Germany, Greece, and the conspiracy of the technocrats

By Felix Salmon
January 31, 2012
Der Spiegel has a long and meticulously reported piece on the state of affairs as it exists right now between Germany and Greece, naturally concentrating on attitudes within Germany. Meanwhile, Yanis Varoufakis has a much more Greek take on the same subject at CNN.

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Der Spiegel has a long and meticulously reported piece on the state of affairs as it exists right now between Germany and Greece, naturally concentrating on attitudes within Germany. Meanwhile, Yanis Varoufakis has a much more Greek take on the same subject at CNN. And by far the most striking thing, here, is how similar the two pieces are.

The German article is headlined “European Politicians in Denial as Greece Unravels”, while the Greek one plumps for “Why it’s too late to save Greece’s sovereignty”. They’re both saying the same thing: Germany has been treating Greece’s insolvency as though it were some kind of liquidity crisis, which can be solved by lending Greece more money. But of course that’s the worst possible thing you can do with an insolvent debtor: it only makes things worse rather than better.

Here’s Varoufakis:

German leaders, unwilling to confront their bankers and the fault lines developing throughout the eurozone, pretended to believe that the problem was Greece and that Greece could be “cured” by means of loans and austerity. At the same time, Greek leaders, unwilling to confront their electorate, pretended to believe that they could deliver the targets demanded by Germany.

This can be seen as a conspiracy of the technocrats: both sides deliberately agreeing to the impossible so that Europe would be dragged into ever-greater fiscal union. After all, the more money that Germany lends to Greece, the more control it’s going to demand, and the greater the gap between Greece’s promises and its reality, the more control it’s going to feel the need to concede.

But the problem is that the technocrats aren’t managing to bring the two countries’ respective populations along for the ride. The Spiegel article is full of various German politicians saying in no uncertain terms that more money is simply not forthcoming. And the Spiegel article has some very strong demonstrations of why Greece is going to need to devalue if it’s going to have any hope of growing:

In Mediterranean tourism, Greece has to compete with non-euro countries like Croatia, Tunisia, Morocco, Bulgaria and Turkey, which can offer their services at significantly lower prices. The per-hour wage in the hospitality industry was recently measured at €11.39 in Greece, as compared with only €8.49 in Portugal, €4 in Turkey and as little as €1.55 in Bulgaria.

Devaluation alone isn’t enough, of course; it has to be accompanied by a large number of defaults and insolvencies. As the Spiegel article notes, thousands of companies and banks could be forced to declare bankruptcy. But maybe that’s exactly what Greece needs. Bankruptcy is a cleansing process which gives the opportunity to start over.

The Eurocrats are petrified of a Greek insolvency because they know it risks spilling over into Portgual and the rest of the continent. Sovereign defaults tend to be contagious — look at Latin America in the 1980s. But since a default in Greece is inevitable at this point, best it get done sooner rather than later. The German press has worked this out; it remains to be seen how long Europe’s technocrats can remain in denial.

10 comments

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nice article, we expect the deal breaking any minute now.
http://www.cnhedge.com

Posted by cnhedge | Report as abusive

Please, Felix. Please. Don’t call those people technocrats.

Paul Krugman got this one right. Those people are not technocrats.

http://krugman.blogs.nytimes.com/2011/11  /02/crats-maybe-but-not-much-techno/
http://krugman.blogs.nytimes.com/2011/11  /11/crat-me-no-techno-continued/

At best, those people are bureaucrats. Inept and incompetent bureaucrats, dedicated at preserving an no-longer existing order and apply no longer relevant recipes to run the show.

And I suspect that for most, this is neither ineptness nor incompetence. They know perfectly what they are doing, keep the music going for a little while longer, just buying more time, time enough to dump to dilute the responsibilities a bit further more, blur the trails some more and dump the disaster, smoking on the lap of the citizenry.

It’s the same story everywhere.

Posted by Frwip | Report as abusive

The worst way to approach bankruptcy is denial – the ostrich syndrome (burying one’s head in the sand). Debtors and creditors alike should recognise reality, get the part of the debts paid that can be and write off the rest. There may be a knock-on effect, but such cleansing will allow regrowth.

Posted by ChrisLaughton | Report as abusive

Given Greece imports a large portion of its necessary goods – such as oil – how exactly do you suggest it keep the lights on whilst being “cleansed”?

Posted by Danny_Black | Report as abusive

Whoever created this fear that a default would be the end of the world did not know that, outside of Europe, defaults (or rather: reschedulings) have “come a dime a dozen in recent decades” (Chief Economist of Citibank). A debt rescheduling is the most natural thing in the world when a country (or any borrower) starts hitting debt service problems. Debt forgiveness for an EU member state should have been a no-no! That part of the debt which seems “unsustainable” today can be transformed into evergreen bonds with capitalized interest, for example, but the legal claim cannot be waived so quickly! A state which has allegedly over 100 BN EUR in state assets and whose upper class is extremely wealthy with 3-digit BN EUR figures in foreign bank accounts (not to mention 200 BN EUR domestic bank deposits); prime private domestic real estate; fortunes of cash under matrasses; etc.); such a state cannot be given a haircut after only 3 years of crisis!

http://klauskastner.blogspot.com/2012/01  /default-seems-to-be-approaching-if.htm l

Posted by klauskastner | Report as abusive

Greece as a state has large assets.

The Greek middle and upper classes have large assets, both in Greece and abroad.

Greece’s banks were not exposed to US debts and were healthy; it is their exposure to Greek sovereign bonds that has created a problem for them.

It makes little sense to destroy the Greek economy when fine tuning can kick start growth.

If Greece was a customer with excessive credit card debt, we would know what to do.

It’s all very well blaming the technocrats/bureaucrats but they have always been around and will always be around. They are the constant factor.

What they need is leadership.

Greeks would be more than happy to go along with a fair austerity/recovery programme that ensures all classes share the pain and not just the poor.

But such a programme has not been proposed; instead, every few months the Greek government reacts to a nudge from the Troika and imposes yet more taxes in a short period of time on all citizens, irrespective of their ability to pay.

Greeks can see that the establishment continues to receive high salaries and perks in euros while the poor and lower middle classes are trodden underfoot. There is no light at the end of the tunnel.

Instead of an austerity plan, the Troika should come up with a RECOVERY plan.

They can still cut and fine tune, but there should be light at the end of the tunnel.

The current situation means the rich in Greece get richer, those on high pensions in Greece continue to laugh all the way to the bank, and the working, productive classes are being trodden underfoot under a mountain of taxes, red tape and negativity.

Posted by LordStokes | Report as abusive

if germany is treating greece’s debt as a liquidity rather a than solvency crisis, why is mrs merkel’s demanding psi? greece’s elected politicians have no credibility. they consistently and continually lied about what they were going to do and plainly failed in enacting the necessary reforms to the labor market and tax regime. bring on the technocrats i say, montis for all.

Posted by Worsel | Report as abusive

The Greeks have not done a fraction of what they promised. They were suppose to fire 30,000 government employees and apparently they gave 10,000 early retirement that did little to help the problem and eliminated only 1,000 jobs. There is only one way to deal with this insolvency and that is to give them 20 or 30 billion Euros over the next two years at a set rate per month and let Greece default. This is a banking problem and the sooner we forget Greece, the sooner we start the healing process. You cannot trust what they say they will do.

Posted by GASinclair | Report as abusive

” The per-hour wage in the hospitality industry was recently measured at €11.39 in Greece, as compared with only €8.49 in Portugal, €4 in Turkey and as little as €1.55 in Bulgaria.”

The per-hour wage in Greece is high because the kleptocratic state imposes high taxes and pension contributions…

Posted by wiserguy | Report as abusive

@ GASinclair hit the nail on the head

Felix you need to research Der Spiegel archives – there is a good article on the germans and dutch assisting the greek govt with its admin – like its cadastral land database, the fundamentals of a taxation system etc, computer network – the oligarch politicians did not invest in the rudiments of a government administration sufficient to operate some form of taxation (no surprise)

and Der Spiegel has been sour on Merkel for quite a while, their owner is politically partisan

who would lend greek politicians anything on their current level of behaviour? i support the greek people but not that fakelaki mafia running greece, they are a shameful mendacious mob, who use their inhabitants suffering as a form of economic blackmail

an orderly default by greece is not such a gut wrench for the other eurozone states – 145 billion could do a lot of good than into the fakelaki mafia maw.

it is time to stop the greek-germany binary as well, the IMF has recently warned that fakelaki mafia they will not receive funding if they don’t implement those promised reforms

on a happy note, the greek people are welcome to work in the other regions of europe until the fakelaki political mafia are swept out of office and into the dustbin of history, shame on them and their shameless politics

Posted by scythe | Report as abusive