Feb 20th 2012, 22:47 by The Economist | Brussels
WOLFGANG Schäuble is, in many ways, the strongest – perhaps even the last – Europhile in the German government. But open the pages of Greek newspapers and there he is, the German finance minister depicted in Nazi uniform. It is not just the inflammatory Greek press that dislikes him. The Greek president, Karolos Papoulias, lashed out at him last week: “Who is Mr Schäuble to insult Greece? Who are the Dutch? Who are the Finnish?”
Mr Schäuble is, first and foremost, the German finance minister. As such his job is to protect the interests of the German tax-payer, from both the demands of his fellow ministers and the begging bowl held out by his European colleagues. As creditor-in-chief, one would expect him to be toughest in imposing conditions on Greece before granting a second bail-out.
But the Schäuble problem goes beyond this necessary parsimoniousness. Consistently through the crisis, Mr Schäuble has adopted the hardest positions. First it was a paper circulated by his officials calling for the creation of a budget “commissar” with the power to control the Greek budget. Then it was his open talk a Greek default, and the fact that other European countries were “better prepared” to withstand it. Most recently, he suggested that Greece should postpone its elections so that the technocratic government of Lukas Papademos has more time to implement reforms.
Many think Mr Schäuble has been deliberately pushing the Greeks into a chaotic default (one example is here). Even so, why do it so overtly? Why invite the crude and simplistic accusation the modern Germany is repeating the Nazis’ jackbooted occupation of Greece? It would be so much simpler to let somebody like the Dutch finance minister, Jan Kees de Jager, do the tough talking (see my previous post) while Germany holds back. Every finance minister of a creditor country must demonstrate that he (or she) is driving a hard bargain. Mr Schäuble knows better than most the many doubts that surround even a second vast bailout of Greece (see this report of the IMF's assessment). In the end, Mr de Jager’s menaces count for much less than Mr Schäuble’s; if Greece is to be cut loose the decision will be taken in Berlin, not The Hague.
The FT's Quentin Peel recently recently had an interesting piece on the reasons for Germany's rigidity:
Postwar Germany is both profoundly provincial and committed to Europe. The federal system keeps central government in check, locked into a system of coalition government that is consensual and slow-moving. Both politics and the bureaucracy are dominated by lawyers (Mr Schäuble is one) who believe passionately in the need for rules and respect for the law. It makes for a confusing mixture of compromise and inflexibility. Mixed messages emerge from the different centres of power, not least from the finance ministry and the chancellor’s office, until they can agree a common line.
Some argue that Mr Schäuble’s very pro-Europeanism heightens his sense of betrayal by Greece, and the prospect that it could destroy the European Union’s greatest experiment in integration. There may be truth in this. But I cannot help but feel that that also something of the bad-cop routine in Mr Schäuble’s actions. He must act as if a Greek default is possible, even desirable, in order to turn the pressure on Greek politicians. If that means being portrayed as a Nazi, so be it; the alternative is to let Greek politicians think they are immune because the euro zone will never let them collapse.
Still, Mr Schäuble's claim that the euro zone is ready for a Greek default sounds implausible. Last year European politicians were bending over backwards to avoid any sort of default, lest it destabilise the whole of the euro zone. Yes, the European Central Bank’s massive liquidity programme for banks (not sovereigns) has taken the edge off the panic. The reforms being enacted in Italy and Spain have helped too.
But nobody thinks the euro zone has yet overcome the crisis. If it were otherwise, why insist on the fiction that the restructuring of private debt is “voluntary” simply to avoid triggering credit-default swaps? And surely, if Germany were serious about cutting off the Greeks it would be doing more to strengthen anti-contagion measures. On the contrary: Germany has so far resisted a proposal to strengthen the rescue fund by maintaining the temporary European Financial Stability Facility (EFSF) even after the creation of permanent European Stability Mechanism due later this year.
The conundrum for the fiscal hawks is that issuing a credible threat to Greece requires issuing a credible guarantee that Italy and Spain would be protected from the consequences. But that is something that Germany will not do, for fear of reducing the reformist pressure on Italy and Spain. So through gritted teeth, Greece must be kept afloat in some manner—not at any cost, of course, but for some time yet, as long as the price is not too exorbitant. “We continue to believe that Greece can be saved. Or at least we continue to say so,” says one Eurocrat.
The difficulty in imposing discipline and reform on Greece will be familiar to any parent of recalcitrant adolescents who do not want to do their homework. Dad may shout, cajole and threat; the kid may come to hate the parent. But if the kid refuses to study, he cannot be starved, beaten or thrown on to the streets. The parent may enjoy the illusion of infinite power, but authority ultimately involves much bluff.
In this blog, our Charlemagne columnist considers the ideas and events that shape Europe, while dealing with the quirks of life in the Euro-bubble. An archive of print columns can be found here. Follow Charlemagne on Twitter »
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"It makes for a confusing mixture of compromise and inflexibility"
You forgot to add "and undeniable success".
Our correspondent's metaphor about Germany playing the strict father in the house of Europe is an apt one. The Greeks must grasp their very child-like dependency on the rest of Europe for financial bailouts.
Like a sullen teenager, Greece has the option of moving out. The imposed austerity may not be fun, but without Daddy paying the bill Greece would be out on the street on its own confronting real hardship. If the cutbacks look bad now, I shudder to think how bad they would be if Greece had to pay their own way.
Everybody complains that Europe is just kicking the can down the road. Perhaps that isn't such a terrible idea. In the aftermath of the last financial crisis and with the rest of public finances in peripheral Europe looking so vulnerable, it might just be enough to buy a couple of years for the rest to recover and strengthen to the point to withstand Greece moving out of the house of the Euro.
If I had any say, I would use the threat of more austerity to buy even more formidible structural reforms instead of just more of the budgets cuts, which have the potential to pay off even more than the short term spending cuts in greater potential economic growth and bettter long term tax revenues.
But is it realistic to try to get Greece to buy more economic reform in exchange for a little less austerity? And are the Greek voters buying?
What annoys me most is the fact that Schaüble never criticized his Greek conservative colleague Karamanlis when he was caught cheating on Greece's reports of its deficit with the connivance of Lehman Brothers. Has anybody every sought Karamanlis and his financial advisors for responsability on the effects of their dishonest manipulations on the Eurozone during times of economic crisis?. Definitely not!
Best quote of the year, so far: “We continue to believe that Greece can be saved. Or at least we continue to say so,” says one Eurocrat.
Any rescue or reform plan should start with the principle that no EU nation will have a better social safety net than that enjoyed by Germans -- after that, you likely will find the Germans to be more willing to help.
Mr. Schauble (and Germany in general) is shocked to discover how a successful German policy of beggar thy neighbour has now resulted in beggared neighbours. Siphoning 100 billion a year in trade surpluses from the periphery has necessarily led to the failure of those periphery economies. This outcome can only be astonishing to those who think their trade surpluses come from heaven and are not (by definition) made up from other peoples trade deficits. Germany only provides net supply to the eurozone market and now says that everyone else must do this too. In a market 90% of whose trade is internal (i.e. intra EU trade) the magic thinking which will allow all members to be net contributors to supply with nobody contributing any net demand is of a piece with the imbecile policy position pushed by poor bewildered Mr. Schauble.
Mr. Schauble is also infuriated that his prescription of fiscal austerity has killed its Greek patient. Again his addiction to magic thinking is the heart of his problem. The engineered collapse of government demand via austerity cuts has further reduced overall demand in Greece, Portugal, Latvia and Ireland and shattered their growth, devastated their tax revenues and thereby reduced the capacity of both their economy and their government to pay its bills whilst leaving the value of their debt serenely untouched. A more self defeating and comprehensively destructive policy could not conceivably have been devised.
The plaintive German cry that Europe and the world must be re- made to conform with the shibboleths and old wives tales that they themselves employ as a substitute for modern economic thinking is another surreal demand.
Of course all the failures caused by his economic barbarism inevitably lead Mr. Schauble to perform a seamless segue into political barbarism. Greece must be placed under the control of a foreign commissar, political leaders must all sign blood oaths to comply with the destructive stupidity forever, elections must be “postponed” so that Greeks who must pay get no say. Taxation without representation is the brave new world produced by Mr. Schauble’s greedy little ideological gremlins.
There is therefore no great mystery to Mr. Schauble – his European Id and German super ego are not actually competing for control of a complex statesman. No, his is just the old old story of the complete inadequate who is way too far out of his depth and is now reduced to splashing around in ever growing desperation....
How about checking facts first? Afterwards have a tee and calm down. Then write a comment
ach the Schwaben housewives policy, they don't know that Keynes was their best friend
Greece put itself in the "splashing pool of desperation" before austerity was demanded by Germany.
You are really obsessed with your reckless spending ideology and a huge ignorant, influenced by a huge portion of jealousy which I personally enjoy. You prove that you don't even know what "beggar thy neighbour" means and what it is, but you are good in spreading hot air.
P.S.: Trade surpluses are the result of a competitive economy, but that's not a secret, only morons don't know that. If you need a basic lesson in this topic, Kenneth Rogoff can tell you something about it: Question: "The southern European states accuse the Germans of exporting too much. Do they have a point?"
Rogoff: "That is absurd. Portugal's and Spain's problem isn't Germany, it's China. The south Europeans have to understand that they cannot maintain their current standard of living in the context of globalization without significant economic reform. There are great opportunities for those who can adapt to the new realities."
Source: http://www.spiegel.de/international/business/0,1518,816071,00.html
uh, but if you achieve your clients, they will not buy your merchandises anymore, at least the Chinese know that, that the yin and the yang must be equilibrated if you want to survive as a exporting nation, don't kill the hen, she still has more eggs to lay
If you were in business, I wouldn't invest in you. Cause you would subsidize potential customers which are broke with your own money because you think they might - but only maybe - buy your products with your own money again. Go to a restaurant owner and tell him your logic, he'll laugh at you. And btw, there are a lot of solvent hens out there, the world doesn't only consist of the currently broke ones.
You are right though that you shouldn't kill the hen but help her to stand on her own feed again instead... as long as the hen puts efforts in that as well. That's what they are trying, isn't it? For this reason, subsidies are necessary.
boff, hadn't you put severe interests on the loans that the Greeks had to pay back, had your banks not played casino with the greek bonds, in th meanwhile gaining billions, had the Merkel not been so slow to undertake the greek solvability problem, which could have been solved at the end of 2OO9, when it became apparent that Greece was crumbling, you would have spared billions of the nowadays bailouts, since Greece GDP was only 2% of the EU !
uh, my man and I had/have private businesses, and not subsidied !
"Your" banks? Are you stoned? You are not only lacking understanding of the situation but also knowledge which country's banks are heavily involved in Greece.
blah blah
"According to the new figures, a preliminary release of which went out in April, French banks have $56.7bn of lending exposure to Greece while German banks have about $40bn. But look closer, because the BIS figures have something new — a breakdown of credit exposure by type. On that basis, German banks are the most exposed to Greek government debt with $22.7bn held. French banks have $15bn."
http://ftalphaville.ft.com/blog/2011/06/06/585381/bis-the-burdensharing-...
http://www.dailymail.co.uk/news/article-2058429/Eurozone-crisis-Germans-...
http://therealnews.com/t2/index.php?Itemid=74&id=31&jumival=5166&option=...
german banks bets on the greek nacked shorts, not from Germany, but from their offices in London and New York, while Merkel was announcing the ban of these operations after the bazooka bailing out of 2010
Your comment contributes greatly to convincing me Maher is mistaken
Don't drink and post, A J.
Really swayed me with yr reasoning, TDmR4iDgsT...
Still seems to attract recommends from someone (rather like the audience in Question Time)
I'll look out for any actual arguments you might give elsewhere, but comment sections are usually ruined by these insults. It doesn't add to the discussion
seemed to post 2ce..
Talking of statistics, it would be interesting to know the proportion of participants on this blog who are American rightwingers with no personal stake in Europe and not much knowledge of it either.
The cumulative cost, as reported on Bloomberg, currently stands at EUR386bn. Greece has a population of 11.3m, so that's EUR34,159 per person. If each EU citizen looked at it this way and started to ask for a EUR34,159 handout from their government...
...or not paying tax for 4 years or so! He-he!
It would be nice if someone wrote a piece about the Germans starting with the words "thank you".
Thank you for being responsible
thank you for being productive
thank you for being patient
thank you for for spending your money on incompetent politicians in[insert country here: Greece/Spain/Italy/France/Portugal/Spain]
a cuckoo tale, of course !
I, for one, thank the Germans for trying to help Greece.
However, thanking someone that helps you is one thing, criticizing the way he goes about to do it is another. When the Greek crisis unfolded in 2010 there were two extremes that the Germans could go about solving the problem:
(a) Some sort of complete debt forgiveness for Greece with enough money to recapitalize banks, slowly reduce the deficit etc. etc.
(b) Let Greece default.
The problem with (a) was moral hazard, which translated to "If we let Greece completely off the hook now then the rest will follow and there is not enough money for everybody". The problem with (b) was an undetermined but probable eventuality for a european Lehman moment.
The middle ground was to do both at the same time without actually letting Greece default nor letting her off the hook outright. Which brings us to today: the plan was not successful not least because most of the people involved did not do a good job. And since there is already a huge commitment the program needs to continue. But although moral hazard and a Lehman moment have been avoided for the time being, Greece's problem has not been solved and people are starting to suffer.
It is difficult to ask for gratitude from those who didn't go to the spending-like-there's-no-tomorrow party but are having difficulties to feed their children. Maybe when the thing is over, Greeks who now suffer will look back from a distance and thank the Germans. Not now, though.
Good analysis! I hope you find a way to break the feudal structures among Greek elites which make any change impossible at the moment.
I understand your point fully. My post was a knee-jerk reaction to the endless stream of criticism from the media and politicians who should know better. Just listen to Mr. Hollande and some of the French "élite" talk about the Germans, you would think they have learnt nothing from their forebears dragging Europe into WWI / WWII. Non, rien de rien...Let's have another go at the Versailles treaty and then call in the cavalry. So it's not the people of Greece I had in mind, my mistake for being a little rash and expressing myself badly.
As to what could have been done better, well I think there would be a:
(c) Let Greece default and give state guarantees to depositors. This way the banking system is forced to face up to its misdeeds and Joe Blogs gets to hold on to his hard-won cash. Incidentally one large Swiss bank has now a special internal squad just dealing with the inflow of Greek cash to make sure its "only" tax-evasion not narcotics...whatever.
"It is difficult to ask for gratitude from those who didn't go to the spending-like-there's-no-tomorrow party but are having difficulties to feed their children"
Indeed. That's why Germany's people are still supporting the people in Greece. And: bring me a suffering greek child now and I'll take care it will be fed, there will be medical aid, it will in any respect be taken care of.
However, it is difficult to build support for Greeks who are having difficulties to feed their children on the one hand side but on the other stubbornly refused to pay the due taxes in the past few dozen years, refused to take and give fakelaki, and had no problem with accepting real income increases by 40 percent or so since the Euro started, while the Germans had since then minus 10 percent or so.
Let us hope he IS the last Europhile. The EU is a failure, as people will always place their country first. Empires always collapse into fragmented regions.
Please stick to the celebrity pages of your Daily Mail.
Fragmented regions in the first place counts as a "success" in your book?
The EU is a glass half full kind of setup. But we do need to discuss against the alternatives. Those that complain of an glass somewhat empty should be aware that the alternative is actually an empty glass.
As A Maher points out above, Germany has done pretty well out of the Euro. He doesn't draw what I think is the obvious conclusion from it though.
Maher is an ignorant and obsessed with his reckless spending ideology, raping Keynes' ideas. He does probably have personal interests, mabe he is speculating. Why don't you look what Harvard economists tell you about Germany and the Euro: http://www.spiegel.de/international/business/0,1518,816071,00.html
Like say... the United States of America? That cobbled together conglomerate of independent states and annexed territorys has gone from strength to strength once it became stable. Try to look past the teething problems to see the bigger opportunity for Europe.
The 'fragmented regions' model doesn't work. You can't just plod along like everything is okay when you next door neighbour is starving.
Like it or not, one day his situation will affect yours: Either he'll get to a dire state that you can no longer ignore or out of desperation he'll jump the fence to pinch what you have!
Better to embrace him as a brother and build and plan together.
A very interesting piece! I very much agree with the fact that, while maybe the last Europhile in Berlin, Mr. Schäuble is still - first and foremost - German finance minister. His constitutionally defined responsibility and duty is to the German people. Of course it is in the German interest to save the euro and thus to save Greece, but the balancing act Mr. Schäuble is performing should not be underestimated. Moreover, I think that it is a shame for people in the 21st century to not remain objective, but to resort to cheap nazi comparisons. I sometimes wonder how this is supposed to be balm for the battered soul of Greece...