Pointless fury: Why both German and Greek politicians are wrong to be angry

So, some German politicians put on paper that which they have been thinking of a while:  Greece has become an unbearable burden and, if they are to resign themselves to continue putting their money in that particular black hole, they might as well have a say in the way it is managed on the ground. Predictably, the leaking of this document gave Greek politicians, and the hapless Finance Minister in particular, a great opportunity to flex muscles, to recite their fury regarding Germany’s trampling on Greece’s national sovereignty, etc.

Poppycock, I say! On both sides.  On the Greek side, what on earth did we expect? Once a country accepts the logic of massive loans on condition of austerity that deepen the country’s insolvency, thus demanding more loans, the moment will come when the international lenders will insist upon direct executive powers. In corporate language, this is known as receivership. Greek politicians that put their signatures on the dotted line of the various ‘bailout’ agreements are stretching credulity when protesting the loss of national sovereignty. The horses bolted months ago.

As for the German politicians, I am afraid that the judgment of history will not be kinder. They willfully piled gigantic new loans on an insolvent nation, on condition of austerity that shrinks the national income from which these loans (plus the preexisting ones) would have to be paid. And then, when Greece’s social economy shrivelled and died, they became incensed that the ‘reforms’ did not work, that the tax revenues shrank, that there are no buyers for the Greek state’s assets. My message to them is: you imposed an erroneous policy on Greece, and the rest of Europe’s periphery, and now you must bear the consequences.

For months now, through the pages of this blog (and elsewhere), I have been arguing that the tragedy of the Greek ‘bailouts’, indeed of the overall strategy for dealing with the euro crisis, has been a comedy of errors. Is it not time that our politicians (Greek and German) owned up to their serial idiocy? Has the time not come to stop the blaming game and the posturing?

On a final note, I have a message for Germany’s politicians: As a private Greek citizen, I understand your fatigue with all things Greek. But if you are so sure that your blueprint for stabilising Greece is so good (and that the problem is its implementation by the Greek authorities), I would welcome you to come to Athens to take over its implementation. But on one condition:

If you succeed in making austerity work in the middle of a debt-deflationary cycle, I am happy for you to name your price. E.g. if within a year or so Greek GDP starts growing again and unemployment diminishes to below 10%, you can have our electricity grid (that Siemens has always coveted), our water companies, any assets that you name in advance. But, if you fail, then you must pay a price: e.g. pay in full Greece’s outstanding loans to the troika.

So, how about it? Are you game?


    • Mr Varoufakis since nobody is going to meet your challenge and europe is stagnant in any kind of measures toward eurobonds (which i know is your short term solution to the problem) would you advice a straight default and define-predict the next day in case it happens let’s say from a new real left wing coalition ?

    • I have been advocating a straight default, within the eurozone, since January 2010. Do I anticipate a left wing coalition that effects it? In my dreams I do!

  • Yannis, ever the optimist!

    Greece is not just insolvent, it is a failed state so really we are a long way away before assets optain >0 valuations. Until that happens, nobody will take up your bet I’m afraid.

    As for the suggestion of foreign control of the Greek economy, it is totally ludicrous, but in a sense also deeply optimistic. Because it is underpinned by the illusory assumption that this control has some value for the one who has it. Well it doesn’t at the moment. There is nothing in Greece worth controlling that the lenders do not control already.

  • Yanis,
    You always have the best solutions! It’s a pity that the best solutions are never implemented!

  • As a German citizen I say: The blueprint for stabilising Greece sucks. It sucks for Greeks and for me. Let the people decide what they want. The Greeks can decide if they want to stay in the economic prison called the Euro. The Germans can decide if they want to indebt themselves and their children by “rescuing” other nations and banks.

    A note on “national sovereignty”: Does any EU memeber country really believe in national sovereignty? If yes they would need to reduce the EU to what it was inteded to be: A free trade zone with free movement of people & capital. Not a supra national super state.

    • @Bavarian Trader: I fully agree.

      One point. The Euro is a prison (with benefits) for both surplus (Germany, Holland etc) and peripheral deficit countries (PIGS)

      Since the crisis started nobody has asked the citizens of Europe the true question: “Do you want the Euro? Because if you do, there is a price to pay”.

      The price for the deficit nations (Greece first of all, but also Spain, Portugal, Italy) is to clean up their act, respect the rules of prudent fiscal management and act a bit more, well, the epithet “German” comes to mind, but for political correctness, let’s say “Northern European”.

      The price for citizens of the surplus nations is recycling some of their surpluses to the deficit nations where they generated them in the first place. How you recycle is another thing. It can be via investment or via redistribution (as is done now with all the bailouts).

      On National Sovereignty: Does it exist anymore? In an increasingly globalized world so few of the public goods we expect from our governments are within their power to deliver. Increasingly only through international cooperation can governments offer their people, security, stability, jobs, environmental protection…

      Really good article by Martin Wolf on the FT about this: http://www.ft.com/intl/cms/s/0/517e31c8-45bd-11e1-93f1-00144feabdc0.html#axzz1kw6AW4jH

      Outside of the need to defend yourself against aggression, Sovereignty is meaningless these days.

      A small thought as an aside: if the EU had a common defense policy and guaranteed the protection of its borders, Greece could slash defense spending to the EU average, thus eliminating the deficit…

    • The Germans can decide if they want to indebt themselves and their children by “rescuing” their and other banks.

      fixed it for u

      sorry to break it to u, but we r all collectively being scummed by the banks.

  • Hear! Hear!

    With a tiny, itsy, bitsy addition.

    Not only Germany to pay the troika loans, in case it assuredly loses the bet (which is a forgone conclusion) but to also promptly repay Greece more than 1 Trillion euros in long overdue war reparations.

    • Excellent idea! But imagine the joy of our politicians! A cash drawer filled with money in their hands! It would be the only reason for Greek people not to ask for these money…

    • O.k. Maria. In such case we will ask that you do your patriotic duty and keep this money safe for us towards some future use (preferably when the Greek Prime Minister’s name is Maria, as an example). 🙂

  • This would be a very interesting bet if we had the slightest indication that Germany is interested in anything other than the use of Greece as a scarecrow against other heavily indebted and deficit countries, the plundering of public property and the chinification of southern Europe. Alas…

  • As the character animated by Sacha Baron Cohen said in Madagascar 2: “I don’t know why the sacrifice didn’t work. The science seemed so solid.”

    • Gus:

      Yves Smith is the pseudonym of a bright Harvard gal that has been blogging for ages.

      However, the issue here is much simpler.

      Unless Merkel secures a quick deal before Sarkozy loses decisivily in April, then the German plan is worthless.

      So, expect Germany to use every trick in the book to increase its terrorist tactics.

      Also expect, that we Greeks are not dummies and we know how to play Game Theory with multiple players.

      One thing is for certain: Merkel is going down in flames; she has already lost but does not know it yet.

    • Gus,
      Auerback may be right – or not. Personally I think Papademos intends to cede Greece’s fiscal control to the troika. This is running a flag up the pole to see how stormy the winds. If rioting doesn’t ensue, eventually Papademos will “reluctantly” give in to German demands. The Germans will throw him some scrap of a bone for cover, but Greece is “just right” for starting the neo-liberals complete takedown of EU labor.

    • Also expect, that we Greeks are not dummies and we know how to play Game Theory with multiple players..

      Hmmm . . . I dunno ’bout that, Dean. In the 2010 OECD rankings for mathematical literacy (for senior high-school students), Greece ranks near the bottom, squeaking past both mighty Mexico and Turkey!

      Are you sure you did not mean to write “backgammon” instead of “game theory,” eh?

      One more question, Dean: Why are you stuck on silly?

  • Hello Yannis,
    your proposal is a fair and intriguing bet, but our politicians are such bad gumblers because they are so afraid to take any risk.

  • Excellent! In fact I have often thought, when all the fuss and heat is on our own little lot of spineless politicians to put their signatures to a document committing themselves to carry out terms of contract despite what any elections might turn up, why does not the Greek government ask for an equally legitimate signature from the lenders that if, after we have indeed carried out the terms of the contract, things have not improved the way the lenders predicted then they will pay for the consequences in full? It’s high time indeed that someone shouted out that the king is naked! And Yani, with respect to this article, all I can say is the Greek and Jewish saying of “From your mouth to God’s ears”!

  • Well, to be fair, the implementation was not so great either, was it? As a matter of fact, I’m firmly convinced that most of the “austerity measures imposed by the Germans” were not imposed by the Germans at all. All the tax bombing smells of Greek politician spirit. A spirit that simply refused to touch all the rot in the system i.e. useless or grossly overpaid public sector employees, corrupt private and public sector heads and officials, inefficiency all around the place including inability to collect revenue due.
    Be that as it may, at this point, today, it should be obvious that further austerity will simply not do.

  • Dear Yanis, we are all angry. Me as a German citizen, am very angry about the history ignorant paper from the ministry of finance.

    But when trying to put aside the anger, I must ask my self, if it really was an accident, that this paper made it to the press… You know better than me, that there is some kind of – mostly childish – strategy behind these actions. What could they want achieve?

    Just frighten people? Make them used to what is going to come in the future? What do you think?

    • hey yo i got a problem with those idiots back home. they r ready to jump me anytime now. how about u saying some bs to which i ll revolt and show some bravado. then supposedly u ll fold and we r all pretty and jolly…

  • For both Greek and German politicians, it is exactly the same case as with the CEOs and other high executives of failing banks and companies. They are not held responsible. If they fail, they will take their huge amounts of money, insurances and retirement bonuses and say “sorry and goodby”. If they succeed… oh well they wont, at least with a measurement of success perceived by normal everyday people.

  • The post-war era is nothing else but a miracle: hate, murder and dead followed by freedom, respect, prosperity and responsibility. Today the hole architecture of this era built up in decades is at stake – if not already teared down. We, Germans, (I don`t like collective attributions – but in this special case it seems to me unavoidable) were at most the benefiters of this historical incomparable grace: unfortunately totally forgotten in the german collective memory.

    Today it`s that shameful for what intellectual inconsistent and also inhuman reasons this regime of irresponsible austerity is imposed on Greece and the hole Euro-Zone.

  • “They willfully piled gigantic new loans on an insolvent nation, on condition of austerity that shrinks the national income from which these loans (plus the preexisting ones) would have to be paid”

    This bends the truth so far that it becomes untrue. Because another demand of the lenders (not just Germany, BTW) was that Athens installs a tax collection system which doesn’t resemble the current one – a state owned support authority for the continued support of the Greek national sport of tax evasion. This would immediately bring a primary budget surplus.

    As everybody knows, Greek did not do such a thing. Ah, and she did as well not deliver on ony of the many other promises she made to get yet another ton of other nations taxpayer’s money, and the next one, and the next…

    • It is true that the Greek government failed to upgrade a terrible tax collection system. However, are you aware of the fact that, at the same time, the troika demanded that the tax office slashes its budget by 20%? Are you aware of any serious institutional reform that can be done without investing in it?

    • “[…] the troika demanded that the tax office slashes its budget by 20%. Are you aware of any serious institutional reform that can be done without investing in it?”

      If the Greek tax authority is as grotesquely oversized and inefficient as the reports say, then yes, I’d say a part of the necessary reforms could and should be to throw out all the non-performers.

      On a side note: I am completely with you, there should have been a default already in 2010. The massacre this would inevitably have caused in the finance industry would by now have been dealt with – for Greece and for the taxpayers elsewhere at lower costs. By now, Greece would be on an upward trajectory already.

    • Not only the tax collection system is inefficient. The whole country is inefficient. See report by McKinsey´s Athens office.

    • With all due respect, but the inefficiency in tax collection is NOT primarily a lack of funds issue. The main problem of the tax system is that it is corrupt. So corrupt that you can smell the rot 100m away from an EFORIA building. This is NOT an urban myth or a typical Greek exaggeration. Any man, woman or child who’s done business with the Greek taxman can attest to that. And we are talking about open, shameless corruption, that knows no fear of light of day. Add to that the laziness and sense of superiority prevalent in any tax office (the well-known ‘exousia’ complex) and you have a recipe for complete disaster.
      So in that respect, no, you don’t need investment to weed out crooks and slackers. Let’s say a tax office was your business, would you need investment to kick out the bad seeds? Businessmen do it every day, they only difference is, they would not have allowed their business to have become so full of bad seeds in the first place.
      In our case, all it takes is good old fashioned political guts. Guts for complete and utter cleansing: if need be fire the lot of them and replace them with fewer but honest people who actually want to work. How much do you think their training will cost long term? Nothing! In fact, quite the opposite, as you may suspect.
      Honestly, and at the risk of sounding populist, if only one part of the public sector is to be reformed, then this must surely be the Taxes and Revenue Collection one. Its corruption and administrative inefficiency have become an institution in modern Greek history. An institution that needs to be blown up with dynamite and rebuilt from scratch. Heaven knows there are a lot of capable builders sitting around waiting to be hired.

    • From what you are saying it is manifestly clear that you do not appreciate what it means to reform, and weed out corrupt practices from, a network. Before you fire the corrupt, you need to find who they are. (Firing indiscriminately will simply destroy what little tax raising capacity there is.) This requires a whole new system of surveillance. And it does not come cheaply. Or, put in simpler terms, even dynamite costs money (that Greek ministries lack).

    • Maybe you are right. Having worked in the private sector only, all I have seen is people go purely on managerial decision and not on surveillance systems. Maybe it would be safer and cheaper to start from the eforia upper managers, who are by definition responsible for the department’s performance. Here’s a simple example: manager A does not achieve X goal for Y consecutive terms, manager A gets fired. That’s the rule and I don’t see why it should not apply universally. As a matter of fact, I think I saw that suggestion in the infamous 10-page Troika commandments.

  • I like the idea of a bet, perhaps the bankers should get some real skin in the game and match the austerity measures they propose on their own bonuses. No it is easier to kick the Greek can down the road.

  • Nice little conversation you have had also with Michael Fuchs. Hope you can have more tet-a-tet with German politicians and intellectuals. We need to wake them up.

  • Dean, Look at this from today’s FT:

    “Ratification by Germany’s most important partner in the eurozone also became more complicated as Mr Sarkozy said he would not ask the French assembly to approve the treaty before April’s presidential election. Mr Sarkozy’s likely opponent, Socialist François Hollande, has said he would seek to renegotiate the pact, but Ms Merkel said she did not believe France would back away from the commitment.”

    You were spot on with your comment, to wit:
    “Unless Merkel secures a quick deal before Sarkozy loses decisivily in April, then the German plan is worthless.”

    And kathimerini’s story on Pap’s meeting in Brussels has this:
    “Speaking to journalists early on Tuesday morning after holding a second round of talks with European Unions officials once the leaders’ summit had concluded, Papademos refused to be drawn on the difficulties in the ongoing talks with the troika over a second bailout but hinted that labor costs were one of the issues still to be resolved.”

    • David:

      Of course it remains to be seen, but it looks like a political maneuver on Merkel’s part.

      That is why the daily terror meter from Germania Horribilis is off the charts again. Because the Bundes idiots know that they are running out of time.

      Another thing that gives it a way is the tactical part. As you know it is a well known maneuver to attribute to your opponent that which is really your weakness.

      The Teutons are running out of time, yet they want you to believe and act as if Greece is running out of time.

      These the A-B-Cs of defensive tactics which are only effective if they can not be read from miles away(which in this case they are).

  • well, said. The latest brilliant German proposal is so extreme, in the sense that one cannot seriously expect it to successfully pass through the Greek parliament, that is seems to me almost as a provocation for us to decide an exit from the EZ. Could that be the German strategy?

  • Thank God for optimists! and thank you Yanis for your wonderful work.

  • Please. Great challenge, but the Greeks wouldn’t allow it anyway. They’re doing just fine with their insanely concentrated wealth, appalling tax system (assessment, enforcement & collection – the REAL “troika” of Greece’s failure) and their 76. (and counting) defaults since the mid-late 1800s.
    So why do they need anyone else?
    Here’s an idea: a proper tax system. silly, I know, but maybe Greece can reclaim its former glory with some policies not so easily circumvented by inter-generational fraud & corruption.
    just a thought …

    • History is a lesson vulnerable to misled, my friend. Especially Greek history…

    • Thanks Maria.
      you haven’t actually offered anything but an inference that somehow I’m misled and that history is the victim.
      you’re right in part: history is vulnerable – though I doubt it is I who’s been misled.
      but thanks Maria. You’ve made my point for me & until the real issues are addressed, Greeks will continue to suffer.

  • Down with the Eurozone

    If Germans are unable to stomach the idea of sharing a political community with Greeks, they might as well accept that economic union is as good as dead.(e.q.)

    Yanis, could you please tell me what’s your point of view regarding the following question http://youtu.be/HAf7J4a_T1g which left Klaus Masuch kinda ..speechless? 😉 Thank you!


  • Yanis, I agree with your analysis of the problem entirely. Digging a deeper debt hole to fill a previous hole is irrational, absurd and no solution from a purely mathematical perspective. Yet this is how the entire global monetary system has operated for decades.

    The fact that EU nations at the geographical edges (Greece, Italy, Spain Portugal and Ireland) are insolvent while Germany remains (relatively) solvent is largely due to the fact that Germany exports more than it imports. Germany gets the financial credit while the importing nations get the debts. (The forced sale of Germany military hardware to Greece will only exasperate the situation.)

    Clearly a Greek default would clear the tables for now but unless the system is reformed it will just be a matter of time before the situation is replicated.

    This is where I find your analysis lacking. You elucidate the core problem yet don’t seem to seem to offer long-term solutions or define needed systemic corrections.

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