FALSITY MOST FOUL: Why Jean Claude Juncker is precisely, and inexcusably, wrong regarding the Greek crisis and its causes

Jean Claude Juncker has, in the past, taken courageous positions that exuded far-sightedness.[1] However, his latest intervention regarding the Greek debt crisis reveals a serious inability to grasp the euro crisis in its entirety.

On 3rd July he told Focus Magazin that “[t]he sovereignty of Greece will be massively limited”, referring of course to the loss of control by Athens over its own affairs, primarily the privatisation process recently agreed to by Greece’s Parliament. While the Greek press made a great deal of this statement, no one can fault it in terms of its descriptive accuracy: Once the Greek government agreed to the logic of a massive new bailout on condition of unprecedented asset sales, cuts and tax hikes, it forfeited the last remnants of authority over its own policies. Greeks may lament this loss but no one can fault Mr Juncker for calling a spade a spade.

Had Mr Juncker stopped there, his interview would have been unremarkable. But he did not. He went on to make a recommendation of how Greece’s affairs ought to be run by the EU and, to boot, he continued with a diagnosis of the Greek calamity’s causes. I take these two points one at a time:

1. The Treuhandel Plan

Reflecting a widespread scepticism about the success of Greece’s privatisation program, Mr Juncker reportedly said: “For the upcoming wave of privatisation [the Greeks] need a solution modelled on the German Treuhandel.” The latter was a West German agency that was set up in order to privatise about 14,000 East German companies.

The first point to raise here is that one would have expected Luxemburg’s Prime Minister to press into service a successful parallel. Alas, the Treuhandel experience was one that can only be described as an unmitigated disaster.  Its remit was to smoothen the transition from public to private ownership with minimal job losses and at a reasonable cost both to taxpayers and to the formerly East German society. By these criteria, the Treuhandel experience failed hands down. It produced mass unemployment, led to the demise of potentially profitable firms, turned much of Eastern Germany into wastelands and, as  if that were not enough, the organisation went broke itself!

Of course, many Germans saw the Treuhandel experiment not as an exercise in transition under minimal economic and social costs but, rather, as a short sharp shock by which to destroy all remnants of East Germany’s industrial past and to start afresh. Either way, Mr Juncker’s use of the Treuhandel parallel seems inappropriate and deeply worrying. If he meant it as a  successful example of fast, large scale privatisation, one wonders how he would define a failed one – and what gargantuan price he expects Greek society to pay for the loans that it is currently receiving. On the other hand, if he thinks that the point is not to create a vivified Greek private sector out of the  remnants of Greece’s public assets, but instead to create a Hellenic wasteland as punishment for past profligacy, he errs in a most foul manner: For even if there is no moral issue with turning Greece into scorched  earth, such a ‘policy’ will turn back and bite savagely the Northern European hand that let it out of the bag. A scorched Greece, unlike Eastern Germany, will not receive the fiscal transfers of Eastern Germany after its very own Treuhandel. Interwoven as it is to the rest of the periphery and (through its banking sector) to the French banks, this means that the debt-banking crisis will get progressively worse and, therefore, at some point Germany will leave the euro. Mr Juncker, not being a politician who relishes the end of the euro, will then regret dearly his careless account of the Greek crisis.

2. Mis-diagnosing the Greek debt crisis

“[The Greek crisis was] largely self-made​​. Between 1999 and 2010, wages rose by 106.6 percent, even though the economy did not grow in equal measure. The wage policy went completely out of control, while productivity was not taken into consideration,” said Mr Juncker.

This is a typical case of mistaking a correlation for a causal relation. Yes, it is true that the extremely low average Greek wages of 1999 rose in nominal terms in the euro-decade that followed, leading to the debt crisis in 2010. But to argue that the rise in wages caused the debt crisis is akin to arguing that the frenzy of bird activity  prior to the sunrise causes the sunrise.

Looking at wages in Greece over that decade, the cool-headed observer observes two interesting phenomena: First, incomes from dividends and property rents rose four times as fast as wage incomes (in nominal terms). Secondly, inflation in Greece was always significantly higher than Germany’s, France’s  etc. Moreover, while the well to do Greeks faced negative inflation (as interest rates, mortgage rates, luxury good prices etc.) fell furiously, the low and middle  wage income  earners faced inflation rates approximating 10%. All in all, this explosion in inequality was like a time bomb in the foundations of the Greek social economy. To catch up with the all pervasive consumerism, where mainly German products were tempting them to accept the credit cards thrown at them, low to middle wage earners succumbed. Thus, the ever increasing inter-European balance of trade imbalances, accompanied by the easy access of the Greek government to cheap finance, gave rise to a borrowing bubble that, nevertheless, failed to raise the majority of Greek wage earners beyond the level of near-poverty.

It is in this sense that Mr Juncker’s diagnosis is precisely wrong: If anything, the real cause of Greece’s current woes were the seriously low real wages of most Greeks, in conjunction with the inability of firms (both private and public) to invest in fixed capital goods. Moreover, the almost tactless point must be made that the sectors which were dominated by German owned companies (following a series of takeovers) were the ones in which productivity gains were the lowest of the low.


Mr Juncker also said, in the same interview, that Greeks should not be “insulted” so much as encouraged, supported and looked after. This statement manages to pack three impossible contradictions: Creating a Greek wasteland that will, in the absence of analogous fiscal transfers, make post-Treuhandel East Germany look like heaven on Earth, is hardly a form of support nor an example of parental care. Moreover, to suggest that Greeks must be encouraged down that road packs the connotation that Greeks are mindless enough to be persuaded to book their own fare to hell.

[1] See his joint letter to the FT with G. Tremonti, the Italian finance minister, in which they adopt policy recommendations not too dissimilar to our very own Modest Proposal


  • You are taking sectors of the Greek economy being controlled by German owned companies. Could you please elaborate about this? Are there really entire sectors of the Greek economy that are controlled (in the sense of anti-trust law) by German companies? And do you have figures showing the underperformance of these sectors? This would be a most interesting element. Thanks a lot!

    • As an example, take the electrical goods industry that is now dominated by Siemens. They turned into, effectively, into a form of warehousing that exhibits next to no productivity gains. Another example is the former state telecom monopoly OTE. Even since it was taken over by Deutsche Telecom, its productivity rises have been tiny.

    • Another good example would be the Scaramanga Shipyards which was taken over by the German ΤhyssenΚrupp/HDW with big plans to expand its activity and get new markets outside Greece. It ended up extorting the Greek state to buy the submarines even though they listed to one side or else they would close the shop and throw about 1000 employees to unemployment. Of course, as far as I know they didn’t get any new foreign markets either…

    • What i stopped enjoying is eating greek yoghurts.
      Because the “greek” yoghurts are mostly made by German milk.

      It makes sense.

      Greece never produced milk. Or olive oil. Or fruits. Right?


    • Maybe changing some labor laws and getting rid of unions would be a good start. On both topics investors are scared as heck when it comes to Europe. And Greeceis on the really scary within Europe what labor laws and unions are concerned.

      Deutsche Telekom was not really happy when they had to make good on the option they ahve written to buy another share of this Telco. They say it is impossible to kick people out.

  • Dear Friends,

    Well, talking of selfcontradictions, If you ‘ve got some time available take a look at this: http://www.imf.org/external/pubs/ft/wp/2011/wp11158.pdf and amuse yourselves to despair (drawn from Krugman: http://krugman.blogs.nytimes.com/2011/07/07/contraction-still-contractionary/). Is it my idea that It was never a mere case of political or economic irrationality that we’ re facing and that it’s becoming more and more difficult to conceal and disguise this wicked schizoid powergame that we ‘re all sinking into?

    • Not the Treuhand was the problem. It was the artifical (political) exchange rate of 1:1 to 1:3 whereas in the black market I got 1:15 or better.

      By suddenly making the East German companies pay salaries in DM they lost their markets in the former east block at once. Their salary cost had exploded 15 fold over night.

      On top of that the East German comanies were highly inefficient. We kicked out about 2/3 of the employees to get headcount to a appropriate level. Most likely the situation in Greece is not as bad, but from the loss in competiveness (ULC) to kick out 30% would be about a good start. If it is too much, they can always be hired back.

    • @Knut34
      Not the Treuhand was the problem. It was the artifical (political) exchange rate of 1:1 to 1:3 whereas in the black market I got 1:15 or better.

      How noble of you. I thought Germans were upstanding citizens and would never get involved in shady black market deals. Did you pay taxes? Of course, you did.

    • Estrangeiro: Voce tem pensamentos estranhos. There is no tax on exchanging money, yet.

      In case you did not know. There was no market exchange rate determined by a Forex exchange. It was set artificially.

      In case you want a ranking who is noble and who is not on a country basis, take the fraud statistics. I guess our friends in Finland will get away very good. I do not care about these statistics. I do business with people, not with countries.

  • While the report is very alarming and does indeed show an acute lack of understanding; the problem is still the lack of a competitive economy.

    The whole concept of competition is to create change, economically, by the majority having readily to hand, a financial mechanism to enable them to compete. Surely, the failure of the Greek economy has to stem from a lack of competitive pressure; built up from the creation of new private sector businesses; each providing better value economic solutions for those, particularly at the lower levels of the nation who must have a job that pays sufficient to enable them to live a full life?

    Please; correct me if I am wrong, but the facts seem to point towards the only group within the nation that had access to the funding to enable job creation were within the government; where the job creation was government inspired, and funded by either government taxation or borrowings. So you had a one sided economy where no one outside of that group could compete against those new jobs.

    In which case, the first thing to concentrate upon is the provision of a system that provides access to the necessary funding to create competition; against the existing source of jobs in the nation.

    Ergo; the problem is not the government; but the lack of competitive pressure from a vibrant private sector.

    • It is about time we start using systems of development without using as cornerstone term the notion of competitiveness.

      But this unfortunately can not be accepted globally. Maybe in a closed economy to start with.

      The term “Healthy Competition” does not always agree with human behaviour. The term by itself gives birth to behaviours that are usually destructive for someone in the most unethical way.

      If healthy competition could be sustainable ,then it would transform to cooperation and systems of win – win situations.

  • Yanis, a very timely intervention! For Juncker’s comments on Treuhand and the causes of the crisis suggested, despite his words to the contrary, that he actually endorses destroying Greece as an independent country. Instead, Greece would be turned into a waste land, serving as a frightening example of what will happen to euro countries that failed to walk the straight and the narrow.

    But I would like to add here few words on Greece, from the Finnish perspective.

    The recent parliamentary elections in Finland meant a huge landslide in favour of the “True Finns Party” (“Perussuomalaiset”). The official English translation of the Finnish name is the sort of description populist, nationalist and xenophobic parties tend to give to themselves. Indeed, that is precisely the case: the critiques of the party would call it a Base Finns Party, on account of its populist, nationalist and xenophobic character. The program and the policy is dictated by the supreme leader of the True Finns, Mr. Timo Soini. Soini has very cleverly injected left-wing critiques of global capitalism, the EU and the euro as well as a defense of the Nordic welfare state into a populist-nationalist-xenophobic overall framework that has attracted to his party also people from the extreme right.

    Anyway, and to cut a long story short, the popularity of the True Finns hovered around 6 per cent – until the global financial crisis gradually hit the eurozone. From February 2010 onwards the popularity if the True Finns began a steep, dramatic and seemingly unstoppable rise, reaching 19 per cent in the elections in April. Now it is around 23 per cent, making True Finns the most popular party if Finland.

    The party leader, Mr. Soini, has explained that there can be only one explanation for this extraordinary rise: it is the bailout of the ailing euro countries. Indeed, to keep that trump card to himself, Soini refused to participate in any government that did not reverse course on euro bailouts. Once this had happened, there was no other option, unless Finland wanted to follow Belgium’s path to permanent political interregnum, but to create a very broad coalition of parties (sort of rainbow coalition, called here as “sixpack”) ranging from the Conservatives (“National Coalition Party”), Christian Democrats and Swedish People’s Party from the centre and right to Greens and Social Democrats and Left Alliance to the left.

    The problem here is that such a broad coalition represents both a continuity from the previous centre-right government that had followed at the footsteps of IMF/EU/ECB troika, and a very broad diversity of sentiments and views on how to deal the euro crisis. While the message of the True Finns is simple, against bailouts, euro and ultimately EU, the policy of the new sixpack government if anything but unanimous and clear. In such situations, instincts of political survival tend to dominate, and this is no exception. Hence the insistence of the new Minister of Finance, Ms. Urpilainen (Social Democrats) that a precondition for any Finnish participation to the planned new loan package to Greece – or any other ailing eurocountry, for that matter – is that Finland must have collateral, shares in some holding company (Treuhand!) to whom some of Greek national assets must to transferred.

    The Finnish EU Commissioner of Economic and Financial Affairs, Mr. Olli Rehn, opposes this policy and has explained that IMF is categorically opposed to the Finnish demand for collateral. However, all that is really irrelevant for the new government. For reasons of political survival, it cannot give in here. No matter how myopic this collateral-for-loans policy is – and it is! – the new government, especially the Social Democratic Party, has no choice but to defend it to the bitter end. Otherwise the government will disintegrate and new elections will produce an even vaster victory for the True Finns. All this means that the Finnish demands can lead the europolicy into an even deeper crisis sooner than what people seem to understand. Not least because such parties as Left Alliance have previously voted against bailouts of Greece and Portugal, and they cannot be seen to cave in now: they need to be able to continue voting against eurobailouts in the government, while being loyal to the overall europolicy of the government. That is easier said than done!

    Juha Savolainen alias Lencyclopedie

    • Juha, your situation in Finland is not unique. If there would be elections in Austria or Germany you would get the same results. The Netherlands already has an anti EU party with Wilders. If he plays it smart he will win a lot of votes due to the the looming transfers.

      I hope Finland will block the lunatics in Brussles. If not Finnland, it will be Slovakia, Austria or the German Supreme Court in Fall.

    • @Knut34

      Are you in favor of the dissolution of the EU? I mean, the Union as a whole and not just the eurozone.

    • @Estrangeiro: No. I am in favor of a EU as it meant to be by its founders. Free trade, free movement of people, freedom of establishment, common minum standards regarding certain laws.

      What I oppose is the non democratic EU we have at the moment. The existance of the EU parliament is just window dressing the “politbureau” called European Comission.

  • Sorry. But you are way to nice in your judgement of Jean-Claude Juncker. His ignorance of how modern money and bond markets works is stunning. From the Wall Street Journal:

    ”The debt level of the USA is disastrous,” Mr. Juncker said. “The real problem is that no one can explain well why the euro zone is in the epicenter of a global financial challenge at a moment, at which the fundamental indicators of the euro zone are substantially better than those of the U.S. or Japanese economy.”

    To quote an Irish friend of mine: Jean-Claude Juncker is a f$¥£ing clueless idiot. He doesn’t understand the difference between an issuer of a currency and an user of a currency. Any bond trader can answer the question why “the euro zone is in the epicenter of a global financial challenge at a moment”. Europe would be better off by removing people with the surname “Jean-Claude” from public office.

  • “Maybe changing some labor laws and getting rid of unions would be a good start. ”

    yes, of course, transforming all of Europe into a authororian state dominated by Germany is what people like you would love to do, getting rid of all of this democratic stuff which impedes true ‘economic advance’ in favour of a particular herrenrasse. The true of German society, as Arno Gruen told, is that it only disguised its deep authoritarian core which lead to the political-ideological empowerment of the nazi party by putting on a formal democratic enveloppe

    • When did Greece last contribute anything to Europe? Do you really believe that the contribution thousands of years ago is sufficient to live from the fruits other produce forever?

    • Knut34:

      I would be more than happy to kick Germany unceremoniously out of the euro, but I just found out that some Japanese girls humiliated you in a far more profound way.

      So, I will suspend my offer for the time being but do look me up to perform it any time you and fellow Germans feel like another humiliation is in order.

    • @Knut34

      You are joking ,right?

      Not only to Europe but to the whole world.

      Not mentioning the stupid deals for exporting everything Greece produces ,from which other European countries buy ridiculously cheap and sell double and tripple the price ,while Greece imports expensively the same products she exports and sells them not as cheap.

      The crisis didn’t start now for the Greek people. The situations now are just a wake up call and i hope it will prove to be a loud one. Still they offer again and again.

      Not to forget the continuous contributions of the intellectual world.
      We never stopped offering even when we were under the Ottomans.

      Today our brightest minds are everywhere in the world ,because the state does not give opportunities. You just don’t hear about it enough.
      Too much propaganda against ‘Ellas. Fake history books etc.

      Do you know that in many third world countries the ‘Ellenic flag waves in more places than of other countries more wealthy and with more power to help those in need?

      Let me put it this way.

      We were ,are and always will be the psychic filter and support system of this world whatever happens. As arrogant as it sounds ,this is what is ,you like it or not ,you want it or not.

      Commit genocide against the ‘Ellenes and the whole world will collapse. Not that commiting genocide is possible because we are everywhere. Hey ,you might be ‘Ellene and not even know it.


      Oh and something last. Even if we didn’t contribute any more ,the base of almost every evolutionary system is ‘Ellenic. Therefore yes is sufficient to live forever from the fruits other produce ,if we unethically demand payment for their use ,as it is a common practice today.

      As ‘Ellene i never want to ask such a thing.

      Freedom to all.

    • @ Dean: Do not worry. To write invoices or getting paid in this second class EURO currency is humiliating enough. On top of it comes the hassle with that comes with exchanging the portion that is needed for saving into something stable like CHF, NOK, stock, gold etc..

      I will throw a big party the day we get rid of it. Until then I have bought a backpack to be able to replace my wallett when inflation hits!



    • Dear Knut34,

      Please, just open up your German dictionary and look up the Greek word hybris. You will need it soon.

  • Economists’ Cold Shower: Presume the failure of the world economy is too many rich parasites paralyzing money flow and efficiency.

    Work backwards from the above conclusion. Weed out inconsistencies.

    Write a paper, which will be ignored. Parasite have no ears.

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