure European governments not to let Greece fall out of the eurozone before November’s Presidential elections, British Government sources have suggested.

Representatives from the International Monetary Fund, the European Central Bank and the European Commission are due to arrive in Athens next month to assess Greece’s reform efforts.

They are expected to report in time for an 8 October meeting of eurozone finance ministers which will decide on whether to disburse Greece’s next €31bn aid tranche, promised under the terms of the bailout for the country.

American officials are understood to be worried that if they decide Greece has not done enough to meet its deficit targets and withhold the money, it would automatically trigger Greece’s exit from the eurozone weeks before the Presidential election on 6 November.

They are urging eurozone Governments to hold off from taking any drastic action before then – fearing that the resulting market destabilisation could damage President Obama’s re-election prospects. European leaders are thought to be sympathetic to the lobbying fearing that, under pressure from his party lin Congress, Mitt Romney would be a more isolationist president than Mr Obama.

The President discussed the eurozone crisis with David Cameron during a conference call on Wednesday and both welcomed statements by the European Central Bank that it was “standing firmly behind the euro”.

The ECB is expected to present a plan in the next few weeks to help indebted countries like Spain and Italy by buying their government bonds.

European fears about Romney aside, it seems unlikely that Merkel will give Samaras what he wants. The German chancellor is in a precarious political situation with the German people tired of bailing out the rest of the eurozone. If Samaras can’t get his shaky coalition to go along with the austerity budget, that 31 billion euro slice of the bail out money might be withheld and Greece would eventually default.

Or would they? If Merkel and Hollande are of a mind to do Obama a favor, they can delay the final decision on the October 6 tranche for a month. That would put the day of reckoning for Greece a couple of days beyond the American election. Or, they could release part of the tranche and await further developments in Greece.

It is not unheard of for an incumbent president to try and manipulate world events to their political advantage (“Peace is around the corner…” anyone?). But the Greek situation is, according to most observers, beyond rescue and delaying the inevitable only helps President Obama, not Europe.