Behind Germany's refusal to grant Greece debt relief – Op-Ed in The Guardian

Tomorrow’s EU Summit will seal Greece’s fate in the Eurozone. As these lines are being written, Euclid Tsakalotos, my great friend, comrade and successor as Greece’s Finance Ministry is heading for a Eurogroup meeting that will determine whether a last ditch agreement between Greece and our creditors is reached and whether this agreement contains the degree of debt relief that could render the Greek economy viable within the Euro Area. Euclid is taking with him a moderate, well-thought out debt restructuring plan that is undoubtedly in the interests both of Greece and its creditors. (Details of it I intend to publish here on Monday, once the dust has settled.) If these modest debt restructuring proposals are turned down, as the German finance minister has foreshadowed, Sunday’s EU Summit will be deciding between kicking Greece out of the Eurozone now or keeping it in for a little while longer, in a state of deepening destitution, until it leaves some time in the future. The question is: Why is the German finance Minister, Dr Wolfgang Schäuble, resisting a sensible, mild, mutually beneficial debt restructure? The following op-ed just published in today’s The Guardian offers my answer. [Please note that the Guardian’s title was not of my choosing. Mine read, as above: Behind Germany’s refusal to grant Greece debt relief ). Click here for the op-ed or…

Greece’s financial drama has dominated the headlines for five years for one reason: the stubborn refusal of our creditors to offer essential debt relief. Why, against common sense, against the IMF’s verdict and against the everyday practices of bankers facing stressed debtors, do they resist a debt restructure? The answer cannot be found in economics because it resides deep in Europe’s labyrinthine politics.

In 2010, the Greek state became insolvent. Two options consistent with continuing membership of the eurozone presented themselves: the sensible one, that any decent banker would recommend – restructuring the debt and reforming the economy; and the toxic option – extending new loans to a bankrupt entity while pretending that it remains solvent.

Official Europe chose the second option, putting the bailing out of French and German banks exposed to Greek public debt above Greece’s socioeconomic viability. A debt restructure would have implied losses for the bankers on their Greek debt holdings.Keen to avoid confessing to parliaments that taxpayers would have to pay again for the banks by means of unsustainable new loans, EU officials presented the Greek state’s insolvency as a problem of illiquidity, and justified the “bailout” as a case of “solidarity” with the Greeks.

To frame the cynical transfer of irretrievable private losses on to the shoulders of taxpayers as an exercise in “tough love”, record austerity was imposed on Greece, whose national income, in turn – from which new and old debts had to be repaid – diminished by more than a quarter. It takes the mathematical expertise of a smart eight-year-old to know that this process could not end well.

Once the sordid operation was complete, Europe had automatically acquired another reason for refusing to discuss debt restructuring: it would now hit the pockets of European citizens! And so increasing doses of austerity were administered while the debt grew larger, forcing creditors to extend more loans in exchange for even more austerity.

Our government was elected on a mandate to end this doom loop; to demand debt restructuring and an end to crippling austerity. Negotiations have reached their much publicised impasse for a simple reason: our creditors continue to rule out any tangible debt restructuring while insisting that our unpayable debt be repaid “parametrically” by the weakest of Greeks, their children and their grandchildren.

In my first week as minister for finance I was visited by Jeroen Dijsselbloem, president of the Eurogroup (the eurozone finance ministers), who put a stark choice to me: accept the bailout’s “logic” and drop any demands for debt restructuring or your loan agreement will “crash” – the unsaid repercussion being that Greece’s banks would be boarded up.

Five months of negotiations ensued under conditions of monetary asphyxiation and an induced bank-run supervised and administered by the European Central Bank. The writing was on the wall: unless we capitulated, we would soon be facing capital controls, quasi-functioning cash machines, a prolonged bank holiday and, ultimately, Grexit.

The threat of Grexit has had a brief rollercoaster of a history. In 2010 it put the fear of God in financiers’ hearts and minds as their banks were replete with Greek debt. Even in 2012, when Germany’s finance minister, Wolfgang Schäuble, decided that Grexit’s costs were a worthwhile “investment” as a way of disciplining France et al, the prospect continued to scare the living daylights out of almost everyone else

By the time Syriza won power last January, and as if to confirm our claim that the “bailouts” had nothing to do with rescuing Greece (and everything to do with ringfencing northern Europe), a large majority within the Eurogroup – under the tutelage of Schäuble – had adopted Grexit either as their preferred outcome or weapon of choice against our government.

Greeks, rightly, shiver at the thought of amputation from monetary union. Exiting a common currency is nothing like severing a peg, as Britain did in 1992, when Norman Lamont famously sang in the shower the morning sterling quit the European exchange rate mechanism (ERM). Alas, Greece does not have a currency whose peg with the euro can be cut. It has the euro – a foreign currency fully administered by a creditor inimical to restructuring our nation’s unsustainable debt.

To exit, we would have to create a new currency from scratch. In occupied Iraq, the introduction of new paper money took almost a year, 20 or so Boeing 747s, the mobilisation of the US military’s might, three printing firms and hundreds of trucks. In the absence of such support, Grexit would be the equivalent of announcing a large devaluation more than 18 months in advance: a recipe for liquidating all Greek capital stock and transferring it abroad by any means available.

With Grexit reinforcing the ECB-induced bank run, our attempts to put debt restructuring back on the negotiating table fell on deaf ears. Time and again we were told that this was a matter for an unspecified future that would follow the “programme’s successful completion” – a stupendous Catch-22 since the “programme” could never succeed without a debt restructure.

This weekend brings the climax of the talks as Euclid Tsakalotos, my successor, strives, again, to put the horse before the cart – to convince a hostile Eurogroup that debt restructuring is a prerequisite of success for reforming Greece, not an ex-post reward for it. Why is this so hard to get across? I see three reasons.

One is that institutional inertia is hard to beat. A second, that unsustainable debt gives creditors immense power over debtors – and power, as we know, corrupts even the finest. But it is the third which seems to me more pertinent and, indeed, more interesting.

The euro is a hybrid of a fixed exchange-rate regime, like the 1980s ERM, or the 1930s gold standard, and a state currency. The former relies on the fear of expulsion to hold together, while state money involves mechanisms for recycling surpluses between member states (for instance, a federal budget, common bonds). The eurozone falls between these stools – it is more than an exchange-rate regime and less than a state.

And there’s the rub. After the crisis of 2008/9, Europe didn’t know how to respond. Should it prepare the ground for at least one expulsion (that is, Grexit) to strengthen discipline? Or move to a federation? So far it has done neither, its existentialist angst forever rising. Schäuble is convinced that as things stand, he needs a Grexit to clear the air, one way or another. Suddenly, a permanently unsustainable Greek public debt, without which the risk of Grexit would fade, has acquired a new usefulness for Schauble.

What do I mean by that? Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.


  • Reblogged this on Gestaltz and commented:
    I have some sympathy with this view as my blogs should have already demonstrated. However this does not mean the approach taken by Syriza was practical or ever likely to succeed. A common on view of the problem does not imply a common solution. In the interest of balance one should also read the post by Oliver Blanchard of the IMF which will be the next reblog.

  • This is the impression one got since the elections in January. It is understandable that grim Schäuble now seems as the main force behind this “we have to crush Greece” strategy. But this is not true, Martin Schulz, Merkel, of course Schäuble, (Merkel as usual hides behind him now, playing the lady with empathy) – and a lot more politicians, from Finland, for example, wanted exactly this. Germany has persuaded the Eurozone-majority, and there was not enough resistance, because the european left is fragmented. Partly this is a disaster for intellectuals too (no matter how weak intellectual resistance may have been anyway in our systems), nobody of the left (and certainly not Zizek) were self-critical enough to see how easy it would be for Merkel, Schäuble and the rest to go on with austerity measures. But yes, Schäuble of course is a nightmare.

    • Schauble is a piece or dirt and the true boss of Germany are the United States of America. Don’t make us lose patience with you silly nation. Learn to obey your orders.

      When the uS says jump you silly Germans say “how high”! Is this clearly understood?

  • Although I think that Ms Merkel, up until the referendum has not been in total agreement with her finance minister on this, it seems clear now that – facing strong resistance against any kind of leniency towards Greece within her own party and from members of the social democrats in her coalition – she will choose her own political survival over her initial goal of keeping Greece within the Eurozone. Unless, that is, she can convince the german Bundestag that the Greek government has finally bowed low enough and shown its willingness to recieve the punishment the majorioty of germans and the other creditors seem to believe it deserves.

    It is not my place to judge Mr Tsipras for giving in to such an amount of pressure – especially the outright blackmailing by the ECB -, but I fear that the Greek resistance is being finally crushed now, at a horrible cost for the Greek people and for european democracy.

    And after watching the debate in the european parliament and the disrespectful way Mr Tsipras was treated by some of the MPs, it seems evident to me that the EU as a whole is coming apart at the seams.

  • Greece could choose to accept that its political and economic system failed, and that maintaining some semblance of normality for some sections of the population entails a surrender of sovereignty. It could on the other hand choose Drachma and take a shot at something else.

    I think that once conditions calm down and Grexit does not mean apocalyptic collapse immediately, this question will need to be put to the people. As I have said before this should be done via an election where the Euro-Friendly parties face off a coalition of Drachma advocates.

    I would vote for subservience and technocracy even though I built a career arguing against it. Why? Because the Syriza experiment has proved that Greece is long on populist, ignorant, incompetent fanatics and short on leaders who can make a return to the national currency a success in the long run. They say that countries get the politicians they deserve. I leave this to you to reflect on.

    • Oh enough already with your incomprehensible delirium which reminds of old ladies having tea and cookies gossiping non stop about things way beyond their comprehension.

  • Yannis im afraid SYRIZA flunked it. The referendum should have been about “austerity or Grexit” since these were the only real choices. I don’t know, you’re the finance minister but you maybe you underestimate the Grexit option. Now we’re stuck with endless austerity until Europe becomes a federation, and the will to do that is poisoned.

    • Yes you can give depositors additional bank accounts with Drachma balances overnight, leaving everything else unchanged. I mean unchanged after the changes the ECB will make to illegally confiscate some or all of the Greek depositors Euros.

      It won’t be pretty because crucial prices like the laiki (food market) will be in cash, hence in Euros, so grandmothers with Drachma pensions will be facing Euro food prices. But it’ll work for rents, invoices, pensions, salaries, taxes. Yes, overnight. In order for banks to be solvent in Drachmas, Drachma deposits will have to be matched by Drachma loans and redenominating loans on a case by case basis will take time. If we forego aesthetics, cash can be printed quickly by pasting “Greek new Drachma” in big letters on top of existing Euro note templates. Nice looking and nationally inspiring cash will take longer, sure.

      Given how well Greece has held up, psychologically and economically, after two weeks of bank holiday with the expectation of Grexit, why are we not exiting?

    • No Pavlos you can’t arbitrarily introduce parallel currency without the full cooperation and permission of the ECB. For whatever currency systems you are trying to introduce within seconds the ECB could nullify by allowing the existing system to come crashing down.

      Here they suffocated you in a vain attempt of gathering a Yes vote in the latest referendum under conditions of extreme fear and you think that those opposing the parallel currency set up would actually extend you a helping hand? How is this possible? How could you act Grecocentric in a eurocentric world? They will never give you such chance unless you are totally prepared(18 months prior) and introduce the change abruptly yourself.

    • Well the ECB will probably confiscate Greek deposits already. And now now the Eurozone is graciously offering the Grexit option.

  • Who the eff is Schauble to be deciding the eurozone status of Greece?

    Why are you giving in to the notion that a German terrorist and psychopath controls your future?

    Get rid of this sorry and pathetic creature now!

    • Schauble only deciding? There are 17 other countries that have a say too; for example Finland. And what have the Finns been up to?

      Finnish parliament against new bailout deal for Greece, reports say

      Finland’s parliament has decided it will not accept any new bailout deal for Greece, media reports said Saturday, piling on pressure as eurozone finance ministers were locked in tortuous talks to stop the debt-laden country from crashing out of the euro.

    • Finland is a non-issue. They are playing theater on Germans instructions. Once Schauble issues final order they will obey.

      Couldn’t care less about the Finns. They are a completely irrelevant.

    • @last greek
      Finland has absolutely nothing to say in Europe any more than Malta does. They do what they are told by the Germans. Have you been paying attention? THAT is exactly what is wrong with the “Union”.

    • The Finnish opposition party has threatened to bring down the government if Finland’s FM votes for the bailout — and there 6 other countries, besides Germany and Finland, that want Greece out.

      Of course, if Greece pledges just about all of its public assets as collateral maybe there is a dim chance an agreement will be reached today. Maybe.

      Really not hard to see who the amateurs were these last five months.

    • The amateurs have always been Schauble and his Berlin clowns. They are ignoramuses and psychopaths and none of these characterizations is up for debate, These are now facts.

    • If the commenters here were familiar with the dynamics of Finnish politics, they’d be aware that German influence has next to no role in Finnish domestic politics. The True Finns are hostile to Greek bailouts, and the Finnish government depends on their support.

      If this is the sort of understanding of the outside world that Syriza’s leadership had, it’s no wonder things went so badly.

  • Those of you who feel weak at the knees thinking that there are countries who have power over you and your future, better look at this graph to realize at least which countries are these because for sure it’s not Germany and her clownish finance minister:!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_mktp_cd&scale_y=lin&ind_y=false&rdim=country&idim=country:CHN:FRA:DEU:JPN:GBR:USA&ifdim=country&hl=en_US&dl=en_US&ind=false

    • I can not imagine how a voice of logic, a voice of truth may impose catastrophe on anyone. Apropos why don’ t you look for the etymology of the word catastrophe and also its so named theory!

    • Well, we have a saying: The investigation of the meaning of words is the beginning of wisdom. (Antisthenes 450 b.C). Etymology help us in determining the real meaning of a word.
      So the greek word catastrophe is a compound word from preposition Cata (=against) and noun strophe (=pivot, turn). It means 1.turn something upside down but also 2.finally solve or Accomplish (solution in a drama act).
      So catastrophe theory tries to solve (accomplish) not to destroy (the current meaning of catastrophe). And truth means reality, not to be forgotten.
      [email protected]

    • Is Varoufakis trying to make Greece again a source of migrants for the wider and more prosperous world, then?

      I would suggest that ancient Greece, for all its achievements in its time, has little to say now. Burnishing that past as somehow relevant to contemporary Greece–why? how?–seems very odd.

    • This level of reply is NOT welcome on this site. You will be a lot happier over at, say, Alternet. Here nobody will even bother to address your content. Just sayin….

    • He has “imposed”? Or rather he has tried to do exactly what the Greek People democratically commanded him and Syriza in general to do. It should be apparent from opinion polls and last Sunday’s referendum that Syriza enjoys now more support than in January, while the reactionary opposition has been weakened a lot (ND wouldn’t get even 20% of the vote now, Syriza could reach 50%).

      By now it is clear to all who are not blind that the only one destroying Europe is Germany (and a couple of Baltic satellites it has). Nobody can blame Syriza for trying to do what they were supposed to do. If anything they can be criticized for excessive naivety and lack of alternative plans.

      This is not just about Greece: all or most of the peoples of Europe are being stepped on by this German bully and its associates (banksters in essence). Yanis is absolutely right that this EU is not viable. Whatever happens to Greece now will happen to other states in the near future (or worse things even). Ideally we could kick Germany out of the EU and move on but that’s not going to happen, so we need a plan. Greece needs an immediate plan right now but the rest of Europe needs also a short-term plan to ditch Germany and move on somehow.

      Otherwise Europe will go downhill most perilously. I fear even an Ukraine scenario in many places. Conflicts are only going to escalate as the EU clearly becomes a trouble-maker and not anymore a factor of stability. Sad times lay ahead until we wake up and shatter the yoke of the banksters.

    • “By now it is clear to all who are not blind that the only one destroying Europe”

      Hopefully not. All that is clear is that Greece is consuming itself.

  • Dear Yanis,
    long ago you stated that euro is a badly designed currency with flaws and also without proper mechanisms and continued by saying that once in practically you never exit. It is as saying that someone will forever stay in a badly founded house although earthquakes started happening.
    You also presented your modest proposal in a european level. Unfortunately the eurozonists and the german EU do not approve such proposals including the greek one.
    Therefore what choices remain open except a coordinated exit from Euro or probably other. Which in turn require a Bplan always to exist and processes and documentations always be available on hand. Just as in the case of earthquakes there are processes to be applied by the civil services.
    But what i hear by any government official during these 7 years from 2009 is that no other plans exist apart from being a semi-wrecked ship heading rudderless and uncontrolled with no hand knowing what to do.

  • Reblogged this on Ya,ya,ya and commented:
    ¿Por qué, en contra del sentido común, contra el veredicto del FMI y en contra de las prácticas cotidianas de los banqueros que se enfrentan a agobiados deudores ,se resisten a una reestructuración de la deuda? La respuesta no se encuentra en la economía,,porque en el fondo reside en las políticas laberínticas de Europa.

    El drama financiero de Grecia ha dominado los titulares durante cinco años por una razón: la obstinada negativa de nuestros acreedores en ofrecer un alivio esencial de la deuda .

    En 2010, el Estado griego se convirtió en insolvente. Dos opciones consecuentes con continuar pertenenciendo a la zona euro se presentaron: el razonable, que cualquier banquero decente recomendaría – con reestructuración de la deuda y la reforma de la economía; y la opción tóxica – con ampliación de nuevos préstamos a una entidad en quiebra mientras se finge que permanece solvente(..)

  • I gather wrong if I think that the IMF advised the debt restructuring as a way to pressure from the US to European partners?

  • I have been saying in recent years, that philosopher Plato was wrong, to be kind. A kingdom or realm of self-subsisting eternal ideals do not exist. Ideas and reality are not only two different things, but any comparison between the two is like comparing the fictional and imaginary with the real and concrete. So the idea of an ideal and united Europe is so far off today, that one wonders, how many human beings must be sacrificed to achieve this ideal until it actually materialized, knowing very well, that it will never. This is the flaw of all political theory, and the history of modernism and secularism.


    Trying to change Europe was a very Greek thing to do. Greeks like to be visionary. That is where it all stops I am afraid. We cannot entrap ourselves with a political metaphysics (a European Ontology!) where real human beings, their lives and future, are being destroyed, for some supposedly greater purpose and an ideal Europe. At least, if this was the dream of some, it is certainly the concern of the institutions, or at least they are certainly not showing it. Even our allies are more concerned about their strategical positioning in this Europe, when they supposedly take on some of the Greek cause.

    It is clear now that there is only one Europe, and it is Germany’s Europe. All members states must submit to Germany’s terms and rules of engagement. If Germany says austerity, then it is austerity. If Germany says otherwise, its will be done. This said, why is is Greece still interested in being part of this kind of Europe? You attempted to sell the vision. It was not only rejected, but every attempt to work within their framework was purposely sabotaged. After such provocation and blackmail, and the countless insults, and the humiliation endured, maybe it is time pack up and walk out. The Europe once conceived is a ship that is sinking. Maybe Germany in the end is doing Greece a service by pushing it down the plank.

    In the end, after January 29, an exit plan should have been a secretly considered. Otherwise, if the Greek government submits to further recessionary cutbacks after 5 more years, the Greek people will be puzzled why they did not simply leave. Unfortunately, by then Greece will have become at best the Mexico of Europe (I disagree with Schaeuble’s less relevant preference to Puerto Rico), with political corruption reaching new and unprecedented standards in Greece’s history of political corruption. The North Europeans will be coming to Greece for vacations in brand new resorts (i.e. funded by EU investment plans), built and run by international corporations. The Greeks -rayahs but with new masters- will be running to serve piña coladas for its guests for peanuts a day. Does Greece really want to sell out their country to foreign investors and at rock bottom price? Do you want Greece to be humiliated?

    So what about the new drachma? A tremendous impact you say, and more risk with a new drachma. If this means that the country has hope to get out of this predicament in 2, 3, 4 or 5 years, then yes perhaps, “just do it”, to borrow a quote from the butcher of European unity, Dr. Wolfgang Schaeuble.

    It will be up to the citizens of Greece to rebuild from ruins. Greeks are a smart and resourceful people. They are pretty successful everywhere else. Why can they be successful at home? Why sacrifice generations and the future of Greece to an idea that may never reach fruition? Plato was a dreamer.

    • The idea of a Germanic Europe is totally unacceptable. Let it be resolved that we can not share the same roof with these people. Case closed.

    • Excellent point, Dean. I agree.
      I ‘d really want Yanis, after all his experience as minister, to clarify a bit the role of Hegemony he attributed to Germany for advancing the whole Europe.
      And as Nicholas Pantelopoulos points a coordinated exit to new currency would be a relief.
      And (please correct me) this is exactly what Dr. Schaeuble proposed today at Eurogroup and Summit. He calls us, instead of loosing all assets and also sovereignty to opt for a national currency and also debt restructuring via Pari-Club 19 (If Spiegel document is correct) without the burden of Eurozone rules.

  • You said it earlier, something like: each time we walk two thirds of the path, they step back the same length. You say it now again with other words: “my conviction is that the German finance minister wants Greece to be pushed out of the single currency”. It was never a negotiation but a war of sorts, or bullying or scapegoating or whatever you want to call it but not negotiation.

    My big question is where is Syriza’s plan B? Does it even exist? You have made a great work awakening everyone from illusory ideas about what’s going on in the European Union but you guys also need to save Greece from this death trap, and by now it’s obvious that that won’t happen through “negotiations”.

    • My big question is where is Syriza’s plan B? Does it even exist?

      Excellent question. And don’t forget plan C, D — including a plan for a worst case scenario such as a Grexit. A responsible government would not only have such plans, but I would also add that a serious leadership would have been working on such plans long before the voters of Greece elected them to lead Greece.

      And do such plans exist? No. In other words, amateurs.

      As for the Thugs, what have they been doing these last few years? Obviously they have been preparing, planning for such an event, unlike 2010. In other words, professionals.

      Greece is prostrating itself, humiliating itself, going against the wishes of its own citizens — let’s accept the evidence: the referendum was a travesty of democracy — before the Thugs, and it’s still not enough.

      Amateurs vs. Professionals. 🙁

    • I still hope that the convergent augury by radical Lapavitsas and reactionary Piketty of a week ago becomes true tomorrow and banks, including the Central Bank, are intervened for the sake of sanity.

      The last demands from Germany are so extreme that even the SPD has rejected to support them and Luxemburg is panicking about France and Germany falling apart. But there they are and with the Finnish Fascists and other Baltic countries rallying behind them or even beyond them. To me this implies that there are two Europes: the normal Europe with some common sense and “Baltica”, which is totally weird and dangerous.

      If there is no agreement today, there’s no more room for dilettantism in Greece, IMO. But that also means that the European Union will have effectively crossed the point of no return. And after that point of no return, I’d rather be an impoverished but free Greek than still remain trapped in the EU’s quagmire.

    • Sorry Evans-Pritchard, not Piketty. P-beginning English names both… all “Greek” to me. 🙂

    • The last demands from Germany are so extreme…

      A Greek TV reporter from Brussels today — think he was from MEGA TV — brought up the rumor of EU technocrats taking over the Greek government before a deal is reached.

    • Sorry Evans-Pritchard…

      He’s the Greek government’s go-to reporter for publicising leaks.

      And boy does the Greek government leak. How much, you say? The Greek government has more leaks than the Titanic!