TIME Greece

How Germany Called Greece’s Bluff Ahead of Bailout Vote

The leftist government in Greece may have overestimated the resolve of its supporters

At first the call for a referendum was bold enough to seem clever, or at least typical of the chutzpah that helped bring Prime Minister Alexis Tsipras to power in Greece in the first place. Its logic was simple. With talks between Greece and its creditors at an impasse, why not give the people a chance to demand a better deal at the ballot box? Would Germany and the other European powers be so callous as to ignore the outcome of a democratic vote? At the very least, the referendum would renew the government’s mandate in its struggle for debt relief.

Germany, however, didn’t flinch. Chancellor Angela Merkel called the bluff on Tspiras’ last-minute gambit with an almost taunting composure. “Before a referendum, as planned, is carried out, we won’t negotiate on anything new at all,” she said on Tuesday. In other words, her response to the threat of a referendum was simple: Knock yourself out.

The Chancellor was not just being stubborn. She had seen the Greek opinion polls suggesting the July 5 referendum would not come out as Tsipras hopes. Although the polls since then have been more mixed, an early majority seemed to emerge this week in favor of a bailout deal, one that would save Greece from abandoning the euro even at the price of higher taxes and more austerity.

On Tuesday evening, tens of thousands of Greeks gathered outside the parliamentary building in Athens to support this position, defying their Prime Minister with calls for Greeks to vote in favor of the deal. Their numbers, to the surprise of many in the crowd, clearly dwarfed the demonstration that had gathered the night before to back Tsipras in rebuffing Greece’s creditors.

The Prime Minister then appeared to lose his nerve. On Tuesday night, he sent a letter to European Finance Ministers asking for another bailout — and apparently conceding to most of their demands for more cuts to the welfare system and higher taxes. The concessions were shocking, as they bowed to many of the terms that Tsipras had so vehemently opposed for months. Nevertheless, it took just a few hours for the European ministers to reject his appeal, surely not without the influence of Germany.

“This government has done nothing since it came into office,” German Finance Minister Wolfgang Schäuble said in a speech the next day. “It has only reversed measures. It reneged on previously agreed commitments. It negotiated and negotiated.”

By that point, Greek workers and pensioners had been given a taste of what it could mean to defy their nation’s creditors. The European Central Bank had cut off its emergency cash injections to Greek banks as of Sunday, forcing them to limit the amount of money their clients could withdraw from ATMs. This measure soon caused crowds of elderly Greeks to gather outside banks in Athens to collect at least a portion of their pensions, their outstretched hands providing a grim image of what Greece could turn into without the support of its European peers.

It was not what Tsipras had in mind when he gambled on the referendum. On Friday afternoon, hours before the Prime Minister announced the vote, a senior official in his government had explained the logic of this option to TIME. “This government is determined to keep struggling to persuade the European community that Greece wants to stay in,” said Rania Antonopoulos, the Deputy Minister in charge of combating Greece’s sky-high unemployment. “But we cannot accept conditions that would bring about even more recession.”

Her reasoning was sound. When Greece first accepted austerity in exchange for a bailout in 2010, its creditors badly underestimated the damage it would do to the Greek economy. The country’s GDP wound up shrinking by a quarter over the next five years, creating a recession that has been deeper and more protracted than the U.S. Great Depression. Unemployment also rose to a peak of around 28% in February, with half of young people now jobless in Greece.

Tsipras came to power in January with a promise to change course, and he immediately took his core election promises to Greece’s creditors. The 40-year-old leftist demanded a reduction of his country’s debt, relief to the poor and, above all, no more austerity imposed on Greece from without.


“They are not carelessly engaging in this dialogue,” Antonopoulos says of Tsipras and her other Syriza party leaders. “They are exhausting all possible options before they say, ‘Well, they are kicking us out [of the euro zone]. And if they are kicking us out and we have no other way, then of course we will take it to the people, and the people will decide what is our next move.’”

But Syriza may have overestimated the people’s resolve. Among the party’s core supporters were many of Greece’s poorest citizens, who are ill prepared to face the reality of cash shortages, bank runs and a future without the euro as their currency. In the past few days, the European Union has done its best to demonstrate how painful that reality would be.

“If they vote no, it would be disastrous for the future,” said Jean-Claude Juncker, the president of the European Commission, which along with the International Monetary Fund and the European Central Bank, makes up the so-called troika of Greece’s creditors. “No would mean they are saying no to Europe,” he told a press conference on Monday.

To many in Greece, this seemed like a blatant attempt to influence the outcome of the referendum, as did the European move to cut the flow of emergency liquidity to Greek banks. The European Central Bank could have kept that assistance alive for just a few more days, allowing banks to stay open at least until the referendum. Instead it chose to turn off the faucet the day after Tsipras called the vote.

Stefanos Manos, a Greek conservative who served as Minister of Finance in the early 1990s, says he’s glad Europe is sending such a clear message. He was among the first to point out how wasteful and inefficient the Greek state had become — and, he says, was considered an “extremist” for doing so. He now sees the referendum as a chance for Greeks to finally accept that he was right — and that perhaps, Merkel is too. “It seems we will come out on top,” Manos says.

The Prime Minister isn’t so sure. In a televised address on Wednesday, Tsipras continued to defy the troika by urging Greeks to vote against the bailout deal — not as a rejection of the European Union or its currency, he said, but as a means of giving him a stronger position in negotiations going forward.

That doesn’t seem like much of an upside when compared to the referendum’s risks. If the people side with Tsipras, he’ll just have to return to the same negotiating table, albeit with a slightly better hand and a revitalized mandate to take a tough position. If voters turn against him, he won’t have any hand to play at all.

Read next: Battle for Greek Votes Under Way as Cash Shortages Bite

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TIME Greece

Greeks Fear a ‘Haircut’ on Their Savings As Bailout Deal Expires

A Greek national flag flutters atop a building as dark clouds fill the sky in Athens on June 30, 2015.
Alkis Konstantinidis—Reuters A Greek national flag flutters atop a building as dark clouds fill the sky in Athens on June 30, 2015.

A Cyprus-style tax on deposits is one of the dwindling options the Greek government has left

The phones at Tax Solutions, an accounting firm in the south of Athens, began ringing non-stop early on Monday. On orders from the Greek government, the banks did not open that morning as harsh restrictions were imposed on the amount of money their clients could withdraw.

The accounting firm’s CEO, Vassilis Bagourdis, had been up since dawn, nervously puffing at cigarillos and trying to figure out what the capital controls could mean: Had Greek banks at last run out of money? How long would they stay solvent? And could the government now levy a tax on deposits like the one Cyprus imposed two years ago?

This scenario, which amounts to the seizure of money from private accounts, would be the latest in a fast succession of financial nightmares for Greece, but at this point, Bagourdis says, “There is no telling what tomorrow will bring.” As of midnight on Tuesday, the bailout program that has kept the Greek economy afloat officially expired, and Greece missed a $1.6 billion payment to the International Monetary Fund, meaning it has essentially defaulted on its debts. As a condition of any more assistance, Greece’s creditors have demanded more reforms and austerity measures, including tax hikes and pension cuts, which Greek Prime Minister Alexis Tsipras has repeatedly rejected.

His government is clearly getting desperate. As the midnight deadline approached, Tsipras appealed for another bailout from the 18 other European countries that use the euro as their currency. It would be the third bailout Greece has received in five years. The first two were worth a combined 240 billion euros, and the third one that Tsipras requested would need to extend at least another 30 billion euros over the next two years just so Greece can make payments on existing debts. After an emergency conference call on Tuesday, however, European finance ministers denied his request.

That pushed Greek banks closer to the brink. Over the weekend they had already been cut off from emergency cash injections from European Central Bank, prompting the government to limit withdrawals from each account to a mere 60 euros per day, barely enough for a family to go grocery shopping in Athens. On top of those restrictions, the banks will also remain closed for a “holiday” at least through July 5, which is the next day of reckoning on the Greek financial calendar.

That morning polls are scheduled to open for a national referendum on whether or not to accept the conditions of more assistance from the country’s creditors. It is a bizarre choice to put on a ballot, not least because the creditors formally withdrew their offer as of midnight on Tuesday, when Greece’s bailout program expired. So if the referendum goes ahead – and that is still a big “if” – the Greeks will be asked to vote on a deal that is no longer on the table. Still, the outcome of the vote would mark another step toward the dreaded deposit tax, sometimes called a “haircut” on deposits.

Innocuous as the euphemism seems, this measure would amount to the government seizing the money it needs from regular people’s accounts. “Depending on how the referendum goes, I’d say there is a 60-70% chance of a haircut,” says Bagourdis, whose clients include businesses that would be devastated by such a move.

Some opposition lawmakers put the odds even higher. If voters reject the terms of continued aid from Greece’s creditors on July 5, “the chances of a haircut would be certain,” says Haris Theoharis, a parliamentarian who until late last year was Greece’s top tax collector.

It would in some ways be a repeat of the 2013 crisis in Cyprus. In March of that year, the European Central Bank also stopped providing cash injections – known as emergency liquidity assistance (ELA) – to struggling Cypriot banks, much as it did to Greek banks over the weekend. The government in Cyprus complained that this was a form of blackmail from its European creditors, but in the end it was still forced limit cash withdrawals and impose a tax on deposits, shaving 10% off the value of uninsured accounts that were worth more than 100,000 euros.

In part because many of those accounts belonged to wealthy foreigners – primarily Russians who were using Cyprus as a tax haven – the country did not see any mass unrest after its haircut on deposits. “But here it would be different,” says Bagourdis, who also serves as a senior adviser to the opposition New Democracy party in Greece. “Here it would be regular families and businesses that suffer from this measure.”

Though the current government denied that it was considering such a move earlier this year, the possibility of such a stopgap measure has made many Greeks nervous. In May, the Guardian newspaper quoted an official from the Greek central bank warning that this could cause a violent public backlash. “We would see the revolt that this crisis has not yet produced,” the official was quoted as saying. “There would be blood in the streets. The Greeks are not like the Cypriots.”

It would then be very hard for Tsipras to maintain his base of support – and to stay in power – especially considering that he was elected in January on a promise to end austerity and reduce the tax burden on workaday Greeks. But the dramatic collapse of his negotiations with Greece’s creditors since then has left Tsipras with fewer and fewer options. As part of a new bailout deal, European financial institutions could even insist on a haircut on deposits, much as they did during the Cypriot crisis of 2013.

So even if Greeks vote on July 5 to accept the harsh terms of their country’s creditors – as European leaders have urged them to do – they would still not take the prospect of a deposit tax off the table. “We would still be moving in that direction,” says Bagourdis. As its options for emergency financing are whittled down, the Greek government could be left with no other choice.

TIME Greece

Meet the One Greek Business Profiting From the Run on Banks

“Everything has its risks”

The last five years have not been kind to the nameless little shopping plaza off of Lekka Street in central Athens. One after another its shop windows have gone dark and its merchants have gone out of business, acting out in miniature the way the Greek economy has contracted under the weight of its debts. But way in the back of the dusty arcade, the cluttered shop of George Moschopoulos has never seen better days. Every corner of the place is packed with one of the few durable goods on which Greeks are still willing to splurge: safes and strongboxes with solid metal walls.

Over the past few years, several aspects of the Greek financial crisis have aligned to boost demand for these unusual appliances. For one thing, public faith in the Greek banking system has collapsed, prompting Greeks to withdraw more than one billion euros from their accounts on Friday alone. The Greek government’s desperate push to raise tax revenue has meanwhile made people question the wisdom of storing their money in safety deposit boxes, where the tax police could still seize it. And the fact that people all over Greece are stashing their savings at home has driven an epidemic of burglaries. Put all that together and a strongbox starts to seem like a good investment.

“Everything has its risks,” says Moschopoulos, who has been in the safe business for nearly 40 years, according to the licenses that hang on the wall of his shop. “If you stuff your money in the mattress, it’s a thousand percent certain you will get robbed.” The most secure option, he admits, is still a safety deposit box inside a bank vault. “But there’s always the chance that some law will get passed to investigate what’s inside all those boxes, and they could all be frozen.”

Nor is there much security for Greeks in keeping their money in a savings account. As of Monday, the Greek government imposed capital controls on the nation’s banks, limiting how much their clients can withdraw to 60 euros per day, which is hardly enough to fill up the tank of a mid-sized sedan. Long lines had formed at ATMs around Athens in anticipation of this measure, and those who managed to withdraw their savings were among the lucky ones.

Now all they have to do is keep that money safe from thieves. According to the latest figures from Eurostat, the E.U.’s main statistical agency, Greece saw the worst jump in domestic burglaries of any E.U. member in the years after the financial crisis hit. In 2012, the most recent year for which Eurostat has published data, Greek police recorded almost 88,000 cases of burglary, up 76% from fiver years earlier. Police in Poland, whose population is 3.5 times larger than that of Greece, recorded less than half as many burglaries that year.

Greek media have meanwhile reported a change in the burglars’ tactics. If before they would wait until a home was empty before breaking in to ransack the place, they now prefer to have at least one person at home during the robbery to show the intruders where the money is hidden, according to a reported published Monday in the left-wing Avgi newspaper, which cited sources in the Greek police. (The press service of the national police did not respond on Monday to TIME’s request to comment on the article’s claims.)

If the report is accurate, the thieves in Greece would seem to have found a way to crack the safes that homeowners are installing. But Moschopoulos has yet to see a drop-off in demand. In the last five years, he says, his sales have grown roughly five-fold compared to the years before the financial crisis. “The reactions of Greek people are not always logical,” he says. “They are not patient enough to wait. They panic and withdraw everything right away.” But after this week’s capital controls, it’s hard to blame them for that kind of panic. The hoarders of cash would seem to be the clever ones in Greece this week, especially if they invested in the roughly 250 euros it costs to install a safe in their bedroom wall.

TIME

Joseph Stiglitz to Greece’s Creditors: Abandon Austerity Or Face Global Fallout

Nobel laureate tells TIME that the institutions and countries that have enforced cost-cutting on Greece "have criminal responsibility"

A few years ago, when Greece was still at the start of its slide into an economic depression, the Nobel prize-winning economist Joseph Stiglitz remembers discussing the crisis with Greek officials. What they wanted was a stimulus package to boost growth and create jobs, and Stiglitz, who had just produced an influential report for the United Nations on how to deal with the global financial crisis, agreed that this would be the best way forward. Instead, Greece’s foreign creditors imposed a strict program of austerity. The Greek economy has shrunk by about 25% since 2010. The cost-cutting was an enormous mistake, Stiglitz says, and it’s time for the creditors to admit it.

“They have criminal responsibility,” he says of the so-called troika of financial institutions that bailed out the Greek economy in 2010, namely the International Monetary Fund, the European Commission and the European Central Bank. “It’s a kind of criminal responsibility for causing a major recession,” Stiglitz tells TIME in a phone interview.

Along with a growing number of the world’s most influential economists, Stiglitz has begun to urge the troika to forgive Greece’s debt – estimated to be worth close to $300 billion in bailouts – and to offer the stimulus money that two successive Greek governments have been requesting.

Failure to do so, Stiglitz argues, would not only worsen the recession in Greece – already deeper and more prolonged than the Great Depression in the U.S. – it would also wreck the credibility of Europe’s common currency, the euro, and put the global economy at risk of contagion.

So far Greece’s creditors have downplayed those risks. In recent years they have repeatedly insisted that European banks and global markets do not face any serious fallout from Greece abandoning the euro, as they have had plenty of time to insulate themselves from such an outcome. But Stiglitz, who served as the chief economist of the World Bank from 1997 to 2000, says no such firewall of protection can exist in a globalized economy, where the connections between events and institutions are often impossible to predict. “We don’t know all the linkings,” he says.

Many countries in Eastern Europe, for instance, are still heavily reliant on Greek banks, and if those banks collapse the European Union faces the risk of a chain reaction of financial turmoil that could easily spread to the rest of the global economy. “There is a lack of transparency in financial markets that makes it impossible to know exactly what the consequences are,” says Stiglitz. “Anybody who says they do obviously doesn’t know what they’re talking about.”

Over the weekend the prospect of Greece abandoning the euro drew closer than ever, as talks between the Greek government and its creditors broke down. Prime Minister Alexis Tsipras, who was elected in January on a promise to end austerity, announced on Saturday that he could not accept the troika’s “insulting” demands for more tax hikes and pension cuts, and he called a referendum for July 5 to let voters decide how the government should handle the negotiations going forward. If a majority of Greeks vote to reject the troika’s terms for continued assistance, Greece could be forced to default on its debt and pull out of the currency union.

Stiglitz sees two possible outcomes to that scenario – neither of them pleasant for the European Union. If the Greek economy recovers after abandoning the euro, it would “certainly increase the impetus for anti-euro politics,” encouraging other struggling economies to drop the common currency and go it alone. If the Greek economy collapses without the euro, “you have on the edge of Europe a failed state,” Stiglitz says. “That’s when the geopolitics become very ugly.”

By providing financial aid, Russia and China would then be able to undermine Greece’s allegiance to the E.U. and its foreign policy decisions, creating what Stiglitz calls “an enemy within.” There is no way to predict the long-term consequences of such a break in the E.U.’s political cohesion, but it would likely be more costly than offering Greece a break on its loans, he says.

“The creditors should admit that the policies that they put forward over the last five years are flawed,” says Stiglitz, a professor at Columbia University.What they asked for caused a deep depression with long-standing effects, and I don’t think there is any way that Europe’s and Germany’s hands are clean. My own view is that they ought to recognize their complicity and say, ‘Look, the past is the past. We made mistakes. How do we go on from here?’”

The most reasonable solution Stiglitz sees is a write-off of Greece’s debt, or at least a deal that would not require any payments for the next ten or 15 years. In that time, Greece should be given additional aid to jumpstart its economy and return to growth. But the first step would be for the troika to make a painful yet obvious admission: “Austerity hasn’t worked,” Stiglitz says.

TIME Greece

Greeks Wrestle With Bailout Dilemma as ATM Lines Grow

It was easy to gauge the rising panic in Athens this weekend by the length of the lines at the ATMs. On Saturday, when Greeks learned that they would have to vote on the terms of their country’s bailout program in a snap referendum on July 5, clusters of people began to gather at the machines that still had cash to give. By Sunday afternoon these lines were sometimes stretching entire blocks as word spread of the government’s shocking announcement: the banks would not be allowed to open in the morning, and they would start limiting how much money their clients could withdraw.

The resulting anxiety, which would seem to herald an imminent climax in the five-year-old saga of Greece’s depression, will now form the atmosphere for next weekend’s referendum. The choice voters face is stark: They can either vote Yes to more tax hikes and pension cuts as a condition of keeping financial aid from Europe flowing, or they can vote No and reject the deal from Greece’s creditors, potentially forcing the country to default on its debts and pull out of Europe’s currency union.

For many in Athens, however, the decision came down to a simpler and more depressing question: What do we really have left to lose? Tionysis Matheakakis, who plans to vote No, says he has already hit rock bottom. When the global financial crisis first pushed Greece to the edge of bankruptcy five years ago, he lost his job as a milk truck driver at the age of 48, leaving him too old, he says, to find another job since then. Though he has no source of income, he still has to pay higher property taxes on his home, among other new levies that Greece has imposed as part of its push to raise revenue and pay back debts.

Now, the new cuts to pensions that Greece’s creditors are demanding threaten to eat away at the only steady income he sees, nine years from now, when he can legally retire. “They are squeezing us dry,” he says on the city’s Syntagma Square, where lines formed at cash machines over the weekend as the government announced the banks would not open Monday. “It’s time to break the chains,” he says.

That is the option Greek Prime Minister Alexis Tsipras offered his demoralized electorate in the early hours of Saturday morning. In a televised address, he called for a nationwide referendum to decide whether or not Greece should accept the latest bailout terms from its so-called troika of creditors – the International Monetary Fund, the European Commission and the European Central Bank.

Even though the Greek economy has shrunk by a quarter in the past five years, these institutions have refused Tsipras’ demands for a reduction in debt and an easing of the Greek austerity program. Instead they are demanding further tax hikes and pension cuts as a condition of continued assistance. After five months of fraught talks, their negotiations broke down late last week, prompting Tsipras to ask his electorate how the government should proceed.

“The day of truth is coming for the creditors, the time when they will see that Greece will not surrender,” Tsipras, a self-professed radical leftist who was elected in January, told an emergency session of parliament on Saturday afternoon. “I am certain that the Greek people will rise to the historical circumstances and issue a resounding ‘No’ to the ultimatum.” The chamber, which is dominated by a coalition bent against austerity, then approved his bid to hold the referendum.

But according to early polls, Greek voters seem likely to reject the pleas of their Prime Minister. In a survey commissioned by the newspaper Proto Thema and released on Sunday, 57% of respondents said they would accept the troika’s bailout terms with a Yes vote, potentially forcing the anti-austerity government to resign and call new elections.

Nick Kontodimos, an accountant in Athens, is among the voters ready to accept the troika’s deal. The only way Greece will get its finances in order, he says, is under pressure from its European creditors, which have forced Athens to impose fiscal discipline and curb government waste for the first time in generations. “These foreign guys put the gun to our head and told us to do the most obvious things,” he says. “It’s ridiculous, but it seems like we needed this gun to our head.”

Removing it could result in disaster for Greece, especially if it abandons the euro and goes back to its previous currency, the drachma. On the upside, that would allow the government to print money and boost spending in order to stimulate growth. But inflation would then be sure to spike as the value of the drachma plummets against the euro and the dollar, making it more and more difficult for the government to afford basic imports such as oil and machinery.

Greek banks would also come under tremendous pressure. If their clients suddenly start receiving their paychecks in drachmas, many of them would be unable to repay the loans they took out in euros, forcing them to default. Already the risks of Greek banks collapsing has prompted many to pull out their savings and stash them at home — or attempt to at least, as many did over the weekend.

“We have no choice. We have to feed ourselves somehow,” said 38-year-old Antonia, who lost her job in the medical supplies business three years ago and has since been unemployed. On Sunday afternoon she was among those thronging an ATM on Syntagma Square. When asked how she would vote in the referendum, her anger at the creditors spilled out. “They’re killing us,” she seethed. “We have to break free of the constraints they have surrounded us with.”

Never mind that those constraints may the only things keeping the Greek economy afloat.

TIME France

Why the U.S.-France Spying Scandal Will Quickly Blow Over

French President Francois Hollande
Alain Jocard—AFP/Getty Images French President Francois Hollande, left, and French Foreign Affairs Minister Laurent Fabius wait for the Saudi Defense Minister at the Elysee Palace in Paris, June 24, 2015.

The anger in Paris may fade as it did in Berlin

Officially, France was outraged. The nation woke up on Wednesday to the news that the U.S. had been spying on three consecutive French Presidents, including the current one, Francois Hollande, who spent the day fuming in response. He called an emergency meeting of his defense council to discuss the apparent breach. His foreign ministry called in the U.S. ambassador for an official explanation. And Hollande himself referred to the violation of trust between allies as “unacceptable.”

Incidentally, this was the same word that his German counterpart, Angela Merkel, used upon learning in 2013 how the U.S. had been tapping her cell phone. That time the revelation came from the whistleblower Edward Snowden, a former contractor for the U.S. National Security Agency. Wednesday’s leak was sourced in the French media to Snowden’s allies at Wikileaks. But the reaction from the targets of the snooping was so similar that it almost seemed like a rerun, and judging by the way the Merkel phone-tapping drama has played out since it broke two years ago, the French outrage may soon fizzle into complacency as well.

The reason is that, in the modern world, every country seems to spy to the extent of its ability. As the German public learned this spring, their country’s intelligence service, the BND, had for years been helping its American counterpart, the NSA, spy on targets across Europe, including major corporations like Airbus and–you guessed it–the French presidency. That bombshell, which was first published in the German weekly Der Spiegel, made it much harder for Chancellor Merkel to play the innocent victim of nefarious U.S. surveillance.

It also made it difficult on Wednesday for the French government to act completely flabbergasted. Although Prime Minister Manuel Valls insisted that “the emotion and the anger” in France on Wednesday were “legitimate,” he admitted in the same breath that the revelations may not “constitute a real surprise for anyone.”

His government’s spokesman, Stephane Le Foll, even let slip a telling bit of humor when asked how France might retaliate against the U.S. for spying on French Presidents. “We sent the Hermione,” Le Foll told reporters, referring to the replica of an old naval frigate that France sent as a gift to the U.S. in March, loaded with barrels of Hennessy cognac. That ship was meant to be a symbol of how deep the ties run between these two nations–the original Hermione brought the French General Lafayette to help the Americans win their independence from the British in 1780–and Le Foll’s remark hinted that those ties wouldn’t be forgotten amid the latest spying scandal.

As Germany’s experience suggests, no real rupture in relations comes out of these scandals, at least in part because the Europeans rely on the U.S. not only for trade but security and the sharing of intelligence. That doesn’t mean the Germans simply let the matter drop. German media have reported that the the BND has curtailed cooperation with its American peers and the German parliament is still investigating Snowden’s leaked evidence that the U.S. had illegally monitored the communications of millions of German citizens. But Berlin’s probe into the tapping of Merkel’s phone has quietly been put aside. On June 12, the German prosecutor’s office announced in a statement that it was dropping the investigation due to lack of evidence: “The accusation cannot be proven in a legally sound way under criminal law.”

The U.S. had refused to provide the Germans with anything more than “vague statements” about tapping Merkel’s phone. More precisely, the U.S. said at the time that it is not monitoring and will not monitor the communications of the Chancellor,” pointedly avoiding any reference to what it had or had not done in the past. Adding to the sense of déjà vu, practically the same statement came on Wednesday from a spokesman for the U.S. National Security Council in response to the firestorm in France: the U.S. is “not targeting and will not target the communications of President Hollande,” said the spokesman, Ned Price.

Perhaps that could be taken as a promise that, having been busted spying on its allies, the U.S. would now cut it out, at least when it comes to the heads of state of Germany and France. As for the other leaders of the free world, they may have to wait for the next leak before receiving any such assurances themselves.

TIME chechnya

What It’s Like to Grow Up Under Putin in Chechnya

The Russian leader turned Chechen enemies into his closest allies. Here's why it matters

It is hard to avoid the gaze of Russian President Vladimir Putin when traveling around the region of Chechnya. His portraits adorn public buildings, apartment blocks, highways and airport terminals, encouraging a cult of personality that is far more pervasive in Chechnya than anywhere else in Russia.

The reason has to do with Moscow’s desire to keep Chechnya under control. In the 1990s, Russia fought two wars to prevent the region from breaking away, and Putin’s ascent to the presidency in 2000 was fueled by his victory over the Chechen separatists that year.

Since then, Chechnya has undergone a striking transformation. Its cities have been rebuilt with money from Moscow. All traces of its separatist rebellion have been suppressed. And most importantly, a new generation has been raised to respect—at times even to worship—the Russian leader and his local proxies. With no clear memories of the wars for independence, the young people of Chechnya are now the best guarantee that Russia’s hold over the region will persist.

Read TIME’s most recent story on Putin here.

TIME portfolio

Yuri Kozyrev: Photographing 15 Years of Chechnya’s Troubled History

The photographer has witnessed Chechnya's dramatic evolution

Yuri Kozyrev recalls the winter of 1999 as one of the most trying and tragic of his career as a photographer. It was the eve of Vladimir Putin’s ascent to the Russian presidency, and the height of the Russian bombardment of Chechnya, when entire towns in that breakaway republic were, as the Russians often put it, “made level with the earth.”

Kozyrev, a native of Moscow, documented both of Chechnya’s wars against Russia in the 1990s. The first one, fought between 1994 and 1996, had resulted in a humiliating defeat for Russia. But the carnage was far worse when the conflict resumed under Putin in 1999.

Arriving in Chechnya that fall, Kozyrev’s plan was to find and photograph two men amid the chaos of the Russian invasion. The first was Major General Alexander Ivanovich Otrakovsky, who was then commanding the Russian marines from his encampment near the town of Tsentaroy, a key stronghold of the Chechen separatists. The second was the general’s son, Captain Ivan Otrakovsky, who was serving on the front lines not far from the base, in one of the most hotly contested patches of territory.

The aim, says Kozyrev, was to document the two generations of Russian servicemen involved in the conflict – the elder brought up at the height of Soviet power during the Cold War, the younger in the dying years of Moscow’s empire. After weeks of negotiations, he finally managed to embed with the marines and to track down their general, a stocky man with a sly smile and a distinctive mole on the right side of his nose.

At the time, his command center was in an abandoned storage facility for crude oil, Chechnya’s most plentiful and lucrative commodity – and one of the main reasons why Russia refused to allow the region to secede. “It was incredible,” Kozyrev says of his first encounter with the general. “Here were these commanders living inside of a giant oil bunker.”

He recalls Otrakovsky as a kindly intellectual, nothing like the Russian cutthroats who would later be accused of committing atrocities in Chechnya. The general, whose troops referred to him affectionately as Dyed, or Grandpa, was willing to help Kozyrev. But he explained that reaching his son on the front lines would be extremely dangerous, as it would require passing through enemy territory around Tsentaroy.

That town was well known in Chechnya as the home of the Kadyrov clan, an extended family of rebel fighters whose patriarch, the mufti Akhmad Kadyrov, had served as the religious leader of the rebellion. During the first war for independence in the 1990s, he had even declared a state of jihad against Russia, instructing all Chechens that it was their duty to “kill as many Russians as they could.”

At the start of the second war, however, Kadyrov switched sides and agreed to help the Russians, causing a fateful split within the rebel ranks. While the more recalcitrant insurgents had turned to the tactics of terrorism and the ideology of radical Islam, Akhmad Kadyrov abandoned his previous calls for jihad and agreed to serve as Putin’s proxy leader in Chechnya in the fall of 1999.

That did not stop the fighting around his home village, as various insurgent groups continued attacking Russian and loyalist forces positioned around Tsentaroy. So none of the Russian marines were especially keen to move around the area unless they had good reason, and it took Kozyrev days to convince the Russian commander to allow him to reach the front lines. Eventually Gen. Otrakovsky consented, providing the photographer with an escort of about ten marines and two armored personnel carriers.

They set out on what Kozyrev recalls as an especially cold day, rumbling through fog or mist that made it difficult to see the surrounding terrain. As the general had feared, the group was ambushed. From multiple directions, Chechen fighters opened fire with machine guns and rocket-propelled grenades, forcing the convoy to retreat from Tsentaroy. One of the marines was killed in the firefight; three others were wounded.

When they returned to the base, it was clear from the glares of the troops that they all blamed Kozyrev for the fiasco, he says, and Gen. Otrakovsky advised the photographer to leave in the morning. “He said it may not be safe anymore for me to stay among his men,” Kozyrev remembers.

The trauma of that incident has lingered, weighing heaviest during his later assignments in Chechnya. Today, the region is ruled by Kadyrov’s son Ramzan, who took over after his father was assassinated in 2004. His native village of Tsentaroy has since enjoyed a generous stream of aid for redevelopment, including the construction of a beautiful mosque dedicated to Ramzan Kadyrov’s mother.

The rest of Chechnya has been rebuilt with similar largesse from Moscow, which has poured billions of dollars into the reconstruction of the cities and towns it had destroyed. When Kozyrev returned to Chechnya in 2009, nearly a decade after the end of the war, he says, “It blew my mind. The place is unrecognizable.”

The Chechen capital of Grozny – which the U.N. deemed “the most destroyed city on earth” in 2003 – is now a gleaming metropolis. Its center is packed with skyscrapers, sporting arenas, shopping plazas and an enormous mosque, the largest in Europe, dedicated to the memory of Akhmad Kadyrov.

His clan now rules the region unchallenged, having sidelined all of its local rivals with Moscow’s unflinching support. Throughout the region, portraits of Putin and the Kadyrovs are now plastered on the facades of buildings and along highways. Among the more ostentatious is a gigantic picture of Akhmad Kadyrov astride a rearing stallion, which adorns a building at the end of the city’s main drag – the Avenue of V.V. Putin.

The strangeness of the transformation, and of its architects, still seems astounding to Kozyrev, who last went on assignment to Chechnya for TIME in April. The trips always remind him of Gen. Otrakovsy, who died of a heart attack while commanding the marines in southern Chechnya, about four months after the young photographer had shown up to ask for his help. The general’s son, whom Kozyrev never did manage to find, went on to become a right-wing politician in Russia with close ties to Orthodox Christian conservative groups.

These were the men who executed the war that helped bring Putin to power. “But it was all the decision of one man to bring Chechnya back under control in ‘99. Putin decided to do that,” Kozyrev says. “And it’s incredible, when you think about it. But the men of Tsentaroy turned out to be his most loyal helpers.”

Yuri Kozyrev is a photojournalist and a TIME contract photographer. He is represented by Noor. In 2000, he received two World Press Photo photojournalism awards for his coverage of the second Chechen war in 1999.

Alice Gabriner, who edited this photo essay, is TIME’s International Photo Editor.

Simon Shuster is a reporter for TIME based in Moscow.

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