Merkel will continue to support Greek membership in the euro, JP Morgan

The first visit to Athens of German Chancellor Angela Merkel in five years has sparked demonstrations in Greek’s capital, and prime minister Antonis Samaras struggled over the last weeks to implement austerity measures needed to keep the country in the eurozone.

Greece has been in talks with the troika composed by the European Union, European Central Bank and International Monetary Fund on cuts to which a new aid tranche of €130bn is conditioned.

Merkel will meet today Samaras, President Karolos Papoulias, and representatives of Greek business.

According to Alex White, economist at JP Morgan, Merkel’s visit effectively underlines her position that Germany will continue to support Greek membership of the euro area.

“We expect the Chancellor to remain consistent on this point, at least until after Germany’s Federal election next September. The ambiguity within Germany about Greece’s future in Europe that emerged this summer has been harmful, and provided political oxygen to parts of Merkel’s coalition which have been critical about the Chancellor’s approach to the crisis.”

JP Morgan also thinks the question of Greece’s long-term position within the EMU will only be settled after the German election.

“Her visit to Athens enables Merkel to reinforce her view that Greece can adjust, and the Chancellery is interested in, and engaged with, the details,” White said.

The visit follows by few hours the approval of a new €4.3bn tranche of aid for Portugal.

“There continues to be little outward sign that European Finance Ministers are prepared to grant Greece the additional two years grace the Greek Government are seeking even on a day when the German Chancellor arrived in Athens to discuss this very topic,” economists at Societe Generale said.

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