Can Merkel square Germany's circular logic?

As Angela Merkel struggles to persuade Germany of the benefits of keeping Greece in the eurozone, falling business confidence at home will make the task increasingly painful.

In spite of rising opposition from the German public, Angela Merkel’s determination to save the euro, and Greece with it, is unwavering. Foolhardy task or not, the German Chancellor is no quitter. And it looks like she won’t let anyone else be one either. But in the quest to save Greece from itself, Merkel, Hollande et al are risking the very future of the single currency, and are condemning the bloc to more countless years of hardship.

The latest show of solidarity came at the weekend, with Merkel, Hollande and Samaras banding together to proclaim the lasting future of the euro (Greece included). The pride of the European political elite is at stake after all.

But the most recent data coming out of Germany provides little reassurance. Overnight, the latest business figures were released, showing that business confidence fell more than expected in August, to 102.3 points. This marks the fourth consecutive month in which business confidence has fallen in the country.

Throughout the eurozone crisis, the German economy has remained robust. But as uncertainty over the future of the single currency continues, cracks are appearing. Last week, it was revealed that growth had slowed to 0.3 per cent in the second quarter of the year, compared with 0.5 per cent growth in the first quarter. The threat of a slowdown in Europe’s austerity capital will make investors increasingly nervous.

While dealing with a weakening domestic economy, Merkel is at the same time struggling to persuade Germany of the benefits of keeping Greece in the eurozone. Germans, along with much of Europe, have become increasingly frustrated with what they see as half-hearted attempts by Greece to meeting the targets imposed by the so-called troika of the European Central Bank, the International Monetary Fund, and the European Commission.

In the three years since the eurozone crisis began, Greece has tabled excuse after excuse in justifying its inability to stick to reforms and targets imposed by the troika. Yet somehow the country has managed to wrangle more aid from Europe on every occasion.

Greece is currently struggling to find €11.5 billion in spending cuts needed for it to qualify for the next instalment of its €130 billion rescue package.

Prime Minister Antonio Samaras’ solution is to ask for more time – up to two years – to implement the cost-cutting measures. In his request, he was emphatic that more time does not mean more money. German finance minister Wolfgang Schaeuble was rightly quick to reject this notion, saying that "more time generally means more money and that quickly means a new (bailout) program."

All of these developments just add fuel to the ongoing speculation of a Greek exit. As long as this is a possibility, the bloc will just keep going round in circles. For Merkel, this will result in increasing opposition from within Germany for her unwavering stance on Greece.

There are only two ways off this merry-go-round. Either Greece somehow finds the €11.5 billion in spending cuts and sticks to its reform plan, or Greece exits the euro and returns to the drachma.

Even if Greece succeeds this time, the country will struggle at every turn to meet the harsh troika-imposed targets. And each time there is doubt over its ability to meet these targets, talk of a 'Grexit' will return.

Realistically, Greece will find it near impossible to successfully implement program reforms as decried by the troika. The country’s best chance at a swift recovery is an orderly exit from the euro. It is by no means an ideal solution, but it would finally bring an end the vicious cycle that has been playing out for the past three years.

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