An Empire strikes Back: Germany and the Greek Crisis

In the comments section of another blog that I follow, a very moving comment was posted recently by a regular commenter, LeaNder, to a post, “The parable of the divorce“. In the comment, I perceived that she was posing the following question – Why do most people blame the Germans for the problems of Greece? I replied as follows:

LeaNder:

Your “cry from the heart” touched me. At first, I felt that I could not possibly say anything to you in response or agreement. However, on reflection, I wish to add this.

I have noted, with dismay, the attack on the Germans/Germany regarding the ongoing crisis in Greece. I perceive that there is a muddling of labels by the less-informed (as opposed to the well-informed) people of Europe (judging by articles in the media and blogs/comments on the internet). I have read numerous articles, written by ordinary Germans, that many things in Germany are not so wonderful for them either. So perhaps the muddle is that the reference to “Germany” is a reference to the German politicians in power and not a reference to the “German” people as a whole. However, this distinction does not warrant any further discussion because it does nothing to further a search for a solution to the real problem.

Without wishing to speak on behalf of Yanis Varoufakis, my interpretation of his obsession of blaming the Germans or Germany for the ills of Greece in particular and Europe in general is that it is rather sad and petty. I realize that, in an in-depth analysis of the development of the EU & the EMU and its subsequent faults, a case could be made against a number of country’s actions, but only in hindsight, since I cannot believe that the system was purposely set up to fail. But all of this backwards finger pointing does little to bring us to a proper and lasting solution. We must understand clearly what the problems are, but we are going to have to get out of reverse gear and start moving forwards. From the failure to solve or, at least mitigate, the Greek economic crisis, comes bitterness and recrimination. As a reason for failure, I for one cannot accept the excuse that it is the fault of Germany or the Germans.

Furthermore, there is still wider debate amongst all experts in their respective fields, some being academics or politicians, as to the root causes of the economic problems in Europe. To simply look for a scapegoat, as you put it, is not a very clever response to our problems.

So where do we go from here? One way is to keep the dialogue going between people, whatever their nationality. For only then will we be able to really understand each other and our respective problems.

And for this reason, I wish to thank Ioannis for spurring us on to question and question again. He is the “rebel’s conscience” (my phrase, not his).”

And it was from this point of view that I found the following article very interesting and informative. The article presents a balanced and objective view of the Greece vs Germany “game” that has been going on these past months. Except that it hasn’t been football being played!

An Empire Strikes Back: Germany and the Greek Crisis  is republished with permission of Stratfor.”

By George Friedman (July 14, 2015)

A desperate battle was fought last week. It pitted Germany and Greece against each other. Each country had everything at stake. Based on the deal that was agreed to, Germany forced a Greek capitulation. But it is far from clear that Greece can allow the agreement reached to be implemented, or that it has the national political will to do so. It is also not clear what its options are, especially given that the Greek people had backed Germany into a corner, where its only choice was to risk everything. It was not a good place for Greece to put the Germans. They struck back with vengeance.

The key event was the Greek referendum on the European Union’s demand for further austerity in exchange for infusions of cash to save the Greek banking system. The Syriza party had called the vote to strengthen its hand in dealing with the European demands. The Greek government’s view was that the European terms would save Greece from immediate disaster but at the cost of impoverishing the country in the long term. The austerity measures demanded would, in their view, make any sort of recovery impossible. Facing a choice between a short-term catastrophe in the banking system and long-term misery, the Greeks saw themselves in an impossible position.

In chess, when your position is hopeless, one solution is to knock over the chessboard. That is what the Greeks tried to do with the referendum. If the vote was lost, then the government could capitulate to German demands and claim it was the will of the people. But if the vote went the way it did, the Greek leaders could go to the European Union and argue that broad relaxation of austerity was not merely the position of the government, but also the sovereign will of the Greek people.

The European Union is founded on the dual principles of an irrevocable community of nations that have joined together but have retained their national sovereignty. The Greeks were demonstrating the national will, which the government thought would create a new chess game. Instead, the Germans chose to directly demand a cession of a significant portion of Greece’s sovereignty by creating a cadre of European bureaucrats who would oversee the implementation of the agreement and take control of Greek national assets for sale to raise money. The specifics are less important than the fact that Greece invoked its sovereign right, and Germany responded by enforcing an agreement that compelled the Greeks to cede those rights.

Germany’s Motivations

I’ve discussed the German fear extensively. Germany is a massive exporting power that depends on the European free trade zone to purchase a substantial part of its output. The Germans had a record positive balance of trade last month, of which its trade both in the eurozone as well as in the rest of the European Union was an indispensable part. For Germany, the unraveling of the European Union would directly threaten its national interest. The Greek position — particularly in the face of the Greek vote — could, in the not too distant future, result in that unraveling.

There were two sides of the Greek position that frightened the Germans. The first was that Athens was trying to use its national sovereignty to compel the European Union to allow Greece to avoid the pain of austerity. This would, in effect, shift the burden of the Greek debt from the Greeks to the European Union, which meant Germany. For the Germans, the bloc was an instrument of economic growth. If Germany accepted the principle that it had to assume responsibility for national financial problems, the European Union — which has more than a few countries with national financial problems — could drain German resources and undermine a core reason for the bloc, at least from the German point of view. If Greece demonstrated it could compel Germany to assume responsibility for the debt in the long term, it is not clear where it would have ended — and that is precisely what the Greek vote intended.

On the other hand, if the Greeks left the European Union, it would have created a precedent that would in the end shatter the bloc. If the European Union was an elective affinity, in Goethe’s words, something you could enter and then leave, then the long-term viability of the bloc was in serious doubt. And there was no reason those doubts couldn’t be extended to the free trade zone. If nations could withdraw from the European Union and create trade barriers, then Germany would be living in a world of tariffs, European and other. And that was the nightmare scenario for Germany.

The vote backed the Germans into a corner, as I said last week. Germany could not accept the Greek demand. It could not risk a Greek exit from the European Union. It could not appear to be frightened by an exit, and it could not be flexible. During the week, the Germans floated the idea of a temporary Greek exit from the euro. Greece owes a huge debt and needs to build its economy. What all this has to do with being in the euro or using the drachma is not clear. It is certainly not clear how it would have helped Europe or solved the immediate banking problem. The Greeks are broke, and don’t have the euros to pay back loans or liquefy the banking system. The same would have been true if they left the European Union. Suggesting a temporary Grexit was a fairly meaningless act — a bravura performance by the Germans. When you desperately fear something in a negotiation, there is no better strategy than to demand that it happen.

The Resurrection of German Primacy

I have deliberately used Germany rather than the European Union as the negotiating partner with the Greeks. The Germans have long been visible as the controlling entity of the European Union. This time, they made no bones about it. Nor did they make any bones about their ferocity. In effect they raised the banner of German primacy, German national interest, and German willingness to crush the opposition. The French and the Italians, among others, questioned the German position publicly. In the end, it didn’t matter. The Germans consulted with these other governments, but Berlin decided the negotiating position, because in the end it was Germany that would be most exposed by French or Italian moderation. This negotiation was in the context of the European Union, but it was a German negotiation.

And with this, the Germans did something they never wanted to do: resurrect fairly unambiguously the idea that Germany is the sovereign and dominant nation-state in Europe, and that it has the power and the will to unilaterally impose its will on another nation. Certainly the niceties of votes by finance ministers and prime ministers were adhered to, but it was the Germans who conducted the real negotiations and who imposed their will on Greece.

Germany’s historical position was that it was one nation among many in the European Union. One of the prime purposes of European integration was to embed Germany in a multinational European entity so that it could develop economically but not play the role in Europe that it did between 1871 and 1945. The key to this was making certain that Germany and France were completely aligned. The fear was that German economic growth would create a unilateral German political power, and the assumption was that a multilateral organization in which France and Germany were intimately bound together would enable German growth without risking German unilateral power.

No one wanted this solution to work more than the Germans, and many of Germany’s maneuvers were to save the multilateral entity. But in making these moves, Germany crossed two lines. The lesser line was that France and Germany were not linked on dealing with Greece, though they were not so far apart as to be even close to a breach. The second, and more serious, line was that the final negotiation was an exercise of unilateral German power. Several nations supported the German position from the beginning — particularly the Eastern European nations that, in addition to opposing Greece soaking up European money, do not trust Greece’s relationship with Russia. Germany had allies. But it also had major powers as opponents, and these were brushed aside.

These powerful opponents were brushed aside particularly on two issues. One was any temporary infusion of cash into Greek banks. The other was the German demand, in a more extreme way than ever before, that the Greeks cede fundamental sovereignty over their national economy and, in effect, over Greece itself. Germany demanded that Greece place itself under the supervision of a foreign EU monitoring force that, as Germany demonstrated in these negotiations, ultimately would be under German control.

The Germans did not want to do this, but what a nation wants to do and what it will do are two different things. What Germany wanted was Greek submission to greater austerity in return for support for its banking system. It was not the government’s position that troubled Germany the most, but the Greek referendum. If Germany forced the Greek government to capitulate, it was a conventional international negotiation.  If it forced the government to capitulate in the face of the electoral mandate of the Greek public, it was in many ways an attack on national sovereignty, forcing a settlement not in opposition to the government but a direct confrontation with the electorate. The Germans could not accommodate the vote. They had to respond by demanding concessions on Greek sovereignty.

This is not over, of course. It is now up to the Greek government to implement its agreements, and it does so in the face of the Greek referendum. The situation in Greece is desperate because of the condition of the banking system. It was the pressure point that the Germans used to force Greek capitulation. But Greece is now facing not only austerity, but also foreign governance. The Germans’ position is they do not trust the Greeks. They do not mean the government now, but the Greek electorate. Therefore, they want monitoring and controls. This is reasonable from the German point of view, but it will be explosive to the Greeks.

The Potential for Continental Unease

In World War II, the Germans occupied Greece. As in much of the rest of Europe, the memory of that occupation is now in the country’s DNA. This will be seen as the return of German occupation, and opponents of the deal will certainly use that argument. The manner in which the deal was made and extended by the Germans to provide outside control will resurrect historical memories of German occupation. It has already started. The aggressive inflexibility of the Germans can be understood as an attitude motivated by German fears, but then Germany has always been a frightened country responding with bravado and self-confidence.

The point of the matter is not going away, and not only because the Greek response is unpredictable; poverty versus sovereignty is a heady issue, especially when the Greeks will both remain poor and lose some sovereignty. The Germans made an example of Cyprus and now Greece. The leading power of Europe will not underwrite defaulting debtors. It will demand political submission for what help is given. This is not a message that will be lost in Europe, whatever the anti-Greek feeling is now.

This is as far from what Germany wanted as can be imagined. But Greece could not live with German demands, and Germany could not live with Greek demands. In the end, the banking crisis gave Germany an irresistible tool. Now the circumstances demand that the Greeks accept austerity and transfer key elements of sovereignty to institutions under the control or heavy influence of the Germans.

What else could Germany do? What else could Greece do? The tragedy of geopolitical reality is that what will happen has little to do with what statesmen wanted when they started out.”

Advertisements

About Peter Smith

A "foot-soldier" in the wider Post Capitalism Movement. First task - keep spreading the words of change, hope & inspiration.
This entry was posted in EU & Euro, Greece and tagged , , . Bookmark the permalink.

4 Responses to An Empire strikes Back: Germany and the Greek Crisis

  1. LeaNder says:

    “What all this has to do with being in the euro or using the drachma is not clear. It is certainly not clear how it would have helped Europe or solved the immediate banking problem.”

    Thanks Peter. I am not generally a fan of George Friedman, at least not on US foreign policy. But this is not too bad.

    As I understood the Grexit offer, it would have been accompanied by a complete cut of the debts. And at least to this economical nitwit there is a general larger argument for the Grexit. Even Krugman joined it. As I understand it now, from a pure demand perspective inflation isn’t really a big problem. On the other hand Eurozone’s stern control of inflation may well be. Besides the fact that the Eurozone’s rules don’t mirror the reality of a member states economy. It also means one standard tool to adjust matters via inflation is gone.

    The problem of remaining inside the Euro is accompanied by not being able to use some economical tools to adjust money to the larger context. There are diverse ideas how much purchasing power the Drachma would have lost versus the Euro. (Now, no, considering the my family history I am not a fan of Paul Krugman’s unemotional view of inflation as some necessary tool in the economy. But yes, he claims that his basic rules have proven to be correct over times. I guess that means Meynard Keynes basic laws)

    The only thing that would have had a bad result in this context, would have been the debts. If on the one side the money you print inflates versus your earlier money your debts would necessarily increase by the same percentage as your inflation. But no doubt this “cheapness” scenario could have pulled in new investors. Even more if the former debts had disappeared. And yes, I understand that was the offer on the table. Choose the Grexit and you get what you want a complete debts cut.

    ******
    “The vote backed the Germans into a corner, as I said last week. Germany could not accept the Greek demand. ”

    I am not sure. Already in 2010 there was a big debate over here if Germany could afford it if it was a responsible thing to do towards its taxpayer. A line of thinking Yanis Varoufakis picks up. The main argument was pretty much in line with Yanis claims,

    On the other hand there was an argument, it simply would never stop. Meaning the burden unloaded on the shoulders of German tax payers wouldn’t stop. What it now looks like.

    What I do not quite understand is the connection between Yanis statement that the money only stabilized German and French banks, and didn’t help Greece.

    And how he imagines that the main evil forces with Germany at its core or: “the Northern Europe export surplus nations” could both cut the debts and additionally create some surplus transfer to the South as a combination of New Deal and Marshall Plan I may have a problem with this, since I actually doubt that this “surplus” minus taxes of course is a type of capital the surplus nations can democratically decide on.

    Thanks for inviting me to your blog namewise. Last time it happened it was the start of a by now pretty grown web news blog. Thus good luck. Unfortunately I have troubles of my own now. And additionally should look into how I could help an elder Greek woman who is a lot worse of then me. 😉 The latter meant I am not really important. And I may have wasted way too much time on the web already.

    Like

    • LeaNder says:

      ” now pretty g(r)own web news blog”

      It started as a private blog of a former journalist. Maybe in 2005/6 I forget.

      there are more typos and/or missing/superfluous? commas, but I hope it does not render it completely I didn’t proofread.

      Good luck anyway. 😉

      Like

      • Thanks for the good wishes, LeaNder.

        Unlike what some blogs do, my policy is to correct any spelling mistakes that make a comment read a bit oddly. I will never change the content. I hope you do not mind…I have changed gown into grown. My fingers also have the tendency to race ahead of my brain. Afterwards, when I read back on a comment that I have made and I see that I spelt something wrong, I wish that other blog owners would release me from my misery and correct my mistakes.

        And also thanks for a very good comment to the post. This is exactly the sort of thing that I am trying to promote, in my small, little way……constructive & informative dialogue & debate. This also helps to shape my own ideas.

        I have read a lot of your comments on the other blogs that you and I both follow. I always find your perspective interesting. I was never quite sure whether you were German or Greek but I think that I have worked it out now. How about a Greek expat living in Germany. Am I close?

        As you no doubt will have gathered, this whole Greece/Europe political and economic tangle has captured my interest and attention. Although the subject matter is very, very serious (especially if you are an ordinary Greek citizen), I have been having a lot of fun putting this blog together (thanks indirectly to iGlivanos). And it has been very educational too.

        Like

      • LeaNder says:

        Peter attempt at correction, or proofreading, I am really, really tired. you can change whatever you like.

        “How about a Greek expat living in Germany. Am I close?”

        Both close and far away, I am afraid. First of all, I wouldn’t make a difference between a Greek ex-pat and myself, and second it’s easy to see it often makes all the difference on the ground. But then maybe we can sacrifice a lot of these expats via Yanis’ convenient formula or thesis, the New Deal, or surplus transfer to the South. After all from his version this may be more important then the German social security network for these “earlier unskilled ‘human capital’”, no matter if German or not. Fact is many are expats. My impression is they are a huge percentage of it.

        “In the 1950s and ’60s Greece lost a great deal of human capital, but it was unskilled labour. The great investment that has happened in Greece from the 1950s onwards has been in education. We have managed to become a supremely well-educated nation. In terms of our public sector, our private sector, we’ve done very little – even the environment we’ve managed to make a mess of, to deplete. But when it comes to human capital, we have created a great deal of it, and the tragedy of the current crisis is that we are exporting it. Young, well-qualified people whose education was paid for by the state primarily – and their families, but primarily by the state – are now offering their services all over the world, including in Australia. And this is a kind of loss that simply can’t be retrieved. Buildings you can rebuild, highways you can fix, but this depletion is irreversible.”

        In other words as leftist of the Yanis Varoufakis kind, “prof” Varoufakis, these expats may not matter since they were “unskilled”. Or maybe could even be sacrificed for a larger European New Deal for the South or “surplus transfers”. Basically assuming there are limits in a states versus it’s private citizens capabilities. And not sure how a mainly privately owned surplus could be transferred to the south to start with.

        I do not believe that he seriously thinks he can challenge the way money works in the world now or in fact did earlier. Other then re-nationalize debts the way bank debts were nationalized. And or interest financial interests for Greece, beyond the vultures that no doubt where circling and successfully striking lately.

        Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s