Photo credit to Bloomberg News.
If you want to know which side ‘thinks it won’ in today’s temporary deal between Greece and the Eurogroup, you need look no further than the extraordinary statement from German finance minister Wolfgang Schäuble, who essentially spiked the ball in Greece’s face after winning a key concession from its new anti-austerity government that it would honor existing Greek commitments to its creditors in exchange for a four-month extension of its bailout program:
“Being in government is a date with reality, and reality is often not as nice as a dream,” the conservative veteran said, stressing Athens would get no aid payments until its bailout program was properly completed. “The Greeks certainly will have a difficult time to explain the deal to their voters.”
Even if you think the Greek government had little leverage to force the Eurogroup to accept its demands and even if you think today’s temporary deal is at least a step on the path to a stronger Greece within the eurozone, I can’t think of a statement from any European leader more at odds with reality and basic political acumen since the out-of-touch musings of former French president Valéry Giscard d’Estaing in 2004 and 2005, when he was in charge of the process to enact a constitution for the European Union, a process that died when France itself rejected the constitution in a referendum.
It’s as if Schäuble (pictured above with Greek finance minister Yanis Varoufakis) actively wants to feed the notion that Germany dominates European policymaking. His comments might play well in Munich or Stuttgart, but they’ll be poisonous in Madrid and Athens, and cause some amount of indignation in capitals like Paris and Dublin.
Imagine a different response, whereby German chancellor Angela Merkel delivered a statement that, even while holding steady against concessions to the Greek government, acknowledged Greece’s economic suffering and acknowledged that the Berlin-led bailouts have caused more harm than anticipated — an admission, by the way, that the International Monetary Fund was already making years ago.
A German Europe, and a divided Europe
Greece is in a depression that’s now lasted six years and runs deeper than the Great Depression of the 1930s in either Europe or the United States. Unemployment is rife in Spain, so much so that an untested anti-austerity group, Podemos, now leads polls for the general election later this year. Italy, for now, has placed its trust in its young Tuscan prime minister Matteo Renzi, who seems to have far more commitment to reform than ability to carry it out. Romania and Bulgaria, despite responsible budget policies, are being hollowed out by depopulation and migration to wealthier EU countries.
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RELATED: What a Eurogroup-brokered deal with Greece might look like
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Europe’s best and brightest are leaving economically depressed regions and countries, and they’re heading to London. To Amsterdam. To Frankfurt. That’s left national governments responsible for fiscal commitments to social welfare, education and health care. While its most ambitious citizens look abroad for careers, these national governments find their revenues shrinking and their obligations increasing.
Important as they were for the German labor market, the Hartz IV reforms in the early 2000s didn’t, by themselves, suddenly transform Germany into the sudden engine of European growth. Germany’s benefitted from an influx of bright, ambitious workers from within the European Union. Moreover, the euro’s value throughout the 2000s held steadily lower than the value of a Deutsche Mark and steadily higher than a lira or a drachma. That boosted the German export industry into overdrive, while causing significant inflation in Mediterranean Europe.
Though Mario Draghi has been a far more adventurous central banker at the European Central Bank than Jens Weidmann at the German Bundesbank, it’s easy to think of the ECB’s default setting as ‘Bundesbank-plus.‘ If it’s an overstatement to say that the euro is just a continental Deutsche Mark, it’s far more accurate than to say that the euro is continental drachma. Greece may have engaged in outright budget fraud to meet the eurozone criteria, but those criteria were established by northern Europe, not southern Europe.
All of this, of course, may have been prudent at the time — or even with the benefit of hindsight. There might be good reasons to trust the Germans and the Dutch, more than the Greeks or the Italians, to establish economic and monetary policy. But it’s fiction to believe that each EU member-state has an equal voice or, today, that even a dual Franco-German axis still rules Europe. It’s a German Europe, and today’s deal with Greece is a perfect example of why it’s such a thoroughly German Europe. That creates leadership obligations that Merkel has been hesitant to assume, in part for historical reasons. The European Union, after all, came into existence as a mechanism for continental peace that tied Germany into a postwar role of consensus-building. Nevertheless, German policy views today are clearly dominating Europe, and that’s been far more beneficial for some countries (e.g. the Baltics) than others (e.g. Mediterranean Europe).
Where Greece and Europe go from here
The contempt with which Schäuble disregarded the political will of the Greek electorate, though, is mind-blowing. In one of the most important tests of German leadership, its finance leader stepped out and sneered at Greece. No wonder so many Greeks think it would be better to leave the eurozone or the European Union altogether — or that its government should seek out a loan from Russia (or China).
If, as Francis Coppola thoughtfully argues, today’s deal is really about giving Greece a chance to demonstrate that its fellow EU member-states can trust its government to carry out its promises, there’s also a burden on Germany to show that its neighbors can also trust it to act in a spirit of strengthening, politically and economically, the European Union as a whole.
The weekend might still bring a backlash from voters and leftists within Greek prime minister Alexis Tsipras’s governing SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς). If so, Tsipras might have to back away from a deal that accepts, in essence, the framework of the previous two bailout agreements with the ‘troika,’ now rechristened as the ‘institutions,’ that include the ECB, the IMF and the European Commission. Schäuble’s gloating makes the chances of success for this and future deals far less likely. To what end? To leave the neo-fascist, xenophobic Golden Dawn (Χρυσή Αυγή) as the only party left in Greece untainted by humiliating negotiations with the rest of the eurozone? To push Greece back into recession just as it seems to be emerging into a period of GDP growth?
We won’t know the contours of Greece’s future until we see what Tsipras and Varoufakis present Monday in the way of their own reform program. Expect a program that emphasizes SYRIZA’s role in rooting out corruption and cracking down on tax evasion, though even Varoufakis admits it isn’t clear how much revenue that will raise. One key aspect of the deal concedes that a 3% or 4% primary surplus (i.e., a budget surplus after debt interest payments) is unrealistic — a 1.5% primary surplus will give Tsipras some room to hire more public workers, raise the minimum wage or provide limited tax relief. Tsipras’s government also seems likely to drag its feet on privatization reforms.
Though the Greek treasury might not have run out of money in February, it’s clear that depositors withdrew €20 billion or so since December, and the government is €1 billion short on revenues after some Greeks appear to be withholding tax payments to the government. On Friday alone, €1 billion in savings left Greece. That placed additional pressure on SYRIZA to reach a temporary fix. That, in turn, could demonstrate to jittery Greek savers that negotiated deals between Tsipras and the rest of the eurozone are indeed possible, lowering the risk of an eventual Grexit.
It’s not certain that, as Tsipras said in a short television address earlier today, that Greece has won the battle, if not the war. He’s right, however, that though one battle may be ending, a greater ‘war’ over Europe’s future is far from over. Despite Berlin’s assurances that Greece is a special case, the debate continues to transcend the current fighting over Greek debt.
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