Klaus Kastner responds to the Geithner revelations, and my Versailles Treaty allegory

Klaus Kastner photoKlaus 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.


  • While I respect Klaus’s background and point of view I feel that a wake-up call (not to worry I will not use too harsh words..) is in order. I am really shocked and disappointed that the biggest gripe someone like Klaus has with what some of us suspected and Geithner confirmed is the language that the finmins used and their lack of “professionalism”? Seriously? I suppose that everything else was OK then as long as it was in line with the absolutely moronic German protestant ethics (sorry, couldn’t help it) that demanded punishment. How about the incredible hypocrisy of it all? How about the fact that everyone with half an economic sense knew that Greece was in deep economic trouble and living in a bubble since early 2000? How about the fact that when it comes to meddling with statistics the Greeks are sorry amateurs and their efforts were as transparent as they could get. Fooling and lying about the numbers? This is simply ridiculous. Are we to believe that the high and mighty of the finance world could not put two and two together when it came to lending f**ing billions and were filled with outrage when they “realized” that the Greeks “lied” to them along with the finmins of their respective countries, the eurogroup and the commision? It’s disappointing to say the least that anyone confronted with the simple minded and hypocritical “rage” revealed by Geithner and his absolutely cynical counter would be shocked only by the language and not by their designs and what they inevitably meant for the Greek population. As far as the “Versailles” analogy is concerned wrong again. It is far, far preferable as history has demonstrated time and time again to be the creditor even if it means taking loses from time to time than being the lender. I am not holding my breath for Germany taking any loses either. Why should they? Power is the only thing that matters in politics, the only thing they understand. Either you have the power to force your position to the other party or you don’t and as long as they do and Greece is powerless and governed by the usual suspects they can get away with anything. In the end Clemanseau was absolutely right with his assessment of the power politics that Germany and the protestant world in general only understands.

    • I am inclined to agree with most of this. As I have stated previously on this blog, the original expert report on the eurozone architecture chaired by Michael Artis was rejected and left unpublished “because if we followed your advice, countries like Greece and Portugal would never be able to join”. Northern European countries and the European Commission are directly responsible for the deliberately poor design of the eurozone and Greek membership in it from an early stage.

      Of course, this is all about politics — notably the appeal of empire-building to the half-wits who have been running European politics for some time — and nothing to do with prudent economic management. What Geithner observed was merely the continuation of a mentality that has still not disappeared! Within democratic systems, we used to believe that politicians could be held accountable: it appears not so. The same observation can be made about banks and the way in which organised crime alongside extreme greed and stupidity have been tolerated and subsidised by our politicians. And they have the cheek to blame Greece for all of this? It is the ultimate hypocrisy and of course it is clearly derived from Protestant mentality (my own background). The self-righteous indignation of corrupt and/or incompetent people is very familiar to me.

    • I remember how I felt way back when the first Karamanlis administration thought that it was a good idea to challenge the statistics that got Greece into the eurozone and got the country into probation. Never mind the fact that it was a purely political decision and Greece could not possibly meet the Maastricht criteria, so no good could come out of such a move. I thought “God, these people really do not know what they are doing”. They damaged the reputation of the whole country just to get back at the socialists. That was the extent of their bitter rivalry. Talk about tunnel vision. You can imagine that when again back in 2009 the socialists thought that once more challenging the statistics in order to do an about-face, force their agenda and blame their predecessors for it, I was completely shocked at their incompetence. The political establishment with these two colossal blunders proved beyond any doubt that they were a bunch of clueless idiots. They had no sense of the international environment that they operated under (especially how bitter a large part of the German public was post Herz agenda) and no sense of European history and culture. I read a leak at the time that an anonymous European bureaucrat called them “autistic”. This was 100% spot on. Their stupid rivalries and the local media was their stage and it felt like they thought that the world revolved around them. The savage reaction afterwards did not surprise me naturally. They had it coming if for no other reason than that they made everyone else look foolish. This was bound to not go down easily, no matter the cost and no matter the stakes. Policymakers are shrouded in a veil of supremacy but this is false. They are people like everyone else and are driven by the same passions and prejudices. We like to think that decisions are dictated by pure reason and by their interests but this is seldom the case.

    • Ah well, Taso, you are now describing the politico-cultural characteristics of Greece (as opposed to the Protestant hypocrisy of northern Europe). I was living in Greece on the two occasions of statistical revisionism that you describe (and was also “collaborating” with the statistical service on various issues). Indeed, it is the parochial and small-minded mentality that has damaged Greece within the EU. Not only is it the enmity between Pasok and ND though, it is also the lack of conceptualisation of a long-term state and societal interests. Most EU countries’ governments will vigorously defend previous policy (of their bitter rivals) in order to preserve the continuity of their national state and of their country. Not so with Greeks: petty rivalries take priority over the national interest. You have this in common with Afghanistan…

    • I would argue that in Greece there hasn’t been a clear concept of what constitutes national interest for a long time. Again this is easily explained with a quick history lesson. Specific circumstances, events and personalities shaped the attitude Greeks have towards the concept of the state -any state-, just as the very different equivalent shaped the German concept. Ignorance of these respective backgrounds is what breeds misunderstanding, mistrust and failure to find common ground. The unification process of the EU ultimately has not helped as many (mainly middle class) hoped it would. It ignored the people and focused on the elites. No country should have been accepted into the EU or the EZ without a referendum that would require public debate, some understanding of the stakes and a concept of national interest. As a result Greek politics did not mature by “osmosis” and the large inflows of capital after 2001 only made matters worse. The prize for the ones in power grew too big, too soon. In the end the concept that a common currency would bind these diverse societies and create a common economic interest through which political union would be possible was plain wrong. Politics allways come first.

  • Klaus, you are right, thanks for this thoughtful text. One remark: “‘Germany will pay’, they said in the 1920s. Today Germany does pay” is a fact and the root of all evil. The GIPSIFS better should stop to let Germany pay for their very own doings and omissions. By now they should know that this inevitably leads to desaster.

  • Sorry Herr Kastner but this
    “Incidentally, there is…Only since the primary balance went into surplus does Greece sacrifice domestic expenditures by prioritizing payments to foreigners… primary balance into the positive”
    is ridiculous; it’s a terminological pedantry in extremis. Something I wouldn’t expect coming from you.
    The internal/domestic spending cuts and the tax increases, i.e. the internal/domestic default, started long before the so called Greek budget surplus. The PSI e.g., was in essence a rollover of debts, whilst also being a transfer to the official sector and nominally an amicable in appearance haircut.
    I.e. the foreigners that matter, the banks et al., were paid in priority… 😉

  • Mr. Kastner,

    At the time I did not realize the ‘crash the Greeks’ signal from Merkel, Sarkozy and also Geithner. Very few people did.
    I thought that Papademos was doing his very best.

    I now know the truth and I can also see it manifested with the continuous 27% unemployment, a staggering number.
    Mr. Papademos, who I strongly supported back then, as it turns out sold the Greeks off and went along
    with Merkel’s ‘crash the Greeks’ policy.

    I don’t know if he sees this now, it seems that other economists like Mr. Orphanides have always had a much
    clearer point of view on the Eurozone crisis.

  • Klaus Kastner: “The most shocking revelation to me is the lack of professionalism on the part of finance ministers. ”

    You’re joking, right?
    Nobody is really shocked when spoiled, frat-club boys talk and act like spoiled brat sociopaths. The shocking part is seeing it revealed in print for all the world to reflect upon. The true caliber of our “leaders” (insert hysterical laugh here) is generally coated over with a thin veneer of political correctness in public life. The success of bling-bling Sarko was due to the fact that he perfectly embodied the nature of our political class and flaunted it ( a guignol come to life, as it were – a source of comic relief).

  • Mr. Kastner,
    The idea that France deviously re-imposed a Versailles Treaty on a hapless, innocent and unsuspecting Germany through the Maastricht Treaty is the favorite cliché of nationalists and right-wing conspiracists in Germany after the outbreak of the EZ crisis. I am surprised that you uncritically reproduce that rather ridiculous cliché in this forum. I don’t intend to discuss it seriously, it should be obvious to anyone in their right mind why it does not stand.The origins, background and prehistory of the Maastricht Treaty, and the motivations of its main actors, are far more complex than in this crude rendition. (Moreover, it attributes to the French uncanny powers of cunning and prevision, and to the Germans enormous amounts of naivety and gullibility to be believable in the first place).
    Since you are familiar with modern Greece, you probably know that Greeks (just like Germans) also love conspiracy theories. That is why, whenever I hear someone recite a conspiracy theory backed by so-called “facts”, I always demand a proof and a demonstration for these “facts” from my interlocutor.
    First of all, can you provide a link, or any other serious and credible demonstration through a serious and credible source, that the passage from Le Figaro that you quote is a real one and not a fabricated one, and that you did not just pick it up and uncritically reproduce it from a dubious right-wing German paranoid blog? (By the way, I’ve heard personally the same story, though a German acquaintance of mine, in a slightly different version, but the protagonist this time was a French politician, and not Le Figaro. Supposedly, after the signature of the Maastricht Treaty, an evil French socialist minister, laughing in a satanic way, exclaimed in front of the cameras: ‘Ha ha ha! We pulled a new Versailles on the Germans!’ I admit that your own version of the story is a bit more serious, although I suspect that it corresponds just as much to reality as the other one).
    Secondly, even if some French journalist did write that passage and Le Figaro did publish it (which I highly doubt unless I see proof of), can you seriously claim through rational argument that it constitutes solid demonstration that a devious and super-cunning France imposed a “Versailles Treaty” on a naive and unsuspecting Germany?
    Thank you very much in advance for your answer.
    (If you don’t answer, I will of course assume that you did not find any serious source for your quoted passage.)

  • Mr. Kastner was always a supporter of the german thesis and calling directly or more often, being austrian, indirectly, the greek claims about punitive disposition on the german part, as greek victimism. It’s no coincidence that someone who is “observing greece”, never found Gheitner interesting enough to make a post about it. This is the 2nd part of Gheitner’s revelations. The other was a discussion with Schauble, where Gheitner was told that many would like to kick Greece out of the euro and Gheitner wrote that he couldn’t understand this position.

    As for who is in worse position, the greek population is paying a high price for their mistakes (including vote). What’s the price paid by the lenders outside Greece, because the lender must have some responsibility, right? And it’s not like they didn’t know anything about the greek economy, when all the german major companies were bribing and Eurostat was reserving judgement for years… Still, in 2010, the French were trying to finalize the Fremm frigate contract, despite Greece being bankrupt. And the “salvation” itself, Greece is paying it with more debt than the initial one and draconian rules. I don’t think there has ever been a country that went bankrupt, lost 25% of its gross national product and at the end of the bankruptcy, finds itself with more debt in both absolute and relative numbers compared to the state prior to bankruptcy. I don’t know if this is Versailles, but i know that the greek was one odd bankruptcy! Half of the so called debt-relief was damage done to the greek and cypriot banks and to the greek pension funds. As in the state that defaults on its own payment obbligations. Because very conveniently, nobody wanted PSI before the foreigners had lifted off their shoulders their bonds. If this is again a german Versailles with Germany as the victim, well, sure doesn’t look as bad as the original one!

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