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As in 1942, Germany Must Show Restraint Over Greece
Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we
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Here are some quotes from the diaries of Count Ciano (Mussolini’s foreign minister and son-in-law), referring to Greece a year and a half after it was invaded and occupied by Germany.

6 October 1942: “Clodius [the Third Reich’s economics minister] is in Rome to discuss the Greek financial question, which is very bad. If it continues at this rate, sensational and unavoidable inflation will result, with all its consequences…

“All this is absurd, but the German army does not intend to reduce its interest rate.”

8 October 1942 [Ciano tells Mussolini about the Greek situation and quotes his reply]: “If we lose this war it will be because of the political stupidity of the Germans who have not even tried to use common sense, and have made Europe as hot and treacherous as a volcano.”

“He [Mussolini] is thinking of speaking to Himmler about this… but he will not get anywhere.”

In 2015, as in 1942, the Germans tend to overplay a strong hand. They insist that the Greeks abide by austerity agreements that have just been rejected by Greek voters in the general election on 25 January. The reason there was an election at all was that the previous Greek government, drawn from the conservative New Democracy and nominally socialist Pasok parties, could not get enough support in parliament to select a new president because eurozone leaders and the IMF would not relax their terms. The clear message from Greece is that no Greek government can satisfy the demands of the troika (EU Commission, European Central Bank and IMF) and expect to survive.

The Greeks have every reason to reject the troika’s austerity programme. If ever an economic plan failed, it is this one. When the EU and IMF took control of Greek economic policy five years ago, they were meant to solve its debt crisis, modernise the economy and restore it to health. They have demonstrably failed. A quarter of the economy has been destroyed, 26 per cent of the workforce and 57.5 per cent of youth is unemployed, and the economy is in crisis still. Listening to EU officials speak of “progress made”, one is reminded of Tacitus’s line, spoken by a British insurgent leader resisting the Roman occupation, which has echoed down the centuries: “They make a desert and call it peace.”

Do the EU, ECB and IMF officials who visit Athens, often displaying an arrogance and contempt for the views of the Greeks that Tacitus would have found familiar, have much idea of what is happening there? Megan Greene, chief economist for the Portfolio Solutions Group, has studied economic relations between Greece and Germany since 2006. Reflecting on the past five years, she wonders if IMF officials “surrounded by security men in dark glasses” ever met any ordinary Greeks. She recalls an ECB official in Athens being astonished when she told him that many Greeks simply did not have the money to pay their taxes.

The desperation of so many Greeks, four million out of 11 million of whom are on the edge of complete poverty, might not be immediately obvious to an EU delegation in chauffeur-driven cars. But if a member of the delegation looked at the sky he might wonder about the smog hanging over the Greek capital on these cold winter days and, if he inquired further, he would be told that the smog is caused by Greeks burning old doors, scavenged timber and rubbish to heat their homes because they cannot afford electricity or gas. Yanis, a naval officer who helps run a charity to feed the homeless, says he has to bring food to them where they are sleeping in the street because “they cannot come to our kitchen, they are frightened of losing to other homeless people a prized sleeping place near a hot-air vent from the underground, or where there is shelter from the rain”.

Of course, ECB officials and German politicians may say that they don’t care what Greeks think or do. They should have thought about the possible grim consequences for themselves when they borrowed the money they must now repay with no debt relief. Moreover, why aren’t Greeks more grateful for the money that Brussels and Berlin have been doling out to keep them going? Both arguments are spurious. The banks which lent money in the past must have noticed that the country was run by corrupt politicians and crony capitalists, so what happened should not have come as a surprise. Of the €227bn (£170bn) in loans from the eurozone lenders and IMF, just 11 per cent has gone for government spending while almost all the rest barely touched Greece before going to prevent the write-down of bad loans.

All this looks horribly tangled, but, unlike other world crises involving Isis or Ukraine, it is fairly easily soluble. The Greeks cannot pay their enormous debts and the German voters see write-downs and write-offs as theft of their taxes.

The obvious solution is for a rescheduling of debt over a lengthy period at low cost to the Greeks, rather than the present punitive EU-orchestrated regime that has done so much damage since 2010.

I can think of only one similar case of foreign intervention in the supposed interest of reform and restructuring that proved so spectacularly calamitous: in Iraq in 2003-04, earnest American neoliberals took charge of the Iraqi state and economy and ran them straight into the ground. They have yet to recover.

ORDER IT NOW

Eurozone leaders should be able to solve the Greek crisis, but it is by no means clear that they will do so. A problem is that they feel all-powerful compared with puny, bankrupt Greece and expect to come out the winner whatever happens. They should be very careful here: I have spent most of my journalistic career writing about crises and wars in places such as Northern Ireland, Lebanon and Iraq, where large countries at first thought they could do what they wanted without fear of local opponents. “Beware of small states,” warned the Russian anarchist Bakunin in 1870, they can be much more dangerous than they look. Half a century earlier, the Duke of Wellington observed: “Great nations do not have small wars.”

Local crises and disputes begin to have international consequences. This happened again and again in Lebanon, a country half the size of Wales, after 1975. When the Americans marched into Baghdad in 2003, their worst mistake was to imagine that it did not much matter how local people reacted in a wreck of a country such as Iraq. Eurozone leaders would do well to take seriously the wise words of Mussolini, not exactly a paragon of moderation, urging the Germans to show common sense in dealing with a Greek financial crisis and warning of the explosive consequences for Europe if they did not.

Patrick Cockburn is the author of “The Rise of Islamic State: Isis and the Sunni Revolution”, published by Verso

(Republished from The Independent by permission of author or representative)
 
• Category: Foreign Policy • Tags: Germany, Greece, Syriza 
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  1. bossel says:

    wise words of Mussolini

    Yeah, right. IIRC, it was the failed Italian attack on Greece which made the Germans invade in the 1st place. If (!) Mussolini was right on something, then probably not from wisdom but coincidence.

    They should have thought about the possible grim consequences for themselves when they borrowed the money they must now repay with no debt relief.

    Yep, they should have thought of that. & “no debt relief”? Forgot the more than 50% cut in 2012?

    Anyway, as you wrote:

    The obvious solution is for a rescheduling of debt over a lengthy period at low cost to the Greeks

    & this is pretty much what the media (& probably politics) in Germany expect to happen. A Grexit shouldn’t be ruled out, though. Might help Greece as well as the EU.

    BTW, the situation in Greece is very probably not as bad as you paint it here. Only for the Greeks who lived through those years of spending too much it seems so bad in comparison to what they had before.

  2. SF says:

    The two alternatives for Germany are to throw good money after bad or to write off the debt and remove Greece from the Euro zone. I suspect that if Greece started reprinting its own money, the Greeks would find out it wasn’t worth very much. But that would improve Greece’s trade balance, possibly stimulating a little manufacturing.

  3. Paul says:

    “The obvious solution” is for the ECB to print the damn money and use it to finance Greek infrastructure, hire teachers and rebuild the safety net, thereby putting Greeks back to work. Instead, like the Fed, the ECB will likely print the money to bail out the banks. Unbelievable.

    • Replies: @The Anti-Gnostic
  4. Wally [AKA "BobbyBeGood"] says: • Website

    This reminds me of a scaled up version of ‘predatory lending’ that leftist apologists use in an attempt to remove responsibility from those who borrowed money to purchase houses they could not afford.

    While I hope for the complete break-up of the unelected, totalitarian, free speech hating, and all consuming EU, the specific issues for Greece are, IMO:

    – This is not really about their borrowing, but about their inability to carry their own weight.

    – Greeks were living above their means, otherwise the situation would not have occurred in the first place.

    – Having lived above their means they refuse to lower their expectations of an economy that even before the EU was unsustainable. The EU is just a messenger carry news about the failure of the Greek economy.

    – The Greeks assumed they would be carried by the EU in spite of their own unsustainable economy, hence they joined the EU.

    – Ultimately they should simply default and get back to being an independent Greece, print their own money and live with the consequences. There could be no blaming the messenger.

    – The EU is unsustainable.

    As if we need more warnings, this is a classic example of the destructive nature of Keynesian economics.

    • Replies: @Andrew E. Mathis
  5. @Wally

    >This reminds me of a scaled up version of ‘predatory lending’ that leftist apologists use in an attempt to remove responsibility from those who borrowed money to purchase houses they could not afford.

    That’s only true if the rest of what you allege about Greece is also true. Clue: It isn’t.

    >While I hope for the complete break-up of the unelected
    https://en.wikipedia.org/wiki/Elections_to_the_European_Parliament
    >totalitarian

    https://freedomhouse.org/report/freedom-world/freedom-world-2014#.VM_UKJ3F9Mc

    >free speech hating

    Having a law against Holocaust denial (which not all EU countries have), while not a great idea, isn’t the same as “hating free speech.”

    >and all consuming EU, the specific issues for Greece are, IMO:

    >- This is not really about their borrowing, but about their inability to carry their own weight.

    I’m unsure where the difference lies.

    >- Greeks were living above their means, otherwise the situation would not have occurred in the first place.

    That’s untrue.

    First of all, look how the Greek economy grew over most of last 30-40 years. GDP grew robustly, while inflation remained relatively stable and low, with the exception of the 1970s, when inflation was high worldwide.

    GDP: http://snipurl.com/29o55c3
    CPI: http://www.inflation.eu/inflation-rates/greece/historic-inflation/cpi-inflation-greece.aspx

    For the moment, note the big drop-off in GDP following the financial crisis in 2008.

    Now, look at what is considered by many to be the key metric, which is national debt as a percentage of GDP. Again, for most of the period, Greece is healthy:

    http://snipurl.com/29o56am

    Some might think that the hitting the 100% mark is bad news, which Greece does in the early to mid-1990s. That’s not necessarily true. First, look at this map of countries shaded on the basis of the ratio of government debt to GDP:

    The countries shaded dark red include not only the country under discussion (Greece) but also (among others) the U.S., Ireland, Iceland, the Sudan, and Japan. There isn’t a lot of uniformity in the health of these economies comparatively speaking: Sudan is incredibly poor and underdeveloped, with a very low GDP and very high national debt. Clearly, the economy of the U.S. (and Ireland, and Iceland, and Japan) is far more healthy, but it’s also shaded red. So what does this widely cited metric really tell us about the precariousness of any country’s situation?

    Not much, it turns out. Indeed, what makes far more of a difference is the percentage of GDP taken up by service on a national debt (i.e., how much the regular interest payments take up of a national economy). In the U.S., it’s still pretty low (in the teens); for a comparison historically, on the eve of the French Revolution, France’s service on its national debt was 50%, which was severely hurting the country.

    Service on the national debt will become onerous if a combination of factors occurs, specifically a drop in GDP and a rise in the interest on the debt. Take the case of the U.S. Here’s GDP over the last 10 years:

    http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries/US?display=graph

    A dip in 2008, as everywhere else, but relatively rapid recovery. Why? The stimulus, which kept GDP afloat, and frozen interest rates by the Fed since 2008.

    Here’s Greece’s GDP over the same 10-year period:

    http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries/GR?display=graph
    It goes down and continues to fall. Why didn’t Greece recover? Understanding why not has to do with understanding the Greek economy.

    Greece’s two largest industries are tourism and shipping. When a worldwide recession occurs, tourism drops. Also, when a worldwide recession occurs, countries export less, which means shipping drops. Greece’s industries were among the hardest hit. That’s hardly Greece’s fault.

    The rejoinder, I imagine, would be that Greece still bears the brunt of the blame for its situation since it still spent like a drunken sailor. I would argue that Greece was in a perfectly reasonable place to spend as it did before the financial crisis. Where the rubber meets the road is what it’s done since then, with its GDP having fallen as it has.

    Since the worldwide financial crisis, Greece has made its largest public expenditures (and thus run its largest budget deficits) in Q4 of 2009 and then since late 2013. The problem with assuming that these big expenditures were the result of Keynesianism (see below) is two-fold. First, the governments that engaged in this spending were either center-right governments (pre-October 2009 and post-June 2012 until last month) or national unity governments — not left-wing governments. Second, these big jumps in the deficit/increases in public spending weren’t Keynesian-style spending (infrastructure, job creation, etc.). Rather, these were periods of austerity, usually imposed by the EU, during which jobs were cut, as well as Greece’s April 2014 bond issue, which were Eurobonds and thus not strictly Greek sovereign debt. That means that Greece’s “failure” to cut spending isn’t really its fault either — at least not entirely.

    All this is not to say that Greece does not bear some responsibility. The government’s inability to stem tax evasion and black markets are also big problems, but they are simply not on the level of the problems created by the world financial crisis. If corruption ended overnight and tax evasion disappeared, Greece would still be in dire straits. And while it certainly, in hindsight, would have been smart of Greece to have borrowed less, there’s not really anywhere it can do about it now. The debt is there; the question is what to do with it.

    – Having lived above their means they refuse to lower their expectations of an economy that even before the EU was unsustainable. The EU is just a messenger carry news about the failure of the Greek economy.

    See above on this point.

    – The Greeks assumed they would be carried by the EU in spite of their own unsustainable economy, hence they joined the EU.

    And again.

    >- Ultimately they should simply default and get back to being an independent Greece, print their own money and live with the consequences. There could be no blaming the messenger.

    Well, on this point, perhaps, we agree. Clearly, being a member of the EU is doing Greece no favors, or vice versa.

    >- The EU is unsustainable.

    Depends on how one defines the term, I think.

    >As if we need more warnings, this is a classic example of the destructive nature of Keynesian economics.

    Except that’s not what did it to Greece, now, is it?
    Strictly speaking, Keynesian economics is short-term government deficit spending in times of economic recession. Thus, the term doesn’t apply to Greece at all. First, before the crisis, it spent on deficits, but it wasn’t in recession for most of that time, and the spending was long-term. Second, since the crisis, Greece has not engaged in either monetary policy or fiscal policy consistent with Keynesian principles. When it HAS engaged in Keynesian-style monetary policy, it has done so as part of the Eurozone and with the imprimatur of the EU.

    Regarding fiscal policy, Keynesian economics would dictate short-term CUTTING of taxes (to stimulate aggregate demand by leaving more money in the pockets of consumers) — Greece has raised taxes since the crisis, by as much as 9% in the early years of the crisis. Nor has Greece engaged in public spending to stimulate growth; its deficits and increases in public spending have been both erratic, and when they have occurred, they’ve had other reasons than government fiscal policy (see above).

    • Replies: @Threecranes
  6. @Paul

    ‘Money’ is not ‘wealth.’

  7. “I’ll gladly repay you Tuesday, for a hamburger today”. Tuesday is never that far away and he seemed like a nice enough … The whole EU economy in a bun!

    Nassim Taleb[NNT] said this of economics: “You can disguise
    [its] charlatanism under the weight of equations, and nobody can
    catch you since there is no such thing as a controlled experiment.”

  8. peterike says:

    Greece needs to get rid of its immigrants. All of them.

  9. SFG says:

    Just kick ’em out and let them print their own money. Having one bunch of people set policy for all of Europe was an awful idea, especially the Germans–too many people still remember 1945.

  10. @Andrew E. Mathis

    There you go muddying the water with cogent arguments and facts. You take all the fun out of kicking a man while he’s down.

  11. J Yan says:

    “German voters see write-downs and write-offs as theft of their taxes”

    Indeed, but the banksters are the thieves, not the Greek people.

  12. Adar. says:

    These comments from the diary of Count Ciano are real or is Cockburn making this all up?

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