hms iron duke

hms iron duke

Friday, 20 February 2015

How to Fix the Euro’s German Problem

Alphen, Netherlands. 20 February. Aeschylus in Agamemnon says, “It is in the character of very few men to honour without envy a friend who has prospered”. In Greek tragedy the Chorus acts as a running commentary on the drama, often revealing to the audience the secrets and sub-plots that the characters dare not reveal. As Greece and Germany bring the Euro to the hour of its reckoning there are many sub-plots that prevent a clear-eyed solution to this crisis.  And yet one solution is obvious; the EU and its benighted Single Currency needs a new mechanism to enable member-states to move between Single Market membership and Single Currency membership. So, why is common sense not prevailing?

Germany is the real problem.  The Germans have taken a lot of flak (excuse the historical pun) of late for appearing to treat Greece like some form of colony.  Certainly, the Greeks have at times made utterly unacceptable and insulting comparisons between contemporary Germany and Nazi Germany.  For a Single Currency to function there must be a disciplining agent – a Leviathan.  In the absence of a European super-state it has fallen on Germany to be just such an enforcer.

However, Germany itself is deeply conflicted over Greece and the Euro.  On one hand Germany wants Greece to stay in the Euro because the Single Currency is German ideology.  Having spent a lot of time this past year talking to senior Germans about the Eurozone crisis I know how deeply they feel about the Euro and how hurt they are to be accused of building a new German Empire.  And yet, there are clear elements in contemporary German thinking that see the Euro, and by extension the EU, as a mechanism for ensuring the German writ runs across Europe. 

For all that Germany is simply not prepared to pay the price of its own ‘European’ ideology.  Syriza is right; there is no chance Greece can ever pay back the €200bn the Greeks owe creditors.  And yet Berlin insists theologically that all Greek debt be repaid.  The reason for this contradiction is the disconnect between German ideology and German politics.  The cost implications for the German taxpayer of giving the Greeks debt relief, or even another debt holiday, would be enormous and quite possibly ruinous.  As a Dutch taxpayer I am all-too-aware that whatever happens this next week I am again going to get screwed by this crisis.  Sadly, no-one in Berlin apparently wants to tell the Germans. 

Implicit in the German-Greek stand-off (for that is what it is is a fundamental question; to mutualise debt or not to mutualise debt.  If a deal is done for Greece why not make the German (and Dutch) taxpayer responsible for Portuguese, Spanish, and possibly even Italian and French debt?  And what about the other debtor states?  Chancellor Merkel knows that her CDU party would be political toast if that happened, which could explain why one senior German told me that she is actively thinking of resigning this year.

Therefore, it is Germany not Greece that has to get real.  Germany cannot maintain its ideological commitment to the Euro, expect Greece to pay its debts, and avoid the consequence of its own ideological commitment to the Euro/European Project.  Therefore, Berlin must face the hard truth, be it this year or next if Germany is not willing to underwrite Greek debt Greece will leave the Euro.  It must also face the hard truth that the logical consequence of Berlin’s own ideological position on Europe is either a European super-state or a German Empire.  At present the German people seem to want neither which is why ironically the British view of the EU as an alliance of states may well now prevail (just don’t tell the Brits).

What Berlin needs is a mechanism to get it out of its own political/ideological fix that would enable Greece to exit the Euro without destroying it.  Certainly, a Grexit if properly managed could help Athens restore some economic vitality.  The new Drachma could be competitively devalued, and if and when Greece is ready (and subject to their still being a Euro) Athens could re-join.  Such a mechanism would also enable other member-states to move between Single Currency membership and Single Market membership of the EU.  Naturally, there would need to be a large reserve established to assist such countries transition to underwrite the currency and support banks etc.  However, some of that could be generated by transferring funds from the Common Agricultural Policy, and the various regional development and structural funds.

Unless Germany gets its thinking clear about the Euro, and Berlin properly re-establishes a relationship between its ideological and political priorities, a Greek tragedy could well become a European tragedy.

Julian Lindley-French

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