How can we help Greece to spur exports? What is needed to promote the rapid growth of small and medium-size Greek enterprises? For five years now, Germany has not asked these questions.
It has become ugly and personal on both sides. Whatever the reason, Germany has treated Greece badly, failing to offer the empathy, analysis, and debt relief that are required. Creditors are sometimes wise and sometimes incredibly stupid. America, Britain, and France were incredibly stupid in the s to impose excessive reparations payments on Germany after World War I.
In the s and s, the United States was a wise creditor, giving Germany new funds under the Marshall Plan, followed by debt relief in In the s, the US was a bad creditor when it demanded excessive debt payments from Latin America and Africa; in the s and later, it smartened up, putting debt relief on the table. In , the US was smart to give Poland debt relief and Germany went along, albeit grudgingly.
This is a time for wisdom, not rigidity. And wisdom is not softness. This article is published in collaboration with Project Syndicate. Publication does not imply endorsement of views by the World Economic Forum. To keep up with the Agenda subscribe to our weekly newsletter. Author: Jeffrey D.
Image: A Greek flag flutters as tourists visit the Acropolis hill archaeological site in Athens, Greece, July 2, Jeffrey D. The views expressed in this article are those of the author alone and not the World Economic Forum. Here's how the private sector can play a central role in co-piloting the European Green Deal, the EU's ambitious plan to become climate neutral by Their own national debt, after all, was substantially reduced by international creditors in The extent to which this analogy has been repeated without any curiosity as to the underlying facts, or context, is a distressing case study in uncritical groupthink.
Germany literally lay in ruins, and was divided, and there was no doubt about whether the German people were doing their part to dig out of the rubble and make amends. In contrast, the United States has refused to incorporate into the North American Free Trade Agreement the type of regional development funding that Europeans deemed essential to a functioning common market.
And when Mexico faced an existential debt crisis in the s that was far more severe than the one Greece is experiencing, Mexicans could only have wished that Washington had reacted to their plight as Berlin has reacted to the plight of Greeks.
After walking up to the cliff and contemplating a break-up of their currency union, the leaders of Greece and their European counterparts in Berlin, Paris, and Brussels all blinked, and worked out a deal to keep Greece in the eurozone, at a painful cost to both sides more money coming out of the pockets of other European citizens, more painful austerity for Greeks.
This was a case of political and historical imperatives trumping economics, at least for now. From its very inception in the s, when it was born as a coal- and steel-producing union, what eventually came to be known as the European Union was considered by its French architects as a means to subvert German nationalism, and to make its repentant people pay more than their fair share for a common project largely directed by the French.
When Germany suddenly had the opportunity to end its postwar partition a quarter century ago with the fall of the Soviet Union, French and other European leaders pressed the Germans to abandon their cherished currency and symbol of hard-won stability, the deutsche mark, in favor of a shared European currency. The more intensely Germany was bound to a broader European Union, the theory went, the less likely a reawakening of a troublesome German nationalism.
And so, Germany agreed to the euro once Europeans went along with German reunification. I asked Fischer if Germany could ever become a normal country again, fully off probation, fully atoned, fully entitled to wave its own flag, at least alongside that of the EU.
But the ensuing years have proven bullish ones for German nationalism. Berlin surprisingly refused to go along with the United States in its showdown with Saddam Hussein. Figure 01 Annual average long-term nominal interest rates.
Until , the variations in GDP of Germany and the euro zone, since the introduction of the single currency in , remained below Greece's economic growth. Following the global crisis, however, Greek economic growth experienced a greater impact and, unlike Germany and the EU average, was unable to recover. From to , the growth rate of Greek GDP fell from 3. Analysis of GDP alone, however, is not enough to explain the situation of the eurozone.
It is important to evaluate the balance of payments, that is, generically, the difference between exports and imports of goods and services. A balance of payments deficit indicates that imports exceed exports.
On this point, the disparity between the balances of Germany, Greece and the eurozone average is clearly perceptible. While Germany showed a deficit only over the first three years following adoption of the euro In , Greece attained the record of An exponential increase in long-term interest rates, associated with the balance of payments deficit, has exposed Greece's vulnerable situation within the eurozone.
Without liquidity, the country needs loans, which have become more scarce due to the investment uncertainty generated by speculation of a Greek default.
Germany, along with France, bought Greek government bonds, as well as granting relatively low-interest loans to the country. Nevertheless, German debt accompanied the evolution of the eurozone, reaching In relation to the public deficit, i. Although Germany exceeded the limit from to , and again from to , the maximum level reached was 4. Analysing these macroeconomic indicators shows that Greece during the period under study here did not fit the conditions for eurozone membership, insofar as the country's macroeconomic indices were incompatible with the single currency regime.
It is worth observing, however, that when the country joined the single currency it met all the convergence criteria. According to the financial analysis website Enterprise Investor, citing the report by Eurostat, Greek public debt in was actually 4.
Enterprising investor. Accessed on May 25, However, Germany obtains important advantages from EU membership, exports being one of the key elements in its competitiveness. Four of the five top destination countries for German exports are also members of the European Union. It is equally necessary to demonstrate, briefly, how financial deregulation policies played a fundamental role in the spread of the crisis. On this point, the world clearly experienced major changes at the end of the s.
The end of the bipolar world, evinced by the fall of the Berlin Wall and the subsequent collapse of the USSR, brought multipolarity to the fore and confirmed the supremacy of the capitalist ideology personified by the United States. The dominance of the information age also intensified along with the phenomenon of globalization. Now it was possible to move large quantities of capital through diverse financial institutions, and not just through the traditional banking system, both quickly and efficiently.
As the portfolio of financial operations, investments and actors expanded, so the risks and uncertainties related to the financial market increased. A prime example of the consequences of such financial deregulation was the subprime crisis originating from the dynamics of the US domestic housing market in Since , looking to stimulate consumption, the US market had been selling house mortgages at low and attractive interest rates.
With the domestic market awash with credit, many people who wanted to own a property were able to do so. As a result, the housing market underwent intense growth and property was made available to virtually everyone who presented low risks to the loan banks, based on their credit history and proof of income. But, seeking to earn even more profits, the loans were soon extended to people with an uneven credit history subprimes , which led to non-payments and soon after to the banks repossessing properties and placing them back on sale on the market.
The creditors of the property purchasers sold the mortgages to large investment banks and other financial institutions. In the recent crisis, many economies in Europe shared the same vulnerabilities as the US economy.
Greece was the most critical patient of this 'flu'. The media has repeatedly used the term 'Greek crisis' to classify the moment experienced by the EU. The first impact felt by Greece, which depended heavily on loans, was the hike in interest rates, which made taking out loans on the international market extremely expensive.
Consequently, at the start of , a rescue package was granted to Greece. After it achieved little effect, however, the eurozone finance ministers approved a new billion euro package in It is important to stress that this problem could have been minimised with loans at lower interest rates.
However, as cited earlier, the lack of confidence generated by the crisis made obtaining loans from the market extremely difficult. After approval by the Greek parliament as a requirement for obtaining the second rescue package, the series of austerity measures imposed by the Troika EU, ECB and IMF led thousands of Greeks to take to the streets in protest.
A third Greek rescue plan was approved in July in which more cuts to social benefits and an increase in taxes were agreed 12 12 Even Alexis Tsipras, the prime minister elected in , who had openly criticized the stance taken by the Troika in relation to Greece throughout his campaign and at the start of his mandate, had no choice but to accept the agreement.
Among other measures, were the privatization of the energy sector, flexibilization of the work market with less control by the unions, a rise in the retirement age and the creation of a fund with Greek assets SMITH, Berlin: Institute for International Political Economy.
Project Syndicate. Accessed on November 11, The problem is simple: Greece's creditors insist on even greater austerity for this year and beyond — an approach that would impede recovery, obstruct growth, worsen the debt-deflationary cycle, and, in the end, erode Greeks' willingness and ability to see through the reform agenda that the country so desperately needs. Underlining Varoufakis's evaluation , the cure has indeed been worse than the disease 13 13 On this point, a key episode in Greece's recent history was the referendum held in June The population was asked whether the country should accept the austerity demands imposed by the creditors in particular, Germany.
According to the British journal 'The Guardian' , practically two-thirds of the population After their victory, however, a less moderate agenda than the one proposed by the creditors was accepted and implemented in Greece, provoking widespread social mobilization and public dissatisfaction GRIM and MARANS, The author therefore suggests that the other European countries should analyse which aspects of German reform can be implemented in their own domestic contexts 14 14 For more details on the relationship between Germany and 'peripheral' euro countries like Greece, as well as the attempt to correct the imbalances in the eurozone, see Semeniuk, Treeck and Truger Two aspects should be taken into account here.
Adoption of the first aspect would lead to a loss of the spillover effect 15 15 In his book 'The Uniting of Europe', developing Mitrany's theory and establishing what became known as neofunctionalism, Haas proposes that the success of the technical cooperation administered by institutions and the new demands that emerged from their actions have a 'spillover effect', that is, they enable cooperation to be further developed and new institutions to be created subsequently to manage them BALDWIN, , p, pp.
Dullien acknowledges that the same should occur with technological development, given that there exists a strong correlation between level of investment and technological progress. Adoption of the second could reduce prices, leading to deflation of the debt, which would harm the financial system and reduce the amount of credit and aggregate demand available.
This circumstance determined a new increase in the competitiveness of the German economy, which ultimately profited from the deficits of the most critical countries. As described earlier, Europe after the Second World War increased interstate cooperation, culminating in the institution of the EU.
The cases of Germany and Greece also reveal that the European integration project contains inherent asymmetries and that these determined, and continue to determine, the perpetuation of the crisis and the cooperation dynamics. The same was repeated soon after the Cold War, demonstrated by Waltz's claim that the effort to create economic union was justified by the fear that "a disunited Europe could not stand up to Japanese and American competition" , p.
After , though, faced with a new reality of devastation and weakness, European countries succeeded in keeping the peace mainly due to the clash of the gigantic USA and USSR.
The author also emphasizes that the emergence of nuclear weapons had an important role in preventing conflict since the consequences of any war could be extremely disastrous. According to the neorealist perspective, nation states seek to weaken potential enemies by increasing their relative power status.
The power disparity between states is seen to make aggression more likely, unlike the situation between the United States and the USSR during the Cold War, in which the balance of power was levelled and peace or the lack of direct aggression was ensured. It is important to underline that, in this view, the peace established by the balance of the superpowers in Europe contrasted with the need to prevent Germany from recovering its own power on the continent, which had previously led to war.
Furthermore, the close relationship between the heavy industries in member states meant that the risk of one country deciding to manufacture and deploy weapons without the knowledge of the others was minimized.
Cooperation, which culminated in the creation of the ECSC, can be perceived as a mechanism, therefore, that as well as achieving economic growth also enabled monitoring of the production and movement of weapons and other heavy industrial goods with the aim of promoting trust between the countries in Europe, recognising that Germany was also integral to the group 16 16 'Tying' Germany to the other states to achieve a balance of power, according to Waltz was a project prior to the Second World War.
See Leuchars Consequently, it can be noted that one of the main motivations for cooperation and integration in Europe was precisely the repositioning of the continent as a prominent actor in the IS. The neorealist current would argue that cooperation increased because of the structure that allowed a degree of convergence in the interests of the European countries.
However, neorealism does not satisfactorily explain why countries submit to an institution the EU and to a regime the euro , both of substantial relevance in international politics. For this analysis, institutional neoliberalism offers more appropriate mechanisms. New York: Columbia University Press, , pp. The author also argues that this process was made possible by the democratic nature of the European governments and of their national institutions.
Hence, the commitment to EU institutions allowed, for example, Germany to pursue its political and economic interests within an institutional framework that converges expectations and reduces uncertainties. Likewise, it can be stated that the least powerful states in the EU, from the political and economic viewpoint, benefit from participating in the group once they have influence on the decisions of this institution. It can be perceived, then, that due to the asymmetries inherent to complex interdependence, the more cooperativist dynamic of the states in Europe generates costs for the actors involved.
Being involved or not with a determined institution entails a series of responsibilities for the countries. Complex interdependence thus produces two important effects: sensibility and vulnerability. Sensitivity relates to the impact that an event in one country has on another, which is measured in terms of cost. By creating the euro, the Maastricht Treaty thus sought to establish a financial regime that would facilitate the coordination of monetary policies, previously executed at individual level, under the administration of a supranational entity institution , namely the ECB.
With a coordinated monetary policy and a strong financial market, Europe could confront US hegemony in the international financial system and pursue its own interests in the international arena. On the other, faced with the threat of a significant growth of nationalism in the former USSR, the group needed to search for greater unity. Indeed, it can be noted that the European integration has expanded following the end of the Cold War. The relationship between Germany and Greece, discussed in the second part of this article, demonstrates how two states inserted in a regime, converge preferences and act, or at least should try to act, in accordance with established principles and norms.
Despite the fact that the two countries occupy different positions in the world economy, in terms of competitiveness and in terms of economic policy, both are subject to rules established by an international governmental organisation the EU that possesses institutions with deliberative, executive, legislative and judicial powers. The two countries also participate in a financial regime the euro where a series of criteria need to be met, so as to ensure the proper functioning of the regime and increased cooperation between members.
It can be argued that failing to comply with the demands of the institution or the regime implies high costs for a country. The opposite can also be said, though, since not participating in an institution can isolate a particular country, reducing its power within the IS. Finally, participating in a particular institution can oblige the state to implement economically and socially harmful policies. It is worth observing here that the neorealist current would focus on the structural change within the EU following the rise of Germany as the most influential member in order to explain why Greece accepted the conditions imposed by the former country.
This theory, however, does not consider the relevance of the EU and the financial regime established by it.
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