Klaus Kastner, a regular interlocutor of this blog, has responded to the Geithner revelations (and my take on them) on how Northern European finance ministers were bent on ‘crushing the Greeks’, back in February 2010, with the following:
Klaus Kastner: The most shocking revelation to me is the lack of professionalism on the part of finance ministers. These are people who should know that everything they discuss, in however confidential an environment, will eventually be part of the official record. So if someone indeed has the intent to ‘crush Greece’, I would expect him to never formulate it that way (and no professional businessman and/or finance minister would ever do that). There were times when the world was shocked by the blatant statement of an American Treasury Secretary that “the dollar is our currency but your problem” (I believe it was John Connolly). Today, that sounds like courtesies of times long passed. Leaving aside the tactless Europeans, Timothy Geithner would also have been well advised not to use the f-word that often; or not at all. But then: even an elitist Frenchmen (Sarkozy) was said to have once called George Papandreou a “f…ing psycho”. All of that is not conduct conducive to gaining the trust of voters.
The other curious aspect is the long aftermath of WW1 and the mess that was left behind it, causing invocations of “Versailles” almost 100 years later. There are, however, two aspects to “Versailles”. One side says that Greece is the victim of today’s Versailles. Another side (typically found in Germany) says the oppositive. On 18 Sep 1992, French newspaper Le Figaro had the following on its front page: “The opponents of Maastricht fear that the common currency and the new Central Bank will fortify the superiority of the D-Mark and the Bundesbank. But the exact opposite will happen. If it comes to Maastricht, Germany will have to share its financial might with others. ‘Germany will pay’, they said in the 1920s. Today Germany does pay. Maastricht is the Treaty of Versailles without a war‘“, said Le Figaro then.
To those who may not understand what I mean, consider the following question: given the choice, would you rather be a borrower who owes billions but who knows that he will eventually pay that debt at best partially, if at all. Or would you prefer to be a lender who has billions of claims but who knows that he will eventually have to write much of that off, if not all of it (without having provided for such losses as yet)? I am not saying that Greece is in a better position. All I am saying is that huge costs will hit Germany once they can no longer be covered up. And they cannot be covered up forever, that’s for sure!
Incidentally, there is a technical difference between Versailles then and Greece in 2010. Versailles required of Germany to pay foreigners (which I guess it didn’t, anyway). The 2010 memorandum required Greece to get by with less money from foreigners than before. Only since the primary balance went into surplus does Greece sacrifice domestic expenditures by prioritizing payments to foreigners. So from that standpoint, the ‘Greek Versailles’ has only begun once Greece turned its primary balance into the positive.