Yves here. Varoufakis performs the important service of translating what is effectively a formal communication from Germany on its stance towards subject states, meaning the Eurozone periphery.
By Yanis Varoufakis, a professor of economics at the University of Athens. Cross posted from his blog
On 19th July Mr Wolfgang Schäuble, Germany’s finance minister, published an article in The Guardian entitled We Germans don’t want a German Europe. The article was written hours after Mr Schäuble left Athens, following a controversial visit during which he told Greeks to expect no relief and to stick to the script written three and a half years ago. Below, you will find Mr Schäuble’s article (in black) annotated liberally by yours truly.
WE GERMANS DON’T WANT A GERMAN EUROPE
The Guardian, 19th July 2013. By Mr Wolfgang Schäuble
Germany has no taste for shaping others in its image – but we want a European Union that can compete.
YV: He wants a mercantilist Europe reflecting Germany’s mercantilist mindset. But he does not want (and I believe him) a hegemonic role for Germany. This combination of (a) demanding of the rest that they ‘compete’ and (b) the reluctance to manage aggregate demand in Europe leads, with mathematical precision to self-defeating authoritarianism.
Where do we in Europe stand today? Three years after the start of the first assistance programme for Greece, and about three months after we agreed on a programme for Cyprus, the picture is mixed. On the plus side, there are many encouraging signs from the crisis-hit countries in the eurozone. Labour markets and social security systems are being reformed; public administration, legal structures and tax regimes are being modernised. These efforts are already bearing fruit. There is more competitiveness. Economic imbalances are shrinking. Investor confidence is returning.
YV: “Ubi solitudinem faciunt, pacem appellant” (tranl.: Where they make a desert they call it peace). They removed all worker protection and turned unemployment into a norm, and they called it ‘reformed labour markets’. They disbanded social security and reduced public heath provision to a cruel joke, and they called it ‘reformed social security’. They closed down public radio and tv, and ensured that Greeks have no income from which to pay their increasing tax bill, and they called it ‘reformed public administration’. They shrank wages to third world levels and put armies of workers on the dole, and they called it ‘more competitiveness’. They pushed investment into negative territory, and they called it ‘investor confidence’.
Institutional improvements in Europe have increased the likelihood of sound budgets in future years. We have introduced more binding fiscal rules, brakes on national debt and a robust crisis-resolution mechanism that gives us time to pursue the necessary reforms.
YV: George Orwell eat your heart out! They fashioned the most fragile crisis-resolution mechanism possible and described is as ‘robust’. They sent debt-to-GDP ratios into the stratosphere and have the audacity to speak of ‘sound budgets’. They introduced more of the Maastricht-like limitations that Germany was the first to violate (quite rightly) when it faced a public finance crisis; and they congratulate themselves like latter-day King Canutes who will stem a future tide of troubles by a mere command of their debt brakes.
The next step is the banking union, which will further reduce risk, both for the financial sector itself and for taxpayers.
YV: This is the richest of rich statements, coming as it does from the finance minister who ensured that the Banking Union will be celebrated in the breach and certainly not in the observance; the minister who insists on a Banking Union which does not involve the problematic banks, or the subsidiaries of the TBTF banks; which has no union-wide resolution fund behind it; which will lead to deposit haircuts in some countries of the Eurozone but not others.
Our efforts to regulate financial markets will ensure that those who make high-risk investment decisions are liable for any ensuing losses. In other words, we are restoring the link between opportunity and risk.
YV: Except of course for German banks which will be forever shielded from any losses and from any serious scrutiny into their idiotic and quasi-criminal practices.
But there is also a negative side. There is widespread uncertainty among people in our countries. Young people in parts of Europe face a dearth of opportunity. People are losing their jobs because their country is undergoing a profound economic transition. And too often public discourse about the crisis is dominated by mutual recriminations and populist commentary. National clichés and prejudices, which we believed to be long overcome, are rearing their ugly heads again.
YV: Like in the case of Banking Union, the author is acknowledging the need into order to legitimate his steadfast commitment not to do anything that might help meet it.
This debate is full of contradictions, not least where Germany’s role in tackling the crisis is concerned. There is little consensus in Europe, either about what Germany is doing or about what it should be doing. Some commentators even claim that the notorious “German question” is back. It has been said that Germany is “too strong” to fit in, but also that it is “too weak” to lead the continent. Germany has been simultaneously accused of wanting to reshape Europe in its own image and of refusing to show any leadership.
YV: Quite rightly so. Europeans understand that the powerful, surplus countries must lead. But they also understand the gigantic difference between powerful, hegemonic leadership and idiotic authoritarianism.
And even those calling for more German leadership seem to be doing so for contradictory reasons. Some want Germany to drop its resistance to debt-financed stimuli, claiming that this would help us to overcome the crisis. Others want even more fiscal solidity in exchange for Germany’s solidarity.
YV: A venerable rhetorical strategy of timid leaders: Point to a cacophony of views about the ‘leader’ to justify his inanity along the lines: “If they all criticise me I must be doing something right.”
The views on Germany’s actual policies are no less contradictory. For example, voices outside the country have called for Germany to relax its “draconian” austerity policies while, in Germany, the government has been accused of not saving nearly enough, or even at all. As is so often the case, the truth is somewhere in between. We are working to achieve a reasonable degree of consolidation, to build confidence and thus to lay the foundations for sustainable growth in Germany and in Europe as a whole.
YV: A task at which his government’s policies are failing with aplomb.
The idea that Europe should be – or even can be – led by a single country is wide of the mark. Germany’s restraint does not just reflect the burden of its history. The truth is that the unique political structure that is Europe does not lend itself to a leader–follower dynamic. Europe signifies the equal coexistence of its member states.
YV: Only some member states are much more equal than others; e.g. a certain state which denied other states the right to declare bankruptcy when they became insolvent; foisting upon them huge loans on condition that they shrink their… national incomes!
At the same time, however, Germany does feel a special responsibility towards the mutually agreed strategy for resolving the crisis in the eurozone.
YV: Yes, it certainly does!
We are taking on this leadership responsibility in a spirit of partnership, especially with our French friends.
YV: Whom we never miss an opportunity to drag through the mud, to put in their ‘place’ (with long Bundesbank treatises on how Paris must reform itself), to push into an unnecessary recession.
Like the other countries in the eurozone, both big and small, we know how fundamentally important it is to co-ordinate our efforts closely if we want to overcome the crisis.
YV: Then why has Germany spent four years investing into the mother of all coordination failures?
From the very beginning of the crisis we Europeans have pursued a joint strategy. This strategy aims to achieve the overdue consolidation of public budgets.
YV: “Let’s pursue a joint strategy” is the Eurozone equivalent to the Chicago gangsters’ “I shall make you an offer you cannot refuse.”
But even more, it aims to overcome economic imbalances by improving the competitiveness of all eurozone countries.
YV: And how are we doing this? By converting workers in Greece, Spain etc. into unemployable wrecks or pushing the best skilled toward migrating to Germany, the United States, even China.
This is why the adjustment plans for countries that are receiving financial support call for fundamental structural reforms that aim to put them back on track towards long-term growth and thus secure sustainable prosperity for all.
YV: Quite so. Only problem is that none of these reforms are possible in failed states of the sort caused by the current policy mix.
Sound public finances create confidence.
YV: Sure they do. Which is why Greece, Portugal et al create industrial scale insecurity and shatter confidence – as debt to GDP ratios shoot for the stars, courtesy of the income destroying effect of universal austerity.
But sound public finances are not enough to ensure sustainable growth.
YV: For instance, planet Mars has perfectly public finances (no debt, no deficits) but its economy is… stagnant.
In addition, we need to reform and modernise our labour markets, our welfare state, and our legal and tax systems.
YV: A perfectly true and perfectly besides-the-point statement. It is like saying that a starved person, on the brink of death from malnutrition, needs vitamins, and would benefit from never smoking again as well as from some resistance training; while failing to add that, above all else, she needs… food and clean water. Similarly here, Mr Schäuble neglected to mention the need for large-scale investment funding, for an end to zombie-like national banking systems (that are in a death embrace with insolvent, corrupt national political systems) and, crucially, the dearth of aggregate demand at a European level.
We have to make sure that all citizens of Europe enjoy working and living conditions that are not based on artificial growth bubbles.
YV: Like the ones occasioned by the predatory lending of banks such as Deutsche Bank Mr Minister?
These reforms will not take effect overnight. We Germans know this better than anyone.
YV: Is this why you have been resisting for four years the idea of a common bank resolution mechanism and fund?
Ten years ago Germany was the “sick man of Europe”. We had to tread a long and painful path to become today’s engine of growth and anchor of stability in Europe. We too had extremely high levels of unemployment, even long after we started to adopt urgently necessary reforms.
YV: What the Minister meant to say, of course, was that, while the rest of the global economy was booming, Germany’s wage and inflation squeeze improved its relative position and managed to export deflation and predatory loans while importing net profits. Had those ‘reforms’ (effectively the wage squeeze) been tried after 2008, Germany would be in tatters now. Just like Europe’s Periphery now is.
But without these reforms there can be no sustainable growth.
YV: Not exactly Mr Minister. Your precious reforms worked well for you, and at the expense of Europe, when the rest of the world, and Europe, were growing. But they guarantee sustainable depression when the rest of the world is in a recessionary spasm; as it has been since 2008.
Stimulus programmes based on even more government debt will only shift higher burdens on to our children and grandchildren, and will have no lasting benefits.
YV: True. And this is why our Modest Proposal is recommending four policies that will see to a reduction of aggregate public debt, a vast rise in investment and a cleansed banking sector. Only problem is that Mr Schäuble’s government vetoes all such rational and systematic resolutions of the Eurozone’s systemic crisis.
To create new jobs in Europe, we need businesses that offer innovative and attractive products that people want to buy.
YV: Mr Schäuble has obviously not been educated to the difference between necessary and sufficient conditions. Attractive products are necessary. But they do not consitute a sufficient condition. In the Fall of 2008, just in 1929, the attractiveness of products did not collapse. What collapsed was aggregate demand. Europe is suffering today not because we do not produce attractive goods and services but because of a collapse of credit and demand.
European companies can do this only if governments create the right conditions to help companies to achieve success in our increasingly globalised world. That applies not just to German businesses, but to French, British, Polish, Italian, Spanish, Portuguese and Greek companies as well.
YV: How about, then, fixing our banking system (without which firms, large and small, are dead in the water) by ending the idiocy of having the insolvent Spanish or Italian governments recapitalise the Spanish and Italian banks by means of monies guaranteed by the hapless German taxpayer?
The idea that Germans want to play a special role in Europe is a misunderstanding. We do not want a German Europe. We are not asking others to be like us.
YV: Dear Mr Schäuble, it would be a tragedy (and, moreover, a lie) if Germany refused a special role in Europe. Are you really confusing, in your own mind, a German aspiration to play a special role with a commitment to effecting a German Europe? (Perhaps you need to re-think you choice of speech or article writers.)
This accusation makes no more sense than the national stereotypes that lurk behind such statements. The Germans are joyless capitalists infused with the Protestant work ethic? In fact, some economically successful German regions are traditionally Catholic. The Italians are all about dolce far niente (delicious idleness)? The industrial regions in northern Italy would not be the only ones to bristle at that. All of northern Europe is market-driven? The Nordic welfare states, with their emphasis on social solidarity and income redistribution, certainly do not fit this caricature.
YV: If the first casualty of war is truth, then the first beneficiary of a systemic Europe-wide crisis is stereotypical, quasi (or full blown) racism. Mr Schäuble you are, I am very much afraid, sowing the harvest that you planted four years ago when you committed yourself to a wholesale denial of the systemic nature of the Crisis, opting instead to treat it as a Greek crisis, a Portuguese Crisis, an Irish Crisis etc.
Those who nurture such stereotypes should look at recent surveys that show a clear majority of people – not just in northern Europe, but also in the south – in favour of combating the crisis through reforms, public spending cuts and debt reduction.
YV: Permit me not to be impressed with surveys of views amongst our bewildered fellow Europeans. Back in the bleak era of the Black Death most Europeans believed that the plague was caused by sinful living and would be exorcised through self flagellation.
The Germans themselves are the last people who would want to put up with a German Europe. We want to put Germany at the service of the European community’s economic recovery – without weakening Germany itself. That would not be in anybody’s interests. We want a Europe that is strong and competitive, a Europe where we plan our budgets sensibly, and where we do not pile up more and more debt. The key task is to create conditions that are conducive to successful economic activity, in the context of global competition and demographic trends that pose a challenge for the whole of Europe. None of these things are German ideas. They are the tenets of forward-looking policies.
YV: For once, I shall agree while, at once, repeating the well known adage about good intentions and the road to hell.
Sound fiscal policies and a good economic environment are the only ways to gain the confidence of investors, businesses and consumers and thus achieve sustainable growth. All international studies confirm this, as do the European Central Bank, the European commission, the OECD and the International Monetary Fund – organisations headed, incidentally, by an Italian, a Portuguese, a Mexican and a Frenchwoman respectively.
YV: Someone please introduce asap Germany’s Minister of Finance to the recent treatises against his policies by the IMF and the OECD.
And the policies of European governments are geared towards these objectives.
YV: Yes, Mr Minister, our politicians have been bending to your will, while citizens, North and South, East and West, are being turned off Europe – your Europe, which they increasingly see as the enemy, as the villain of the piece. By silencing all opposition among your partners’ leaders, Mr Minister, you are gutting the House of Europe and destroying its democratic legitimacy.
Those European countries currently grappling with complex adjustment processes deserve our highest appreciation for the way they are reforming their labour markets and social security systems, modernising their administrative structures, legal systems and tax systems, and consolidating their budgets. We should have the deepest respect for the efforts they are making.
YV: Echoes of British Generals in Gallipoli while sending thousand of young men to their pointless death.
Our reward – everyone’s reward – will be a strong and competitive Europe.
YV: I suppose everything, in the end, works out. Even the Black Death had its silver lining, reducing Europe’s over-population issues and, thus, giving rise to Modernity… I suppose that a determined leader will always manage to find something to caress his conscience with, however destructive his policies.