Greece And Germany: What Are The Real Political Issues?

At the World Bank spring meeting in Washington federal finance minister Schäuble let it be known – almost in passing – that the Greek government had until the end of June to confirm what reforms it would make. Up till now, people had talked of the end of April as the deadline, previously of mid-March. So, why this latest deferment? Because we mean Greece so well? Perhaps we might also take the following into account:

If Greece was declared definitively insolvent at the end of April, then the EU and Germany – that “leads” on this issue – would have at least three problems:

1. There’s no agreed insolvency procedure for states. What do we do if lawlessness and social unrest erupt in Greece?
2. We’ve no well-ordered procedure for an exit from the euro; on principle, for political reasons, this was never foreseen. How would the Eurogroup handle an insolvent Greece? Can it be forced to quit? And what happens to the euro afterwards? Will the Eurozone be reduced practically to a currency union that one can join or leave? Which country would be next on the speculators’ radar? Would that come about without impacting on the EU single market?
3. There’s no orderly mechanism for an exit from the EU – that was also never envisaged for political reasons primarily. What would the EU do about an insolvent, perhaps normless Greece?

For the German government, committed in the realm of politics to legal regulations and controls above all, this is pretty uncomfortable. It’d be a lot better to avoid this outcome and reach a deal with Greece. Because everything we hear suggests there’s no Plan B, neither in Greece, nor in Germany.

What stands in the way of an agreement? Some, particularly in Germany, say: the Greeks are failing to put their house in order (it can be proven empirically they’ve cut spending more than any other European country), they’ve a conceited finance minister who’s not seriously after a solution – and they’ve swapped competent staff in the various ministries for a bunch of incompetents. One can’t deal with them. In a word: these are not legitimate political disputes but about Greece and, above all, its new government being incapable of ever cutting a reasonable deal. But we never learn officially what the Greeks have failed to deliver exactly, which of their proposals proved unacceptable – and why.

It’s said, unofficially, that the “Troika” is missing greater flexibility on the labour market. It obviously wants easier hire-and-fire; which – given the high unemployment, the desperate mood of the country and the recession that, with no real prospect of export opportunities, can clearly be traced back to a lack of domestic demand – is an astonishing demand. And there’s no sign that, with further sackings, growth will burst forth because of private investors arriving in their droves.

The Troika and Germany are obviously also disturbed that the government is only going about privatisations with great reluctance: insisting that the receipts make it worthwhile, e.g. the Greeks don’t want to squander their assets under pressure. What’s more, the German ‘Treuhand‘ – which privatised GDR assets – could only get rid of its assets in the end by being out of pocket! Furthermore, the Greek government wants to keep significant stakes in state assets (so it’s not left to the Chinese alone to decide the fate of the port of Piraeus) and insists that investors create jobs. The federal German government thinks these restrictions will put off potential investors. Whether it’s the Chinese or not, the only important issue is that Greece can return to the financial markets.

Beyond that, it’s put about that the government is not serious about tax evasion. It has, of course, begun negotiations with the Swiss about tax-evading assets – but with no success so far. Sven Giegold, a Green MEP, supports its stance:

Switzerland has only offered to settle legacy issues anonymously in order to protect its wealthy Greek clients from prosecution. It’s right and proper that Greece, like virtually all other EU countries, has turned down this toxic offer. (taz, 19/03/2015).

What’s more, we know that these days taxes can best be collected on a European basis.

The Troika, in addition, obviously want an increase in VAT along with a raising of the retirement age or cut in pensions – which three generations often have to live on these days. These measures are a further burden on the population, they’ve not helped a jot so far – the little bit of growth around declined already at the end of 2014 under the previous administration – and would more and more remove the government’s legitimacy. Here’s the take of Poul Thomsen, head of the IMF’s European department:

We have to accept there’s a new government chosen by the voters to manage the crisis in a different way. (Handelsblatt, 20/04/2015, p.12).

The proposed measures to combat corruption haven’t yet been criticized by the Troika. And it’s obvious that these – like all proposals to build up an effective, transparent administration – can’t succeed in just three months.

Finally, there’s the issue of debt-repayment of course. A haircut is generally rejected. At the same time, it’s an open secret that in Greece’s current situation the debts can never be paid back. So it’s a question whether and how talks on rescheduling the debt can be started. For that, one needs time and it makes no sense to place Greece constantly under the Damoclean sword of threatened insolvency. But this easing is ruled out. And, presumably, this is what lies behind the dispute between Germany and Greece.

In reality, the issue here is not coolly calculated economic regulations but basic political understanding or view of humanity. The conservative lawyer Wolfgang Schäuble wants control, he mistrusts both people and politicians and not only Greeks.

It’s a meagre, scrimping life that the European visitor tries to make tasty for his audience. Political progress is accordingly only possible if the actors are under constant pressure. It’s great if one succeeds in sticking to a scarcely incalculable number of rules. And crises are good as they enforce change.

That’s the start of a report by Claus Hulverscheidt in the Süddeutsche Zeitung on an event at the Brookings Institute in Washington where finance minister Varoufakis followed Schäuble. The former spoke, on the contrary,

about the marvellous power of democracy,… of freedom and self-determination. Friendly murmurs in the audience.

The older the distinguished politician Schäuble became, the closer he got to the classical German tradition of authoritarianism: anthropological pessimism, distrust, control, judicial enforcement instead of politics. In post-WW2 political culture, this traditional authoritarianism was supposed to give way to a democratic view of humanity in schools because democracy can’t exist without a basic trust in civic liberty and sense of responsibility.

So it’s quite logical that the outcome of democratic elections in Greece should be treated by a conservative German government as an accident that should be reversed as quickly as possible so that the country can be brought back under domestic or European control. Syriza is not viewed as a final opportunity to get out of the crisis without social unrest and with a government that retains (at least so far!) society’s support. Rather, it should fail – setting an example for Podemos in Spain’s elections this autumn – and be replaced. Clearly, there are delusionary expectations about a return to power of the conservatives. If this elected government can be forced to the wall, then an uncontrollable situation becomes more likely and that might bring an invitation to a renewed military dictatorship. There may be a few people who wouldn’t see that as a bad thing if it came with the retention of austerity politics. They would justify it as “force of circumstances.” But that would leave the EU with a “values” problem.

There are, indeed, other forces in Germany, e.g. the trade unions which, in tune with the Greeks, have made it absolutely plain that this austerity politics has failed; that investments and not just cuts are necessary to promote sustainable growth and, at the end of the day, slowly pay back debt. The SPD and Martin Schulz, who delivered an enthusiastic homage at the Friedrich-Ebert-Foundation to Mark Blyth, the sharp critic of austerity politics, have always underlined that. So the question now would be how to find a practical way for the German government to avoid losing face but abandon its current austerity policy – one that has damaged Greece as well as other southern countries. The German chancellor’s famous pragmatism can be trusted in this regard. She could grasp self-critical considerations uttered by the IMF. The following 10-point programme might serve as the basis for a deal:

1. A moratorium on repayment of public debt (apart from the ECB) is declared. Greece’s debt is not waived but repayment only begins seriously when growth in Greece makes it possible without causing economic damage. This would be spelled out in detail in a further agreement defining a growth threshold for the repayment to start. Interest rates for Greece would be reduced again in a third aid package.
2. An exact strategy for collecting taxes. The chief tax-investigator sacked by the conservatives would be reinstated and allowed to get on with the job as he sees fit. Tax officials would replace civilians in monitoring this work. The proposal from the ex-head of the tax administration is put into effect.
3. Concrete steps for combatting corruption are put together with the help, e.g., of the Greek chapter of Transparency International.
4. Within a realistic timeframe, administrative reforms, especially the establishment of a land registry, are drawn up.
5. The EU helps Greece with investments fostering the swift removal of unemployment.
6. It does the same for other distressed EU countries.
7. Property taxes are recast in a more redistributive manner to ease the burden on the middle class.
8. The minimum wage is increased slightly.
9. The OECD aids the Greek government in the implementation of these promised measures. It ensures transparency in Greece’s fiscal and economic decision-making. It provides a platform for further defined moves.
10. Conditions regarding privatisations are jointly developed to take into account public assets, jobs and the current market situation.

You tell me how you treat Greece and I’ll tell you what your politics are.