Home > Greece, Uncategorized > Germany is bluffing on Greece

Germany is bluffing on Greece

from Mark Weisbrot

You can ignore all the talk of a “Grexit,” the bluff and bluster of right-wing German ideologues such as Finance Minister Wolfgang Schäuble who would celebrate it, and repetitive, stubbornly dire warnings that time is running out. Did you notice that the much-hyped June 5 deadline for the Greece’s payment to the International Monetary Fund (IMF) came and went, Greece didn’t pay and nobody fell off a cliff? Trust me, this is not a cliffhanger.

Although there have been numerous references to game theory in the ongoing commentary, it’s really not necessary if you look at the revealed preferences of those whom the Syriza government is polite and diplomatic enough to call its European partners. Take partner-in-chief German Chancellor Angela Merkel: If there’s one thing she doesn’t want to be remembered as, it’s the politician who destroyed the eurozone.

Of course, we don’t know if a Greek exit would do that, but there’s a chance that it could. Even if the European Central Bank would be able to contain the resulting financial crisis, it is possible that Greece would, after an initial shock, ultimately do much better outside the euro, which might convince others to want to leave. Whatever the probability of that scenario, Merkel is, like most successful politicians, a risk-averse creature who won’t roll those dice.

And there is an elephant in the room that she is not going to ignore: the United States. There are scattered press reports that Barack Obama’s administration has put pressure on Merkel to reach an agreement with Greece, but the importance of that has been vastly understated. Unless it is a request that could get a German government voted out of office — such as George W. Bush’s bid for support of his invasion of Iraq in 2003 — something that is strategically important to Washington is extremely likely to find agreement in Berlin. And in this case, Merkel and Obama are basically on the same page.

The politics of empire are much more important than any economic concerns here. For the same reasons that the United States intervened in Greece’s civil war (1946 to ’49) and supported the brutal military dictatorship (1967 to ’74) — with all the murder, torture and repression that these involved — Washington does not want to have an independent government in Greece.

Europe is the United States’ most important ally in the world, and Washington doesn’t want to lose even a small piece of it, even little Greece. Everybody knows that if Greece leaves the euro and needs to borrow hard currency for its balance of payments, it will get some from Russia and maybe even China. Greece could leave NATO. Greece could participate in Russia’s proposed gas pipeline project, which would make Europe more dependent on Russia — something that American officials warned against, drawing a sharp rebuke from Greece’s energy minister, who rightfully told them it was none of their business.

It would be nice to think that the worst features of U.S. foreign policy have changed since the collapse of the Soviet Union, but they have not. The Cold War never really ended, at least insofar as the U.S. is still a global empire and wants every government to put Washington’s interests ahead of those expressed by its own voters. The current hostilities with Russia add a sense of déjà vu, but they are mainly an added excuse for what would be U.S. policy in any case.

Once we take all these interests into account and where they converge, the strategy of Greece’s European partners is pretty clear: It’s all about regime change. One senior Greek official involved in the negotiations referred to it as a “slow-motion coup d’état.” And those who were paying attention could see this from the beginning. Just 10 days after Syriza was elected, as I noted previously, the European Central Bank cut off its main line of credit to Greece and then capped the amount that Greek banks could lend to the government. All the hype and brinkmanship destabilize the economy, and some of this is an intentional effect of European authorities’ statements and threats. But the direct sabotage of the Greek economy is most important, and it is remarkable that it has gotten so little attention.

The unannounced objective is to undermine political support for the Syriza government until it falls and get a new regime that is preferable to the European partners and the U.S. This is the only strategy that makes sense, from their point of view. They will try to give Greece enough oxygen to avoid default and exit, which they really don’t want, but not enough for an economic recovery, which they also don’t want.

So far, the damage to the Greek economy has been quite significant. The IMF projected growth of 2.5 percent this year, and now the economy is in recession.

According to leaked documents published by The Financial Times on June 5, the European officials’ negotiating position is a primary budget surplus of 1 percent of GDP in 2015 and 2 percent of GDP in 2016. This represents a climb down from the ridiculous goals that the IMF previously put forth, which called for primary surpluses at “above 4 percent of GDP” for “many years to come.” But with the economy in recession and the current primary surplus at negative 0.67 percent of GDP, the current proposed targets would stifle Greece’s recovery, perhaps even prolong the recession and maintain depression levels of unemployment.

Another sticking point in the current negotiations has to do with debt relief. Even the IMF now recognizes that Greece’s current debt burden is unsustainable, but the European officials are not budging. This pretty much guarantees more crises down the road, which is a major drag on recovery. Who wants to invest or even consume very much with inevitable financial crises on the horizon?

The European officials’ demand for further pension cuts is even more difficult to justify, given what Greece has already done. Besides raising the retirement age by five years (from 60 to 65), The Financial Times reports, “main pensions have been slashed 44 to 48 percent since 2010, reducing the average pension to 700 euros a month … About 45 percent of Greek pensioners receive less than 665 euros monthly — below the official poverty threshold.”

European officials are making more demands for labor law reform, on the dubious theory that further weakening labor’s bargaining power and driving down wages (as if 26.6 percent unemployment doesn’t do that enough) will increase competitiveness enough to spur an export-led recovery.

So we see the ugliest of scenarios playing out: The people primarily responsible for Greece’s deep and prolonged depression and high unemployment are pushing policies that would extend the crisis and worsen its impact on those who have suffered the most — not to mention subvert the will of the electorate.

So far, the government is hanging in there, with the latest polls showing Tsipras’ approval rating at 66 percent. It’s impressive that so many Greeks still understand who is responsible for the crisis, in spite of the balance of media prejudice against the government. It’s vitally important, because Greece’s adversaries are counting on being able to deceive them.

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  1. June 12, 2015 at 11:01 pm

    Reblogged this on Taking Sides.

  2. June 13, 2015 at 3:08 am

    Ms Merkel has a dilemma. She doesn’t want to destroy the Eurozone, but she and Mr Schäuble want to turn it into a neoliberal goldbug camp. In this new ideology central banks need capital, QE is for the markets but not for fiscal spending, states can neither go bankrupt nor control their budgets, and monetary policy is run for the benefit of banks.

    Many European citizens awkwardly disagree. We prefer the vision of Helmut Kohl, where the EU was about movement of people and human rights, rich areas subsidised weak ones, Europe came together to compete with the US and Japan, and states would gradually meld into supra-national welfare, tax, and ultimately government agencies.

    It must be hard being Ms. Merkel, working to destroy the Europe that people actually wanted without being seen to destroy it.

  3. pgvaidya
    June 13, 2015 at 8:21 am

    I think that the Germans are playing the good cop bad cop game. They want to set an example of Greece and punish it badly. However, they want to avoid the blame. The Greeks need to be reminded of the Japanese bird trap. This trap consists of a hollow bamboo cylinder around a metallic wire. A bird sitting on it turns upside down and then is afraid to let go because he would fall.

    Once you realize that the only possible freedom will consist of accepting a short term fall, the Greeks will find happiness.

    There is a lot of sympathy for them around the world. They are at the forefront of a challenge to some very strange ideas which say that most people have to starve so that the German and other banks are saved. If Greece leads the way, Spain will follow…. and others should.

  4. Euan Gray
    June 13, 2015 at 2:46 pm

    “Take partner-in-chief German Chancellor Angela Merkel: If there’s one thing she doesn’t want to be remembered as, it’s the politician who destroyed the Eurozone”

    Which is why if push comes to shove she will let Greece go.

    Your article is naïve.

    If Greece defaults, there’s an affordable bill for 320bn and the rest of the EU wakes up to the reality of the need for fiscal continence. If Greece is bailed out again, the danger is that much larger troubled EZ economies like Spain, Italy and France will also seek bailouts (“you did it for Greece, why not us?”) and that is completely unaffordable and WILL break not only the Euro but the EU.

  5. Tony
    June 13, 2015 at 3:13 pm

    It seems that your article is one of the few I’ve seen that does a proper analysis. I should add something that has been missed is that the extension of sanctions against Russia have to be renewed June 25-27th and there has to be unanimous consent by all 27 EU member states. Is there the possibility of tough horse-trading going on at this meeting – “Greece we’ll give you funds to continue but you have to agree to further sanctions” In all of this, Obama is of course very keen to obtain additional financial help for Greece and resolve the financial crisis. There is also the possibility of Greece of accepting membership in the BRICS, which has been proposed by Russia and to be finalized at the next BRICS meeting, at the end of June. Meanwhile, the pipeline from Russia into Greece via Turkey appears to be moving ahead (against the wishes of the US). This is not a uni-dimensional situation i.e. between the IMF/EU Central Bank and Greece as most journalists view it, but a multi-faceted poker game, in which geopolitics play a major role and whose outcome, which could be an important game changer, we can’t predict.

  6. June 14, 2015 at 9:02 am

    Germany and the EU will have to blink and give some real debt relief. That gives Tsipras the option to accept. It’s also the only sensible thing to do. Question is how to get the IMF over the line, since the IMF does not have a mandate for debt write-offs.

  7. June 14, 2015 at 5:12 pm

    If Greek politicians had not taken the action of joining the eurozone but maintained their own central bank, the drachma and sovereign money system, the leaders there would never have faced the necessity of borrowing huge sums from the “troika” and the current situation wouldn’t have come to exist. It’s worth noting that recently released documents on TiSA show provisions engineered to prevent public banking, which, wherever established, transfers status-quo financial power away from private (.001%) investors/owners to the 99.99%. What is happening in and to Greece can be perceived as a late-stage battle in the historical war over control of money creation. This explains how 85 individuals came to own as much wealth as 3.5 billion on Earth.

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