Europe’s potential gains from a silent alliance between Paris and Athens

Greece and France go back a long, long way. The Greek revolution, that procured our small, and constantly problematic, nation-state, was a spinoff (to all intents and purposes) of the French revolution and the culmination of a Greek Enlightenment that owed everything to the French Enlightenment (and almost nothing to either its German or Scottish variants).

More recently, when I was a teenager in Greece, the restoration of our democracy coincided with the landing at Athens’ Ellinikon airport of the French Presidential jet that was carried back from exile Mr K. Karamanlis, a conservative politician who had spent the dictatorship years in Paris, befriending the French President and converting into a kind of Gaullist politician. It was this closely-nit duo of politicians, Vallery Giscard d’ Estaing, the French centre-right President, and Karamanlis, that persuaded both the Europeans and the Greeks that it was a good idea for Greece to enter the, then, European Economic Community.

A few years later, at the beginning of the 1980s, both men were defeated by their socialist opposition leaders: Francois Mitterrand and Andreas Papandreou. I still remember the photo of the two men, standing on an Athenian balcony, promising an enthusiastic Greek crowd that a socialist EEC was within reach. Reality of course turned out viciously cynical toward both of them, yet they two men played (separately but occasionally also in unison) crucial roles in forging the European Union that we are familiar with today. Mitterrand, arguably, was central in convincing the Germans to go with the euro. And Papandreou, by wielding an audacious veto in 1983 (threatening to cancel Spain’s and Portugal’s accession to the EEC), managed to convince Northern European leaders that some form of structural funding (or surplus recycling) was necessary in order to invest in badly needed infrastructure within the backward, deficit regions of Europe.

Since the withdrawal of these two men from the European political scene, Greece acquired prime ministers who veered toward Germany and Brussels, or paid more attention to their links with Washington, or took the view that Greece need not “mix it” with the big players (focusing instead on playing the Brussels’ corridors-of-power games). Similarly, the two Gaullist French Presidents that succeeded Francois Mitterrand had no interest in Greece; they assumed, instead, that their relationship with Berlin was the be all and end all, and that small countries like Greece were there to make the numbers add up and make them look more imperious in EE heads of states family photographs.

Now, in the midst of a Crisis that is threatening to dismantle the French dream of a Europe united under French political and institutional guidance (and German monetary control), the French-Greek relationship may be reinvigorated. Or, more precisely, it presents itself as a lever by which the French can re-assert themselves in a manner that prevents Mrs Merkel’s very private and tragiv cul-de-sac from destroying the European Project (which is also the raison d’ etre of both the French and the German elites).

President Hollande has gone on the record to state that the current path, carved out by Mrs Merkel and his predecessor, is unsustainable. His greatest weakness is that such strong words, however correct analytically they might be, are instantly translated in Frankfurt and in Berlin as follows: “Germany must bankroll France’s new stimulus package; and, since this would be impossible while Greece, Portugal and the Club Med are screwed into the ground, Germany must bankroll everyone’s deficits”. We only need to state this to realise that such an implicit statement is rejected by every living and breathing German outright, thus leading Europe to a standstill or Mr Hollande to an ignominious backing down.

Enter Greece. Greece offers Mr Hollande a precious case in point. He can use it as an example of what happens when the EE insists that a bankruptcy is not a bankruptcy, and piles up huge loans and unbearable austerity on a national economy that can, simply, not bear it without collapsing into a heap. He can then argue, convincingly, that ‘staying the course’ is simply infeasible – quite independently of the political will of the local elites (recall how determined the Greek elites where to do so, until they were booted out last Sunday by a despairing electorate). Mr Hollande can conclude, from the Greek case, that Europe must find a new strategy that gives the deficit countries a sporting chance without asking of the Germans to bankroll any of the bad debts or the burgeoning deficits. For ideas of how this can be done, see here, here and here.

Truth be told, even if Mr Hollande says all this, it is highly unlikely that the German mindset will be persuaded to undergo the gestalt shift it needs overnight. This is where a period of Greek un-governability is helpful to the French President. At first, German leaders will huff and puff and issue (as they have been doing) their ultimata against Greece’s political leaders (threatening with expulsion from the Eurozone, from the EE, from planet Earth). Then they will undergo, as they have done during the past two years, a reality check, realising (again) that a Greek exit will destroy the Eurozone once and for all (and with it the EE). At that point, they may be more amenable to see reason; to consent, however grudgingly, to a French Plan that exchanges greater fiscal discipline of the member-states for (a) a centralised system of managing public debt (via the ECB), (b) a pan-European surplus recycling mechanism, or Investment-led Recovery Program, and (c) an end of the pretence that national governments can recapitalise and supervise the banks.

In effect, a new form of French-Greek alliance may be in order. Of course, Mr Hollande will never want to be seen to enter into discussions (let alone a formal alliance) with the discredited Greeks. Nonetheless, an implicit, a silent, alliance with a chaotic Greece is his best chance of avoiding the fate that every ‘serious’ commentator is mapping out for him: an ignominious backing down.

39 Comments

  • Whilst i can see your logic at your last paragraph, i think that a secret alliance can eventually complicate things instead of solving the communication issues.
    All this time and up to now, the problem is not acknowledged as a eurozone one.So far It’s a game with good and bad neighbors. With your suggestion, the problem continues in two chessboards and make things to seem irrational.
    How someone can explain the falling apart of Eurozone if Greece exits without laying out the problem as it is? Remember that you can not ask for solidarity from a country (Germany, France) with its own problems on the grounds of helping others.
    People of Europe will be willing to contribute if the problem is identified as such. Manipulation tricks can trigger undesired issues.

  • “At that point, they may be more amenable to see reason; to consent, however grudgingly, to a French Plan that exchanges greater fiscal discipline of the member-states…..”

    A French Plan?

    I guess calling it someone else’s plan may be ok ,as long as it is done effectively.
    No ego for Europe.

  • Funny thought but the truth couldn’t be more different. You are greatly overestimating the relevance of Greece here. Also I don’t think there would be any other country in Europe that France would feel less inclined to associate itself with. Hollande will have to focus on financial discipline as much as his predecessor and for weeks already, Merkel has been talking about those growth initiatives that Hollande is keen on.

    The breakdown of Greece, it having to leave the Euro/EC is no longer considered to be a catastrophe for the rest of the Union. Look at how little the markets reacted to the Greek elections.

    • Wait until the results of the new Greek elections in one month or so, and then please post the same argument again.

    • The line about financial discipline is total bullshit (pardon my language).

      I’ve never read one word from Yanis which would lead to the conclusion that financial discipline is unnecessary. On the contrary.

  • Thank you for you continuing analysis. Depend on it. Would you please go over [or link to past citations] your reasoning as to why a Greek withdrawal will lead to destruction of the EU
    Efgaristo

  • Nah, it is not the Greek un-governability that will do the trick. The German leaders will huff and puff and issue (as they have been doing) their ultimata against Greece’s political leaders (threatening with expulsion from the Eurozone, from the EE, from planet Earth). Since they think they have it all figured out and they took all the necessary steps to protect the Eurozone from a Greek exit, they will do it. The situation will be out of control but in the end they will manage to contain it, doing most of the things you suggest all those years and probably more. It will cost more but they are not going to learn till they get burned.

    We may save Portugal and Ireland but we’ll be out. Not a bad thing in my book. I don’t believe in EU anymore.

    • We should really look at the amount of private debt in such countries. Once the contagion of a Greek forcible expulsion sets in Portugal and Spain, I think the ensuing chaos will be uncontainable. The amount of debt is much greater than people suppose. By saving these banks in countries with huge unemployment, private debts that people simply cannot pay, the price of containment triples and multiplies.

  • let’s admit, for argument’s sake, that this turn of events could prove helpful for Greece’s current predicament. How do you Yannis think this could play out? There are two paths the Greek elections in June could follow. The pro-austerity/pro-memorandum/Pasok-ND pact has shown no intentions of contesting the Berlin-carved line. I really see no future in hoping that they would go any path other than the one they have pursuing so far.

    So, the burden falls to a potential left-wing gov’t led by the latest bidder for the throne, Syriza, and any alliances it manages to form. So, the anti-memorandum pact (formed, if it manages to do so, under the public appeal for an alternative to the current policies) is expected to follow a treacherous path of abiding by the aforementioned policies, while secretly trying to support a potential shift in European policies led by the French.
    How could anybody sell that (while hiding the supposedly hopeful prospect of French support from its own voters, as you have suggested) to hold its own against the popular dissatisfaction of an electoral body that voted for change, and sees none coming, and no immediate benefits to justify that? I ‘m afraid that the political position you would like them to pursue is a totally indefensible one.

    So, who do you think could realistically pursue this? The only one I can think of is a conservative, yet magically enlightened conservative front. And the Greek cons have proven to be anything but. Politically, I just don’t see any possible way your wishful scheme might work out in the current situation.

  • It’s a great suggestion and I hope the French policymakers are paying attention to your proposals. In the meantime, it’s of main importance to build on an European wide progressive movement that promotes solidarity between the people of the core economies and the periphery.

    How would the expulsion of Greece from the eurozone go about anyway? What happens if they declare bankruptcy? Even when Germany and its allies want to have Greece out, there’s no framework under which they can exit right?

    Also, I’d be curious about the speeches and proposals of how previous European leaders envisioned a more social Europe. Can anyone link towards this speech for a socialist EEC?

  • It’s a great suggestion and I hope the French policymakers are paying attention to your proposals. In the meantime, it’s of main importance to build on an European wide progressive movement that promotes solidarity between the people of the core economies and the periphery.

    How would the expulsion of Greece from the eurozone go about anyway? What happens if they declare bankruptcy? Even when Germany and its allies want to have Greece out, there’s no framework under which they can exit right?

    Also, I’d be curious about the speeches and proposals of how previous European leaders envisioned a more social Europe. Can anyone find a link of Mitterand talking about a socialist EEC?

  • One thing has been certain since the global financial crisis and that is, that whenever the smallest of uncertainties occurs, whether it is the US employment numbers or Europe being on the precipice of total collapse, the world economy is shaken. There is very little confidence in the markets today and the threat of contagion cannot be underestimated. Germany understands this, and for all its talk of Greece leaving the EU, they are terrified of the consequences. Any proposals brought forth by the new French government will be listened to by the Germans and most probable accepted in some form or another. As all politicians do, they will spin it as an adjustment to their original austerity strategy to save face and their political careers. Greece’s economy is not significant to Europe on a monetary basis but it is the spark that can spark global fear and bring down the significant economies of Italy and Spain.

  • And then again, economic and political machinations may be irrelevant, no matter how reasonable or logical they may sound. They get trumped by “overpopulation.” No budgets will balance when china has such a great profit margin (on the backs of its people –but that is irrelevant here), no linear projections will ever work out (what is the meaning of a 10-year prediction when huge unknown nonlinearities are lurking in the next 5 years). China and India have doubled or tripled the active economy population in a matter of a few years. The exuberance of china and india becoming new partners in our world family gets substituted by the numbers not adding up. People lose jobs, cannot adapt fast enough, the general mood subsides and there is no rational argument that will force people to invest, take on credit, continue their lives as usual. Hollande may delay the inevitable but scapegoats will be found sooner or later. Greeks are just the first in line. I admit, I can offer no long-term solutions, other than just survive the day. For that, Yani, you should abandon your search for global models and focus on local solutions, a flexible economy, and model adaptability. Just a thought…

    • A very good thought.

      This must be done anyway out of respect for different cultures and the global model should adjust to that ,not the other way around.

      The broader frames of a global model can be common for everybody. It is the lack of respect of the global way for our differences that affect our everyday life so much. We should look at our own local models and create our own microsystems. Which can be at the same time autonomous enough and part of a global economy. The most important word ,”flexible”.

  • Still the bottom line is Europe is not one country culturally and never will be, and the economic differences between the regions are growing monthly, not diminishing.

  • “Germany must bankroll France’s new stimulus package; and, since this would be impossible while Greece, Portugal and the Club Med are screwed into the ground, Germany must bankroll everyone’s deficits”

    Good translation, this is the core of what Hollande and quite a lot of others say. The wording is of course less blunt, but the essence is there.

    “We only need to state this to realise that such an implicit statement is rejected by every living and breathing German outright, thus leading Europe to a standstill”

    Translates to something like “…it the niggardly Germans wouldn’t refuse to bankroll everyone’s deficit, Europe would not suffer the standstill it does”

    I do hope you accept we German taxpayers have every right to demand the transfer union will remain limited (it is far to large already anyway). The several credits and support schemes for Greece et al have cost us already ~15 billion Euro. Plus Germany’s own problems not only but especially in terms of deficits are mountainous.

    • 15 billion is too little. We want more. You take us for petty thefts?

      Regards
      German&French banks

  • Professor Varoufakis
    It’s interesting that you don’t mention one word about your one night stand with your inamorata Tsipras. But it’s obvious that Hollande replaced the latter in your gyrating amours, after the politically and economically inane and embarrassing post-election statements of Tsipras. And it won’t be long before you will disappointed with Hollande too and you will be looking for a more exotic one.

    • As someone who isn’t following the election campaigning in Greece, but rather only the results of the elections itself, I see the propaganda machine working overtime (even here by posters on Varoufakis’s page) to slam Tsipras. His platform seems mature and eminently reasonable, so much so that even the normally level-headed Malkoutzis has missed it. He has asked for an audit of Greece’s books. That should have been done 2 1/2 years ago. Instead, all we here is about Greek welfare and social services (which are proportionally smaller than the vast majority of Europe and even smaller than the USA’s). Yes, the bureaucracy in Greece is inept and has patronage hires. (As in the USA and other countries as well). That should be changed, but don’t tell me Greece got into this mess by paying 700,000 gov’t workers some nominal salaries. It doesn’t add up. Greece needs an audit, and Tsipras is entirely right in his requests. But I guess no one wants to discuss the sort of vendor financing that brought 15 billion of military weaponry a year to Greece over a decade–that would be too embarrassing to Germany. Tsipras also ants to change the law against prosecuting MPs for corruption. The troika has apparently not made enough demands on that. These are a good BASIS for the next gov’t.

      Meanwhile the Ecogreens and the D. Left are lost in the wilderness asking for hard and fast plans. Hello???! Greece is under foreign domination of the troika. There are no plans to be made. If you want to get yourself out from under domination, it will require a revolution. Plans? Plans? Greece is in serious desperation and these people think technocratic hocus-pocus is going to set things right. If only we could liberate the taxi secotr!! Or the pharmacies!! Greece’s economy would boom!! Malkoutzis and these people need a serious reality check. Minor reforms are not going to get Greece on its feet, they will NOT cause an economic boom. That’s totally silly thinking.

      There are no plans because the overturning of the austerity demands will cause much upheaval and a whole new dynamic. You have to start with the foundations. Why did we spend so much money? Was it the bureaucracy? Then treat that. Was it vendor financing schemes and bribery? Then treat that.

      I don’t know much about Tsipras and how capable he is. I only know he’s the first and only politician so far that actually has a proper proscription to the reality of the situation.

  • France is probably the most “endangered” of the inner circle countries. Without drastic reforms, slowly but surely heading for the cliff. At the moment sandwiched between Center and Periphery. Hollande’s moment of truth will come when he has to decide between the two, and that moment will come soon. Forget romantic memories of French revolutionary spirit! France will never risk its (self-appointed) status as the Grande Nation to take side with the weak or poor!

  • Dear Pr., your views make perfect sense to me, sufficiently explaining reality, except the “idiocracy-ruling-Europe” part, especially as far as the Germans are concearned. I try to find a, geopolitically, sensible explanation for their behaviour towards their European partners (dismissing the idea of them misreading global reality, including your “minotaur” concept). Have you ever considered that since the minotaur is reeling and might not be able to define others vital space in the future, and also possibly not being able to force its will upon former followers, there may be a kind of revised Molotov-Ribbentrop treaty in some minds (or drawers, already)?
    In that way, a new vital space is created (for the German industry and capital, and the Russian natural resources), firstly surrounding the states between them, secondly keeping the rest of Europe as their necessity-compeled backyard, and thirdly with promissing Asian prospects.
    Moreover a new global ranking power is created, not only including but further expanding EU. So the Germans may be up to “draining” EU’s potential till it stalls completely, effectively losing its ability of self preservation or retaliation, and then present their resque-revive plan as a one way ticket…
    (anyone is challenged complete the sentence, filling up his version for the destination)

    • Months ago i thought of something similar about the natural resources and how maybe the Americans will play the good cop ,while the Germans play the bad cop ,creating thus a two tower scheme ,encircling every economy from China to Russia.

      Who knows? Not my nose.

  • A matter of common sense:

    “I happen to observe the comments of this site [FT], ever since the Greek crisis erupted. It is amazing what a shift in opinions and language has occurred today !

    In the beginning all comments were furious against lazy Greeks, not paying their taxes, not behaving like the other “proper” EU citizens. Than Greece should have never joined the EU moreover the Euro. That Greece is a country that deserves to go to the hell of history. etc, etc. etc. All of these were stemmed from the German media propaganda, and suspiciously . The damage they incurred is insurmountable. Not only against Greece, but against the continent as a whole. It is inconceivable how much damage can be done by mismanaging an affair that in other circumstances, other politicians in the place of Merkel and Sarkozy, would have managed to deal in a delicate manner, without destroying the fame of the whole Union. They were so naïve (thus incompetent for their positions as leaders of Europe) that they did not realized that it is not Greece they hurt, but Europe as a whole. But now the damage has been done and it cannot be undone. Now they have to solve a bigger problem, if they really mean what they say, i.e. to kepp the union together and the common currency alive.
    The results today, were fully and safely predictable. It has taken only a couple of elections in France and Greece, so (at least) the readers of these columns, realise that it is not only Greece that caused all this collapse of the EU institutions. It is not only the readers of FT that have realized this. It is the whole world now that observes the shift of European peoples to the extreme leftists and Nazis.

    Impressive observations: The majority of Athens people, which is 50% of country’s population and 60% of the Greek economy, voted for the radical leftist party which quadrupled its power since 2009, that preaches “down with the austerity program”, the program that has been signed by the two ruling parties only a few weeks ago. What should you readers of FT expect from Athenians, after they paid all new taxes to recover public debts, after they lowered salaries by some 30 – 40% and after 1,2 million souls enriching the lists of unemployed and after eating all their deposits straining the Greek banks? The towns of Kalavryta and Distomo, where destroyed by Nazi forces in 1943. Some 800 people were massacred in those towns by Nazis. Today the grand-sons of these people, voted by enlarge for the neo-Nazi party!! What did Ms Merkel expect? What did her advisors told her that is about to happen? Or she did not listen to any advisors at all (which is even worse)?

    I am not pretending that we Greeks are innocent, nor that we do not have to put our house in order. Yes we have a share in the problem. Yes we have a huge public deficit and inefficient state. But we are not the only ones with corrupt practices and bad politicians. Most importantly, we are not all like the ones described by Bild newspaper in Germany. But the European level of catastrophic mistakes is of exorbital dimensions, nothing to compare with the Greek peanuts. The political decision was not complete, to unite a Europe into one morphoma of a “country” without the tools to manage it. We put together a new currency, leaving in the hands of God its management. We put together some treaties only for the majority of countries to violate them. Now is the time to face reality. There is still time to fix the huge mistakes of the past three years. Before the example of the recent Greek elections is copied into multiple irreversible shifts of the rest of EU nations to undemocratic powers.”

    http://www.ft.com/intl/cms/s/0/fb8abe22-9845-11e1-8617-00144feabdc0.html#axzz1uJSg9IlK

  • Maybe of the three points of the modest proposal the best to start with is actually the banks.
    Personally I don’t like the idea of saving those institutions who are at the root of all these problems we’re facing. But let’s face at it: the German and (maybe past) French governments have been totally driven by their banking system till now, so if past will be a model for the future, it will be easier to see governments ready to save banks instead of people, unfortunately.
    But we can suggest a bargain: instead of saving banks in blind nationalistic way, let’s save them unifying them and backing them with the ECB. I am quite sure the German and French government won’t be so ready to do this for Greek or Spanish or Italian people, but for banks… well that sounds different, doesn’t it?
    So in my opinion the focus point of all those economists who still hope we can save the European ship, at this point should become the banks. I mean if the banks stop following national agendas and in exchange for this they will receive almost “unlimited” promise of financial support from the ECB, maybe they will stop conditioning the national government agendas, forcing Governments to give loans to bankrupted states in order to avoid to go bankrupted themselves (I mean the banks), and maybe the banks will start again giving loans to the productive economy, and this could help, even if it won’t help for the lack of demand. But it’s better then nothing. So maybe it’s time to focus on this point. If this passes, maybe also the other two will pass.

  • At first, German leaders will huff and puff and issue … their ultimata against Greece’s political leaders (threatening with expulsion from the Eurozone, from the EE, from planet Earth). Then they will undergo … a reality check, realising (again) that a Greek exit will destroy the Eurozone once and for all (and with it the EE).

    Indeed — a reality check! Karl Denninger over at his blog market-ticker.org discussed German/Troika threats against Greece in his apropos tiltled article “To Greece: Give Them The Finger.” German (and French) banksters are geared up to their ears. The Greeks can meet their threats with their own threats of marking the “renegotiated” bonds to zero. If these bonds are marked to zero, then it’s auf wiedersehen banksters.

    • “If these bonds are marked to zero, then it’s auf wiedersehen banksters.”

      Not really 75% of institutionalinvestors believe that Greece will exit the EZ this or next year. I do not assume that they did not prepare for that. It is crystalclear that the Greek economy is to weak and the administration to messy to have its currency pegged against Germany or Luxemburg.

    • Schäuble stated multiple times that a Grexit orderly or not is not an issue anymore. Everybody had enought time to prepare.

    • This will be Schauble when contagion catches hold. I guess everything is hunky-dory in Spain and Portugal and there is nothing to worry about with all the private debt they’ve wracked up.

    • @No EU dictatorship:

      Are you familiar with the expression “OTC derivatives blowup”?

  • For anyone here interested about SYRIZA:

    Main Points of Syriza Proposals

    In point 10 of the proposals, regarding foreign policy, SYRIZA (rightly) calls for “Disengagement from the NATO and shutdown of the foreign military bases” and “Termination of the military cooperation with Israel.”

    Hollande, as I mentioned in a previous thread, is open to the idea of NATO involvement in Syria. Moreover, he is also, like DSK, a Zionist.

  • Hi Yanis. An alliance suggests both parties have something to bring to the table. What has Greece got that France would value? (Beyond the strategical real estate that leads into the Dardanelles, and Cyprus further south). Also based on current election results, the overall sentiment here – Down Under – about the decisions Greeks are making is negative (especially the strong ‘us vs them’ attitude). Hard to defend where they are heading. At least there is a glimmer of hope that the main Pro-Europe parties will cooperate to form government.

    More likely is that the French look after themselves. I don’t see why either the Germans or French would allow a minnow to significantly renegotiate terms unless there was a compelling reason to do so (i.e. divisive and potentially dangerous).

    • Greece offers Hollande an argument for moving away both from the current austerian policies (that are killing Spain) and from the idea of Keynesian tax-and-spend. He can use it as a morality fable of what happens when Germany insists that this is a debt crisis from which we can exit by cutting, cutting and cutting.

  • I would like to comment on the “preparation” that the banks and the other E.U. nations have done for a Greek eurozone or E.U. exit. The fallacy is that we take as gospel the statements by various people like Schaeuble that they will not flinch with a Greek exit. How further from fact can this calmness be? This is merely a facade that fits in with the fear mongering that has been directed toward Greece and the other PIIGS. A Greek exit is unpredictable to a large extent in that the variables are practically endless. Who is to say that Spain or Ireland will not follow suit? (As for Portugal, I have my doubts) Creating a model for such an exit is practically impossible and I personally believe the eurocrats and the bankers are terrified at the prospect. Maybe the E.U.’s 2% of GDP (Greece) is insignificant to the surplus nations, but you throw in an 800-pound gorilla like Spain, a nation that can more than make it on its own with heavy industry, agriculture and tourism, and all of a sudden that 2% isn’t so insignificant.

    • Spain is also insignificant. Look how their imports imploded. All they have and had was real estate….