A lot can happen in four months…or not
There’s a thoughtful and balanced piece about ‘trust’ at Ms Coppola’s blog this morning, at which I would point every financial journalist in the Western media.
Rather than starting from procedural ignorance and proprietor agenda, Coppola points out clearly that both sides have, at last, worn away some of the mutual distrust and dislike – and thus both sides have given ground. Syriza got the freedom of action it wanted, and the EU evaded a disaster.
For myself, I think the freedom for Greece to sort itself out within four months is nowhere near long enough. Unlike the existing debt-slavery, Greece does at least stand a chance of beating the maths now. But not in four months: come June, the picture will be unclear, and this will give Berlin and Frankfurt time to prepare for another bite at the cherry: alles klar, as the Germans say.
Related to this, whatever Bild Zeitung or the equally foul Daily Mail have to say on the subject, the real climbdown yesterday was by Germany: there will be bitterness in Berlin & Frankfurt today, and I remain
fairly sure the Germans will leave the euro before the Greeks will. They are the ones isolated now.
It is far from over; one can tell this from the fact Frances is not fat and she didn’t sing – at least, not this time. So it might do no harm to look a little more closely at the distrust/dislike dimension – specifically between Berlin and Athens. Here my comments might perhaps be a little more harsh than hers.
What we’ve been treated to this week is another tidal wave of German sanctimony. Being holier than thou has been Germany’s biggest growth industry since the eurozone was created. Unfortunately, when it comes to how the likes of Greece and Italy got in, the sanctimony begins to whiff a little.
The Germans claim that Greece ‘cheated’ to get in; they did. But the EU’s stats authority gave this the major blind eye treatment. Before losing the 1998 Election, Helmut Kohl had steered Germany to reunification and become a closet federalist keen to make the EU a second global force. He had little doubt who was going to wind up running it, and he has been proved right. And it was the stability pact in 1997 – in which Kohl, Merkel and Schäuble were personally involved along with the French – that began to ignore the consistency with which Greek numbers were nowhere near the 3%.
The Italian situation wasn’t a lot better. But SPD leader Gerhardt Schröder in 2005 engineered – again with the French – a ‘deal’ tor relax some criteria in Greece and Italy’s favour….in the latter case involving a murky side-letter promise about cheaper foodstuff exports from Italy to Germany, and fewer food exports to France.
Whether the CDUSPD Grand Alliance likes it or not, Berlin was complicit in the initial blind-eye, and then the corset-loosening: and after that, Goldman Sachs took over to make this a deeper cover-up…effectively, a system of lying to Brussels. No Goldman person has ever been prosecuted for this; but the result for Greece has been tragedy.
Right from its first day, the formation of the eurozone and its deficit rules was an anarchic, corrupt cock-pit of side-letters and secret deals. And so it has continued: France has never satisfied the deficit criteria (it too finds itself in the dock next month on charges rather more serious than those against Greece) and the first three States to break the Pact rules and get away with it were….Germany, France and Italy. My oh my.
Some of the Greek Ministers deeply complicit in the process – notably Evangelos ‘Mr Creosote’ Venizelos – are the very bandits Merkel and Schäuble chose in favour of George Papandreou after 2010. Hardly what one could call a principled decision.
My bottom-line point is this: Germany, France and probably many in the EC knew perfectly well that the figures had been massaged. Former ECB chief Isser has made this brutally clear on several occasions since. So the Greeks cheated to get in: but Germany knew about it, and since then its own deficits beyond the rules have gone unpunished. In such a context, their sanctimony should be rebranded hypocrisy. No change there, then.
Now let’s look at it the other way round and ask: why should Greece dislike the Germans? To which the answer would probably be “How long have you got?” I touched on this subject in last’s night’s vitriolic piece here, but a summation will suffice.
This is the second time in 74 years that a German government has inflicted an undeserved and bankrupting scorched-earth policy upon the Greeks. Between 1941 and 1945, 40,000 Athenians starved as a direct result of the Nazi invasion. Despite Berlin’s airy “this has been settled, it is no longer an issue” riff such classic insensitivity simply won’t wash: a war loan of 476 million Reichsmarks that the Bank of Greece was forced to make to the Nazis was never repaid.
In fact, none of the countries Germany decided to visit after 1938 got a penny in reparations – nice work if you can get it – but this is a matter of a recorded loan. Nevertheless, CDU luminary Sigmar Gabriel, Angela Merkel’s vice-chancellor, bluntly told the media last month there was “zero possibility” of it ever being paid. You see, the Germans demand that everyone else accepts responsibility for actions taken….up to but not including them.
The German capacity for self-pity is boundless, and its case for maltreatment groundless: Merkel gave ground yesterday because she wanted to avoid a colossal bill – in real, unbudgeted euros – to pay for Greek default. But there will be mutterings in Berlin, and plans for revenge in Frankfurt. I have little doubt that no stone will be left unturned in an attempt by the Draghis, Weidemanns, Merkels and Schäubles to guarantee failure during the four-month Syriza Blitzkrieg – like, for instance, persuading EU-owned banks in Greece to create runs on funds.
But during this interregnum, the French position will come under some degree of harsh lighting. France’s State budget deficit grew by 7% in 2014, and now stands audited for the year at a fraction under €86bn. The Maastricht deficit limit is 3%: France had aimed for 3.8%. It now stands not very commendably at 4.2%. Most experts expect a maximum 0.1% cut in that deficit during 2015.
That is bound to start a tussle between Berlin and Paris next month, when the French position comes up for “review”. Will we see a Francxit? No of course we won’t – one law for the tiddlers, another for the sharks – but the exchange will focus some minds on the core EU problem: the Germans are fanatical budget balancers, while the French prefer to balance along the tripwire of laissez-faire. In the background, meanwhile, stands Marine LePen, ever-ready to profit from French pride if Berlin gets heavy.
Italy too is close to default, and Podemos continues to make ground in Spain. Four months from now, the main countries on the line in the likelihood of a Greek default will face exactly the same problem again: how to escape from a high-security prison of their own making. My feeling is still that Syriza knows this, and is playing for time. My hunch is that Germany will think seriously about Bundesexit. And as for Mario in the ECB two-fingered towers of Frankfurt….he still dreams of a eurodollar.