Greece and Germany cannot even agree to disagree over bailout terms

Germany remains a staunch advocate of the strict fiscal discipline that Greece has to impose

Greek Finance Minister Yanis Varoufakis arrives at the German Finance Ministry to take part in bilateral talks with his German counterpart Schaeuble in Berlin, Germany, on 5 February, 2015 (EPA)

Greece and Germany clashed over austerity measures in frank exchanges yesterday as shares in Greek banks were shaken by the threat of losing crucial billions in funding from the European Central Bank (ECB).

Greece’s newly elected Syriza Government is attempting to renegotiate the terms of two bailouts worth a combined €240bn (£179bn), which the Finance Minister, Yanis Varoufakis, says are “asphyxiating” his country. But Germany is fiercely resisting any changes to the deal.

The German finance minister Wolfgang Schäuble said that he and Mr Varoufakis “agreed to disagree” at their meeting yesterday in Berlin. Mr Schäuble said: “Greece belongs to the euro. But we don’t really agree on what we have to do now despite an intense, open discussion.” However, Mr Varoufakis rejected Mr Schäuble’s take, saying they did not “even agree to disagree”.

Germany remains a staunch advocate of the strict fiscal discipline that Greece has to impose in return for the rescue money that has prevented it from going bankrupt. But the Greek economy has paid a painful price, shrinking by around a quarter through six years of recession.

Mr Varoufakis insisted Athens would not default on its debts and said it wants to carve out a new compromise deal to the benefit of both Greece and the eurozone. He said the meeting “set the scene for deliberations that will lead to an approach that will put an end to this seemingly never-ending crisis”.

But he also antagonised the Germans by comparing the rise of Greece’s far-right Golden Dawn party, against the backdrop of economic depression, to the emergence of Nazism in 1930s Germany. “When I return home tonight, I will find a country where the third-largest party is not a neo-Nazi party, but a Nazi party,” he said.

The temporary extension of Greece’s bailout programme expires at the end of the month but Syriza is pushing for a bridging deal between now and the end of May and talks on “a new contract” with the troika of the ECB, International Monetary Fund and European Union.

Mr Schäuble welcomed Syriza’s efforts to combat corruption and increase the tax take but opposes its proposals for public sector recruitment and renationalisations. “Some of the measures that have been announced... don’t necessarily go in the right direction,” he said.

The discussions came as jittery investors dumped Greek shares following the ECB’s move to tighten the screws on the country’s banking system. Alpha Bank tumbled more than 18 per cent, National Bank of Greece almost 18 per cent and Eurobank 16 per cent at one stage.

The central bank is refusing some lending to Greek banks using the nation’s junk-rated government bonds as collateral, due to uncertainty over a new deal between Syriza and its international creditors. Greek banks retain access to emergency lending, but at a higher cost and subject to ECB approval.

The nuclear option for the ECB – a refusal of further emergency credit – could pull the plug on Greek banks and leave the Government with no choice but to print a new national currency.

The country’s average cost of borrowing for 10 years also pushed past the 10 per cent mark.