Hardening German attitudes on Greece risk a rupture

Significance

Pressure is intensifying on the negotiators representing the Greek government and its creditors -- most importantly Germany -- to reach some form of agreement allowing the release of sufficient financial assistance for Greece to meet its payment obligations due by the end of June. However, the governing Greek coalition does not appear stable enough to adopt the reform programme demanded by its creditors. Meanwhile, German economic opinion on Greece is hardening, in the gathering belief that the risks to the rest of the euro-area from any concessions to Athens are now greater than those of a possible rupture.

Impacts

• If the Greek negotiations drag on, the government may have to introduce capital controls to stem the outflow of bank deposits.
• Greece's central bank remains reliant on the ECB to continue authorising ELA, but opposition to ELA in Germany is growing.
• If the ECB withdrew ELA, Athens's choices would be to meet its creditors' demands, see a financial system collapse or exit the euro.