Friday 17 July 2015

The Economic Consequences Of Angela Merkel.

Dragons' Teeth: The German Chancellor, Angela Merkel's, torture of Greece marks the end of the European project. Europe's acquiescence at Versailles in 1919 meant that, within 20 years, Europe was, once again, at war with itself. The EU's refusal to stand in solidarity with the Greeks against German aggression (deploying banks this time, not tanks) has set the continent on the path to ever-increasing conflict and economic sclerosis.

Once all the Germans were warlike and mean
But that couldn’t happen again.
We taught them a lesson in 1918
And they’ve hardly bothered us since then!
YANIS VAROUFAKIS openly compares the Eurozone’s diktat to Greece with the Treaty of Versailles. The former finance minister’s comparison is well made. The Carthaginian peace imposed upon the German people in 1919 was not only intended to devastate their economy it was supposed to crush their spirit.
As punishment for launching the most catastrophic military conflict in human history, the Germans were to be kept in a state of economic servitude for decades to come. Nor was the victorious allies claim that Germany was solely responsible for the outbreak of the First World War a matter of mere rhetoric. The British naval blockade of Germany, which was gradually starving the defeated nation to death, would not be lifted until Germany’s “negotiators” (not that these were, in any genuine sense, negotiations) accepted the Treaty’s “War Guilt Clause”.
As the brutally punitive intentions of the Versailles diktat gradually emerged, three members of the Imperial British delegation, Harold Nicolson, Jan Smuts and John Maynard Keynes were filled with a terrible sense of foreboding. All three were convinced that nothing good could come from such an inhuman document. Each understood, with a chilling certainty, that the victorious allies were sowing dragons' teeth.
John Maynard Keynes: A terrible sense of foreboding.
The young economist, Keynes, quit the negotiations and returned to England where he spent the summer months of 1919 writing The Economic Consequences of the Peace. In his book (which instantly became an international best-seller) Keynes argued that the massive reparations demanded of Germany, combined with the Americans’ insistence that all Allied war debts be repaid, could only result in a fundamental derangement of the global economy. Throw in the German people’s Versailles-inspired sense of grievance and disaster was guaranteed. With uncanny accuracy, he predicted that Europe would be at war with itself, again, in just 20 years.
Flogging A Dead Horse: The imposition, by the victorious allies of World War I, of impossibly harsh economic conditions on the German people, constituted the first step on the road to World War II.
Of course, Greece is not Germany. Her people are not about to pull on jackboots and stomp all over the peace of Europe. But Germany is Germany and it is nothing short of tragic that the nation that went through the experience of Versailles – and all that followed from it – has so easily forgotten how it feels to be ganged-up on by a Europe determined to drive your country to the wall economically and strip it of what little self-respect it has managed to retain.
This failure of memory is particularly worrying in the light of what happened in 1953. That was the year in which Germany’s European neighbours, including Greece, wrote off up to 50 percent of her still outstanding Versailles debts. Yes, it was the Cold War. Yes, Germany was divided and it was important to give those Germans living in the West a sense of hope and confidence in the future. Even so, barely 14 years had passed since, as Mick Jagger put it: “the blitzkrieg raged/and the bodies stank”. Europe had considerably more to forgive Germany for in 1953 than it has to forgive Greece for in 2015.
Germany's Angela Merkel and Wolfgang Schauble: Executioners of the European dream.
The spectacle of Germany’s Chancellor, Angela Merkel, and her flinty-faced Finance Minister, Dr Wolfgang Schauble, squeezing the last drops of blood from the broken stones of Greece has sent a collective shudder through the rest of Europe. It’s a reaction with which Dr Schauble will be well pleased. It has long been the German Finance Minister’s plan to render Germany’s economic hegemony over Europe permanent by turning the continent into a “glorified debtors’ prison”. Greece is to serve as an example of what will befall any Eurozone member foolhardy enough to challenge the one-way flow of wealth to Europe’s biggest banker.
Frau Merkel is convinced that by allowing Greece to remain in the Eurozone she has demonstrated her bona fides as a “Good European”. It is, after all, vital that all Europeans understand that debts must be repaid, and that only orthodox economic policies should be pursued. If that requires German technocrats to second-guess the decisions of elected Greek politicians, then so be it. The Greek people need to understand that democracy has its limits; that saying “No” has a price.
The economic consequences of Angela Merkel, like the economic consequences of Versailles, will be a Europe at war with itself – within 20 years.
This essay was originally published in The Waikato Times, The Taranaki Daily News, The Timaru Herald, The Otago Daily Times and The Greymouth Star of Friday, 17 July 2015.


newsworthy said...

I wonder if you know what you are talking about. Since 2010 Greece has had financial aid (including the latest aid on offer) of over 300 billion Euro. Think what could have been done with that if it had been spent wisely elsewhere. This is a much larger sum of money than the international financial world offered Asia when it had its melt-down. And its clear that Europe do not expect to see much of this money coming back either. But to suggest that Germany has destroyed Greece when its so obvious that Greece has done itself in - you are a joke.

Chris Trotter said...

Two-thirds of the money bailed out to Greece has gone straight back to the banks who so recklessly agreed to the loans in the first instance. I'm afraid the real joke here, Newsworthy, is your own, inadequate, grasp of the issue under discussion. Go away and do some reading. (Not that reading ever seems to do you neoliberal trolls the slightest bit of good!)

Nick J said...

To quote a German (Goethe) "He who cannot draw on three thousand years is living from hand to mouth". I have been amazed by the commentary on the Greek crisis from all quarters, blogs, conversations, media etc. The vast majority live in a truncated version of Keynes "short run", and include little "long run" in their analysis. As you Chris have pointed out there are comparatively recent examples from German history that parallel Merkel's actions.

The stance of Merkel versus Tsipras is redolent of Hitler versus Benes. Whatever Benes conceded was never enough, first the Sudeten then the whole of Czechoslovakia. Whatever Greece gives will never suffice the appetite of German bankers. I cant help thinking of A J P Taylor's contention that the standard modus operandi for Germany was to look as barbarians with envy at the Wests civilization whilst following a policy of expansion and extermination to the East. Admittedly he wrote this whilst the blitzkrieg raged, but the historic record tends to back him up. One can only conclude that the EEC, the organization that was set up primarily to ensure that Germany was integrated into a peaceful Europe has failed to counterbalance German economic / political power.

What I find most disturbing is that Fritz Average and Stavros Average might easily understand the issues on a human level far more than their "masters" and make the necessary arrangements to help one another. I suspect that Germany's "masters" are as divorced from the people they ostensibly represent as they are to reality. The only solution is for the common people of Europe to as Marx would say "throw off their chains" and reform the whole rotten edifice.

Anonymous said...

So Chris you are totally happy that Greece has always spent its money wisely. Are you supporting hair dressers rights to get the pension at the age of 50? Are you condemning creditors for lending money to greece so they could blow quite a few billion hosting the Olympics? are you saying that the Greeks were responsible in borrowing billions to do that ?

Martin English said...

About half the total amount of German debt discussed at the 1953 London conference came from before World War II. Some of it had arisen from the reparations debt of Versailles. But you appear to argue that the 1953 London Agreement was wrong to forgive debts that were hang overs from the Versailles Treaty (that you appear to argues was also wrong) ?

More seriously, Germany needed to restore the infrastructure and housing wiped out by the war. In some German cities, there are no pre-war buildings left. In others, the only pre-war building are those restored in the last 70 years. Furthermore, there were political realities; after Germany was split in two by the World War II allies, 10 million refugees from the Soviet-controlled eastern part of the country (by comparison, modern Greece has a population of less than 12 million) flooded the west. In the eyes of the participants at the 1953 conference, letting West Germany descend into chaos would have been tantamount to letting it become another soviet satellite (I know, in simplistic terms, Vietnam disproved the domino theory, but I can appreciate how people thought without agreeing with them).

The circumstances taht Greece finds herself in are very different. After the restoration of democracy in 1974 after seven (?) years of military rule, the Greek government (spurred on by the Greek people) went on a massive spending spree - some good, like universally accessible health care, some very much over the top, like the massive pensions, and the railroad that had more employees than customers - as well as on a big government in general. Perhaps it was endemic; for example, Orthodox priests have received government salaries since before the the military coup. For years, the Greek government ran unsustainable fiscal deficits, borrowed to cover them and then lied about them so it could join the euro in 2001. Then kept on running those deficits, and kept on lying. By comparison, the West German government kept their promises; to run trade surpluses, to maintain sensible welfare programs, to spend wisely.

There is a difference between, on the one hand, voluntarily taking on debts made by previous, rogue governments, and on the other hand, heedlessly accumulating debts of one's own while concealing the true size of budget deficits.


greywarbler said...

I noted a while ago that Angela Merkel had what I thought was a similar background to that which produced Margaret Thatcher.

There is some interesting discussion by people versed in European politics in comments on Yanis Varoufakis blog.

Davo Stevens said...

@ Newsworthy: I will try to explain how the system works in very simple terms that even a child would understand.

There are three parts to the Troika namely; IMF. ECB and the Banks. The IMF writes out a cheque and sends it to the ECB. The ECB disburses it to the Banks. Very little of it goes through Greece.

No Bank has billions of Euros, Dollars, or Pesos in their vault. The lending funds are simply created by the Banks on their computers, just numbers. The Banks work on the principle that not everyone will call in their funds at once so they get away with it. The Banks charge interest so that they make money out of the deal and the borrower pays that interest in installments over time. As that money comes back from the borrower it is written off. If it isn't, it creates hyperinflation.

Now if a borrower defaults on the payment all the banks lose is the interest component NOT THE PRINCIPLE! The principle never existed in the first place. So it's debatable if the Banks really lose out at all.

So, now go and learn just how our modern banking works and why, if it is not controlled properly, we are in for a crash that make this one look like a teddy-bear's picnic!

Guerilla Surgeon said...

I think we need to go back a little further, and perhaps spread the blame more widely. These two articles may help.

greywarbler said...

In an English version of a German paper called The Local Yanis Varoufakis
is definite that German Finance Minister planned Greece's hard landing.

In the Varoufakis blog comments, the role of the USA interest in the EU is discussed. This Jacobin publication gives the USA Left take on it all so it would be good to look at it in the context of the European comments.
Jacobin is a leading voice of the American left, offering socialist perspectives on politics, economics, and culture.

The Global Minotaur book written by Varoufakis summarised here.

Anonymous said...

Davo Stevens, I am not to sure what your expertise is but I guarantee its not in banking or economics. I have been hearing about the collapse of banks and about the end is nigh for capitalism since I attended socialist meetings in England 1960-80s. It will not happen, capitalism will keep re-inventing itself, as it did in the world wide market crash about 2006. Germany in the 1930s is a whole country and time difference than Greece in 2015.

Davo Stevens said...

@ Anon 16.23: Where did I say that the banks are going to collapse? What I did say was that if the people called in their money then that is what would happen, Banks work on bluff.

The"Money" that they lend doesn't exist, it's simply an entry on a computer. That only works if the returns coming back in from the borrower are written off. At the end of the deal when all is paid up, the loan ceases to exist completely and the Bank has got rich off the interest.

Taking into account, all the actual cash money of all denominations equals less than 3% of the "Money" flowing throughout the the economies. The rest is just fog and smoke with a couple of small mirrors.

This last crash was caused by aggressive bankers pushing loans onto people who obviously could not afford to pay it back. The result was people defaulting, not just a few but a real domino effect that almost crashed the whole shebang! The only way it was stopped was by the US Admin. printing zillions of dollars and handing it to the Banks to keep them afloat. They could do this because the US$ is the exchange currency throughout the world. Zimbabwe did it and it resulted in hyperinflation where one needed 10 million Zimbux to buy a loaf of bread.

Rather than I repeating it all, I suggest that you do an online search for Prof. Steve Keen and listen to what he has to say. It is enlightening!

thesorrow&thepity said...

You should read Philip Stephen's article on the online Financial Times. He points out that reforms have always been needed for the Greek economy but that at present this deal is all stick & no carrot. The domestic politics of both Germany & Greece have for the last 5 years helped to ensure this saga has been dragged out with nothing positive achieved, & at the end of the day Greece still might leave the Euro, the Greek people do not deserve what has happened to them. As much as I like the German people I've often found that when they find that plan A was a round peg with a square hole that they'd rather get out a giant hammer to force plan A to work rather than switch to a plan B peg.
So at present Greece feels humiliated, Germany feels frustrated, Greek politicians will do the bare minimum for reform, German politicians will be too concerned with their domestic audience to actually do what needs to be done (debt relief), a lot of finger pointing & a complete lack of willingness on the part of politicians to fall on their swords & do the right thing.

Anonymous said...

By comparison, the West German government kept their promises; to run trade surpluses, to maintain sensible welfare programs, to spend wisely.

Greece's debt/GDP ratio in 2007 was 106% - high, but less than Italy's 107%, and not spectacular by historical standards. Its debt ratio has exploded since then... because its GDP has collapsed under austerity policies.

Germany's debt/GDP ratio at the same time was 68% - higher than Ireland (25%) or Spain (40%).

This isn't about "big spending governments" (yes, this will disappoint those right-wingers who think this is somehow about socialism). It's about a balance of payments crisis. Greece, Spain, and Italy experienced higher inflation pre-crisis than Germany, which kept its wages artificially low: those countries are now trying to regain competitiveness via internal devaluation. The resulting deflation and destruction of GDP has resulted in making the situation worse.

Pasquino said...

The Lord's Prayer to Mammon

Our Dollar which art in (a tax-free) haven, hallowed be thy Rate of Return.
Thy Appreciation come, until we have done in all the earth, as we did in heaven.
Give us this day our best daily spread.
And forgive us our debts, but not those of our debtors, that we may eliminate them in crushing takeovers. Give us also our gross profits from armaments sales made to both sides in all conflicts, and to terrorists via back-doors deals; irrespective of race, creed or religion; in order to keep war going forever and ever.

And lead us not into liquidation, but deliver us from trouble, especially from all Greek defaulters and people who think philosophically and morally about the implications of their, or worse, our actions; and keep them away from our money-changing tables, futures and derivatives markets, and rigged loss-avoiding computers.

For thine is the Dollardom, and the Dollar-Power, and the Dollar-Glory, built on every cent of Greed and Double-dealing since Adam; for ever and ever. Amen.

peterlepaysan said...

Germany has ensured the demise of the EU.
Geopolitics (as with our own TPP) come into play.
Russia adores warm water ports, hence Crimea incursions and support for Syria.
Greece is a very ripe plum.

Perfidious Albion will find a script out of this mess to invent an exit excuse.
The Irish do not feel kindly about the EU.

Spain and Portugal would welcome a way out.

France is doubtful about outcomes of this victory for Merkel.

What tremaining EU members think is unclear
Even the IMF is doubtful about long term outcomes on purely ecomomic grounds.

The next 20 to 30 years are going to very rough for the EU.

It is Versaille writ in modern 21st script.

If enough of the disaffected members renege what could the remining members do?
Go to war? Nah.

The IMF have an interest as well.

As the Cinese say "may you live in interesting times".

greywarbler said...

Anonymous at 16.23 I suppose it is true that capitalism reinvents itself.
But in doing so people, their businesses and way of living get destroyed. It is a brutal approach and not one to be recommended. When businesses get demolished by the workings of capitalism they don't enjoy it. They even lack the momentary release that an insect might feel during mating before being gobbled by its female counterpart.

And business isn't natural - it's person-made. Time to get a better system of counting credits and debits I think. Instead of the complacent preachyness of the right wing about so-called profligate Greece (or NZ).

For preaching try the prayer at Pasquino 21.51. No-one can trump that.

Anonymous said...

This fixation on debit cancelation misses the the problem in Greece.

First, there has already been one round of debt cancellation. It did not help.

Even If all Greece's current debts were cancelled, they would immediately start taking up new ones because the only reforms to the client state economy in Greece over this entire sorry saga have come from troika mandated reforms.

Syriza fixate in debt cancellation because it is a simple solution that is being denied to them. Thus it feeds their nationalist betrayal narrative.

What Greece needs, what the americans are calling on Europe to deliver (through the IMF), is a growth strategy, and a complete rebuilding of the state in Greece, from tax (still by paper records, I understand) through pensions (early retirement as a state policy which syriza tried to defend), through to all aspects of the civil service and public finances.

Syriza promised to do this in January, and have abandoned all attempts since then to focus on debt cancellation to the exclusion of all other things.

There is no simple solution, but campaigning for the simplest will not help.

And as Greece's track record on delivering on promises is so appalling, it is hardly surprising that the EU is refusing to cancel debts before reforms are implemented, when cancelling debts last time resulted in reforms being delayed and put off.

Carrot and stick works when the donkey is willing to try. When it stops walking at the first bite of carrot, you have to hold the carrot further off.

Not to mention the effect on the other indebted euro nations who have delivered on promises.

Nor the fact t that Greece is still in the top half of wealthy nations in the EU, and is demanding money from the bottom half just as much as from Germany.

David said...

Israel doesnt seem to have learned anything from WW2 either

Davo Stevens said...

Gosh Anon 19.12 What planet are you on? According to you slapping more Austerity onto Greece is going to make things better! Selling off their assets at fire-salvage prices is going to get their economy growing again? Why is the IMF's own economists saying loudly that it won't work?

Yes, Greece has some real problems but what the troika is doing has more to do with politics rather than economics. Schauble is as near to a Nazi as there is today. He needs to be shunted off before some-one does it for him.

Talking to some Irish workers here in Chch and their families back home, the general consensus of opinion in Ireland is to stuff the Euro where the sun don't shine and go back to the Irish Quid. Portugal, Spain and Italy are thinking the same but more importantly so is France which is teetering on the edge. Schauble is sending a message to those coumtries.

The Euro as it is, is doomed. They can not have a single currency for 19 divers countries with their own languages and cultures and expect them to all work in unison, Ain't gunna happen!

Guerilla Surgeon said...
This comment has been removed by the author.
pat said...

not a bad assessment GS but would add one further item- the bulk of Greeces indebtedness problem stemmed for a trade imbalance within the EU (yes there was tax evasion and a slightly larger than average public service and their systems were weak but the debt accumulation had its basis in trade) and as you note without fiscal transfers or coordinated (EU wide) investment programmes the wealth (both human and monetary) will continue to flow to the stronger core of the EU. The Euro project must fail without those investments and transfers and it is only a question of how long the inevitable can be delayed and how much human misery is caused in the process.

Guerilla Surgeon said...

1.The bailout of Greece was actually a bailout of private banks. An under the counter sweetheart deal that stopped banks going broke. Unpopular banks I might add, because of their predatory behaviour. So the debt was moved from the private sector to the public sector, not an uncommon thing today, when risk is imposed on society as a whole but profits are privatised.
2.Most of the bailout money went to the banks rather than Greece, which got about 11%. The banks in theory accepted some of the risk of the loans, yet they have not suffered any of the consequences of the bad loan decisions.
3. Greece was promised extra help when they had fulfilled the various conditions, which they did – but the help was delayed, possibly deliberately.
4.A one size fits all austerity program was imposed on Greece, which had no chance of working. One can therefore assume that it's meant to be punitive rather than rehabilitative. Austerity has in fact shrunk the economies of just about every country that has tried it.
5. Capitalist speculators have made the whole situation worse than it should have been.
6. Structural readjustments are not going to make the Greek economy a great deal more competitive compared to the rest of the EU, because it simply doesn't make the same stuff as most of the EU. What's actually needed is investment and/or transfers. This isn't going to happen, as the EU has cut investment to the bone.
7. So even though the Greeks have pretty much complied with everything the EU wanted, and have been much more flexible than the EU and the troika have been, they're still fucked.

Anonymous said...

Interesting to see Paul krugman interviewed on CNN on 20 July.

"I may have overestimated the competence of the Greek government... To not have a plan B if the creditors didn't fold"

pat said...

Anon @21.17.....and that would appear to be a valid comment in light of events

Davo Stevens said...

The best option for Greece is to pull out of the Euro. Give the middle finger to the German Banks and sort out their own problems.

It would generate some serious turmoil for a year or so but they would come out of it in a much better state than they are now. It wouldn't too big of a problem for Greece as Athens currently prints the Euro notes and could change over to widgets very quickly. Coins would take a little longer as they are currently minted in Finland. They still could use the Euro coins in the meantime.

Davo Stevens said...

And two linx that are worth a thorough perusal:

pat said...

when politics trumps economics (and common sense/decency)