Merkel re-election set to give EU ‘window to sort out Greece’

The expected re-election of German chancellor Angela Merkel this weekend will give Europe a “window of opportunity” to commit to a debt deal for Greece, according to the chief strategist and head of research at one of Switzerland’s largest private banks.

Speaking in an interview with The Irish Times on Thursday in Dublin, Christian Gattiker, chief strategist with Swiss bank Julius Baer, said Europe has two key issues to address almost a decade after the global credit crisis began: restructuring the financial system in Italy, where support for the European Union is eroding, and providing "debt relief" for Greece, where government borrowings equate to 180 per cent of the economy's size.

“My personal view is that after the German election there is a window of opportunity, together with the France and its new president [Emmanuel] Macron, to get a new deal for Greece,” said Mr Gattiker, adding that “no serious economist” believes that the level of Greece’s debt is sustainable.

“Debt relief can come in various shapes and forms – it can be a debt extension at a lower rate. It doesn’t have to be a spectacular thing,” he said.

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Fourth term

Polls indicate that Ms Merkel’s Christian Democratic Union (CDU) and its sister party the Christian Social Union (CSU) have a 15-point lead over their nearest rivals, the Social Democratic Party, which would secure a fourth consecutive term for the chancellor, though possibly not an absolute majority.

Ms Merkel and her finance minister, Wolfgang Schauble, have been reluctant to be drawn on the issue of Greek debt relief ahead of the federal elections on Sunday.

However, Mr Macron said on a state visit to Greece two weeks ago that Europe should help in talks on Greek debt relief next year and he called on the International Monetary Fund (IMF) to make no more demands of the embattled country. Greece, which was first bailed out by the EU-IMF troika in 2010, is heading into a key review of its rescue in the coming months as it seeks to exit its third aid programme next August.

Greece’s partners have agreed to ease the country’s debt at the end of the bailout, provided agreed reforms are met. Prime minister Alexis Tsipras’s 2018 budget, banks’ levels of bad loans, and privatisations will be among the main issues in the forthcoming review. Previous inspections dragged on for months as a result of standoffs over fiscal issues and labour reforms.

Still, Mr Gattiker said that Italy is the main risk to the European project and financial markets, as the country’s financial system grapples with high levels of non-performing loans and elections are due to be held by the end of May – against a backdrop where its citizens are among the least positive in the EU about the union’s future.