A monetary war has been fought in the eurozone and Greece has lost. It's in the best interest of the Greek people and of the rest of Europe to cancel the country's debt and organize its exit from the common currency.
by Stefano Casertano
Greek opinions about Germans are changing. When "austerity measures" were first imposed, Greek newspapers and posters infamously depicted Chancellor Merkel as a Nazi leader. But the reaction has lately become more sophisticated: Now we hear that Germans want to pursue a strict interpretation of Protestant ethics (which knows no redemption on earth) and punish the Greek people.
But when you ask Germans, they don't feel like they're punishing Greece. Instead, the German version of the story is that the beautiful Mediterranean country has been afforded plenty of chances to reform itself. Moreover, Germans argue, the original sin lies with the Greeks as well: Athens keenly insisted on entering the euro and used a bit of accounting magic to meet requirements. If the country fails, it's certainly not Germany's fault.
Reconciliation between those two positions seems impossible -- as is true in most cases when somebody owes money to somebody else and the latter cannot pay.
But to overcome this precarious situation, we ought to distinguish between moralism and pragmatism. Let's go for the moral argument first: There are a few facts that we should recognize. Yes, the euro was a poorly planned endeavor. The idea that Greece and Germany could become part of the same monetary and economic zone was crazy. Yes, fifteen years ago it was cool to be inside the eurozone, and if you weren't, you were either a loner (Switzerland), controlled a lot of oil money (Norway), or had a big financial sector (Great Britain). Yes, the responsibility for the entrance of weak economies into the eurozone also lies with the strong economies who allowed standards to slip. It's like a professor who allows a cheating student to pass the exam. When the cheating is revealed, the professor responds: "Yes, but he really wanted to pass." Which leads us to the final "yes" fact: Yes, it's not all Greece's fault that the country entered the eurozone and now finds itself in a difficult situation.
In the end, the main response to the moral argument is: Who cares? Who cares about why and how Greece entered the eurozone? Who cares about state accountants tip-tapping on Excel fifteen years ago? Does this discussion make tomorrow's solutions more likely? Surely not. Let's leave this question for beach conversations during your next vacation to Greece after a couple of ouzos (no ice, please!).
We must move beyond trying to find scapegoats, please. At least in this regard, Europe should display unity: The mess is a genuine European mess, which means that it affects all of us.
Unfortunately (at least for German taxpayers), there is another set of considerations to be made, and they're all starting with an emphatic "no." The first one is probably the most important: No, we are never going to get all the money back that was lent to Greece. This isn't a pessimistic opinion but simple math: The Greek economy is collapsing. Even the IMF forecasts cannot keep pace with the decline of Greek GDP. Whenever a new PDF is posted online, the Greek economy has already contracted again. No, austerity does not work. No, it will never work.
Greece is no northern country. Pay cuts and tax increases usually lead to popular discontent that makes reforms less likely. This is a story that Germany is actually quite familiar with: German welfare reforms in 2004 were financed through budget deficits, not through cuts. Until 2004, the Italian economy had been growing faster than Germany's economy -- someone even published a book about The Fall of a Superstar, and people believed it. Since the implementation of the reforms, Germany has experienced faster growth than its peers.
For Greece, it is now too late. But since we won't see our money back anyway, maybe an easier solution becomes possible. I'm talking about the choice between "deep crisis" and "apocalypse." One scenario would be the continued enforcement of austerity. The second scenario would be the pardoning of debt. I'm just not quite sure which term applies to which scenario. Let's give it some thought.
If debt is pardoned, lenders lose money. That would set a bad example for Italy and Spain (and, bienvenue au club, France). But the debt pardon would also allow the Greeks to really do something differently. They could return to the drachma and would cease to be front page material in European newspapers. Greece could also avert the destruction of opportunities for several generations of Greeks. And the islands of Santorini and Mykonos would become cheap again (well, maybe not Mykonos).
If debt is not pardoned, lenders lose money as well. Greece would then become a geopolitical mess adjacent to the Balkans (which has historically never worked out well). Unemployment and organized crime would flourish. The country could still hope for a bailout from China -- which could invest money to reform Greece and exploit its riches.
So we're still not quite sure which scenario is the debt crisis and which one is the apocalypse. In both cases, we lose our money. In the second case, not only do we lose money, China also stands to gain it. That seems unwise to me. Why should we let other geopolitical powers benefits from Greece's weakness? Would it not be more wise to help Greece exit the euro, pardon its debt, and aid economic reconstruction?
These are harsh words. But reality is harsh, too: The Eurozone has fought a monetary war, and Greece has lost. We cannot punish the country any further. After World War II, the United States spent all its efforts to rebuild West Germany and Italy to prevent the Soviet Union from doing the job for them. China is no evil empire in the Soviet sense, but I'd still be happy if Greece stayed inside the sphere of influence of the old continent.
This piece originally appeared in The European Magazine.