Yves here. As much as I like Mathew Rose’s latest piece, I take issue with some of his readings, and would be curious to get the reactions of readers in Europe or with good contacts in Europe.
On the one hand, he focuses on an issue that reader Swedish Lex and other have pointed out: the heavy-handed actions of Germany in the tempestuous negotiations between the Eurozone and Greece have wound up being a major own goal. The worst moment was when German Finance minister Wolfgang Schäuble rejected the Greek memo submitted Thursday without consulting with other Eurogroup members. Mind you, that may not be as out of line as it appeared technically, since Eurogroup procedures often allow any member to exercise veto power. However, it was a huge breach of protocol since the Eurogroup was due to consider the submission formally in short order.
Greece has done at least as much damage by Varoufakis’ repeatedly and effectively making the case that austerity is not working. Admittedly, that cuts no ice among the true believers, who are legion in the debtor countries, as well as the leaders of the creditor countries who submitted to the Troika’s misrule. But anti-austerity pundits, who had long languished in the wilderness, are now getting more of a hearing. However, the move so far only seems to be toward austerity lite, as opposed to austerity repudiation.
But the bigger issue that Rose raises is that last week’s ugly negotiations, in combination with the fiasco in Ukraine, is exposing Germany as a lousy hegemon, which he argues is producing a political crisis in Germany and fracture lines in Europe. I’m in no position to second guess his reading on Germany politics, but I doubt the immediate significance as far as the rest of Europe is concerned. I suspect that the political reaction across Europe to the German stance in the Eurogroup negotiations did more to crystalize long-standing doubts than embody shocking new information. Moreover, the US example shows that even terrible hegemons can continue to throw their weight around despite producing disastrous results.
As we’ve pointed out repeatedly over the last few years, Germany’s leadership class and its citizens are wedded to contradictory goals: they want Germany to continue to run large trade surpluses, yet they are unwilling to continue financing their trade partners. So the solution seems to be to try to strip mine them until Germany has destroyed its export markets, either politically or economically. That does not sound like a very prudent national strategy.
The only remedy that in the long term will keep the Eurozone together is towards more federalization and more fiscal spending. But that is anathema to Germany. It has no interest in ceding its advantaged role, and many of its voters and power players reject the idea of being fellow citizens with people they regard with some contempt, like Greeks, Spaniards, and Italians.
A section from Karl Polanyi’s The Great Transformation, describing the 1930s, is apt:
Germany reaped the advantages of those who help kill that which is doomed to die. Her start lasted as long as the liquidation of the outward systems of the nineteenth century permitted her to keep in the lead…In adjusting to an isolation sought by herself and later, in the course of her slave-dealer’s expeditions, she developed tentative solutions to some of the problems of transformation…
Under the liberal and Marxist assumptions of the primacy of economic class interests, Hitler was bound to win. But the social unit of the nation proved, in the long run, even more cohesive than the economic unit of class.
Readers may recall the important post by Michael Pettis, Syriza and the French Indemnity of 1871-73. In it, he argued:
The European debt crisis is not a conflict among nations…The financial crisis in Europe, like all financial crises, is ultimately a struggle about how the costs of the adjustment will be allocated, either to workers and middle class savers or to bankers, owners of real and financial assets, and the business elite.
Now return to Polanyi. He argued that even though the 1930 looked like a class struggle, with businessmen and aristocrats too often eagerly embracing fascists as a bulwark against Bolshevism, German was willing to push a breaking system to its destruction. And that rallied nation-states as nation-states to act against the fascists.
Rose himself and others have argued that Germany is engaged in economic war. It will prove to be ironic if the self-styled true Europeans of Syriza, by putting the focus on the destructive end game of Germany’s domination, rally defenses along nation-state lines, to act to stymie Germany, since the collaborationist European elites cannot be trusted to defend them.
By Mathew D. Rose, a freelance journalist in Berlin
Without a doubt, there was some truly brilliant reporting and analyses in the Anglo-Saxon media up to and during Greece’s negotiations with Germany last week. It was suspenseful and informative down to the last minutes of Friday evening. The problem was, that I sincerely doubt that the best articles, commentators and analysts were right. Everyone concentrated upon the financial aspects of the event to such a degree, that they had again lost all perspective of the overall and decisive political picture.
It was Germany who pulled up from the brink in the last minute. They did this, because they had to. Germany’s decision had little to do with financial questions. If that had been the case, then Greece would now be bankrupt and no longer a member of the eurozone.
No one seems to realise that Germany is currently in a major political crisis. The German government have made a complete mess of what they have so desired to attain after 65 years of abstinence: European hegemony.
Before examining the causes of Germany’s change in strategy on Friday one has to understand Wolfgang Schäuble and why he is relatively irrelevant. Schäuble is a vindictive old man (72 years old), who failed miserably in politics. He, as did many others, believed he was going to become Chancellor of Germany. As a politician he was rather boring and unimaginative, but was well liked because with his right-wing credentials. Schäuble personified the German conservative mentality. He was also a loyal acolyte to the then Chancellor Helmut Kohl, doing what a good German does, following orders, right or wrong. 1997 Kohl named Schäuble as his successor. Following Kohl’s electoral defeat in 1998, Schäuble became not only Chairman of the Christian Democrats, but leader of the group of Bundestag members of the Christian Democrats and their sister party, the Bavarian Christian Social Union; in other words, the Shadow Chancellor. He would have to wait for four years for the next elections, in which he had a good chance of finally being instated in the chancellorship.
In 1999, however, Kohl’s orgy of corruption in his period as Chancellor came to light. He had illegally accepted millions of Marks of illegal contributions. Schäuble had obediently assisted his boss and was found out to be an accomplice. After initially adamantly denying being involved, Schäuble in the end had to confess to accepting illegal donations from a notorious arms dealer. As public prosecutors in Germany are not independent, but take orders from the government, of course all charges against Schäuble were dropped. That however terminated his dream of becoming Chancellor. Being popular among the right wing of a right wing party, Schäuble was given minister portfolios under Merkel. The latest, and probably last, as Minister of Finance. Thus he shall conclude his political career as a perennial second fiddle. Merkel runs the show. Thus the bitter, spiteful, bigoted old man he is.
Schäuble’s negotiations with the Greek government in the past weeks have shocked not only much of Europe, but have equally rattled the European political class, which is heavily politically invested in the disaster of austerity. Schäuble dropped all pretensions of a united Europe with a rational financial policy. Instead he has let everyone know who was in charge, which includes deciding unilaterally and bullying the Greeks. He made Vladimir Putin, who at least takes the trouble of being disingenuous; appear a sporting chap. Schäuble was not only willing to smash the Eurogroup, but everything for which the EU stands. For the German Finance Minister there were no options on the table, just capitulation and an austerity programme dictated by Berlin; and better yet, without Syriza in government. Greece, since the election, was financially a dead man walking.
That Germany has been ordering everyone in Europe about for the past six years is no secret, but this has been occurring behind closed doors. Schäuble, with his uncontrolled public outbursts, was discrediting the complete neo-liberal faction that currently runs Europe. Suddenly Germany’s paladins were exposed as supernumeraries of a Teutonic Goliath bullying the Greek David. For the anti-austerity parties it vindicated their claims that European democracy is at threat from German hegemony and arbitrariness. Tsirpas and Varoufakis, who were confronted with a worse case scenario, were clever enough to change their course and become the voices of European reason. The more they did this, the more Schäuble lost it. This was exactly the contrary of the roles assigned to the two parties initially. Should you have forgotten, just have a look at the cover of the Economist from 31 January. The political dynamic of the past weeks was breathtaking. It will probably be remembered as one of the great PR disasters of the decade.
While Schäuble is being hailed as a hero at home, his quislings in Spain, Portugal, Italy, Ireland and France will be closely following the upcoming polls to ascertain the damage done. Nigel Farage had a field day in the European Parliament. Merkel had no choice but to intervene. Her European project is currently going down the drain and Schäuble’s actions would have aggravated the situation still further.
One should not forget that Germany has just suffered a major political setback in its efforts to expand its hegemony within Europe: Ukraine. The German government thought it could demonstrate its political clout in Europe to the United States. While the American government was to organise Ukraine’s membership in NATO, its partner Germany was to spearhead the attack and first bring Ukraine into the European Union.
At the latest in 2011 Germany was preparing the political terrain. The Konrad-Adenauer-Stiftung, a political foundation of Merkel’s Christian Democrats, was already grooming Vitali Klitschko, the current mayor of Kiev, and a year later the current Ukrainian president Petro Poroschenko, to integrate Ukraine into the EU. Merkel’s government apparently completely miscalculated the situation and suddenly found itself in confrontation with Russia, towards whom it has traditionally turned a blind eye regarding human rights to facilitate, successfully, German access to Russian raw materials and the Russian market. It has been a cosy relationship, financially profitable for both sides. How the German government so grievously miscalculated the situation is a puzzle.
Germany, which has reduced its armed forces almost to dysfunctionality to achieve a balanced budget, found itself completely reliant on the US as a military counterbalance to Russian aggression in Ukraine. Against the explicit wish of German business interests Merkel thus had to join the US sanctions against Russia. In Ukraine the situation has inexorably disintegrated: the fall of Donetsk airport to the rebels, the cutting off of a large Ukrainian government force in Debalzewo by the rebels and morale problems in the government army and among the Ukrainian populace. At this point the US ratcheted things up further by publicly proposing arm deliveries to Poroschenko’s government. Germany was suddenly threatened with a full blown war involving Russia at its back door. Merkel saw herself forced to appease the Russian government to stop the Americans, resulting in Minsk II, which probably tacitly included the withdrawal of Ukrainian government troops from Debalzewo – with heavy losses. It was a calamitous defeat for Merkel.
This has created a new geo-political problem for Merkel, again one of her own making. Turkey’s attempt to join the EU has been frustrated by Germany and France, resulting in the Turkish government expanding its relations with Russia and China. This has been accompanied by a deterioration of its commitment to NATO and a weakening the alliance’s southern flank. It cannot be ruled out, that Greece, if driven out of the eurogroup, would turn to Russia or China for financial assistance. NATO could soon find its southern defences in Italy, and that in a time of heightened tension with Russia. Weakening NATO’s southern flank by alienating the Greek government, or even creating a Greek dependency upon Russian economic support, would have added a new dangerous dimension to Ms. Merkels mishandling of the situation in Ukraine. If this possibility had not occurred to the German government, one can assume the US administration has pointed it out.
The introduction of quantitative easing was also a major climbdown for Merkel’s government, demonstrating increasing nervousness in the Eurozone following six years of German imposed austerity, which may be benefitting Germany, but is threatening the political existence of many of its allied political parties in the Eurogroup. Much of the Eurozone’s positive GDP figures are not a result of real growth, but deflation, which at the same time is aggravating the debt burden of many the group’s nations. The German government was able to water down the agreement on Friday evening, but this alters nothing with regard to the increasing misgivings in the eurozone with regard to German financial policy.
Thus it comes as no surprise that the nationalistic and racist German tabloid, Bild, which has supported Merkel in her policies over the years, last week presented its readers with the front page headline: “Two aggressive heads of state bully Europe: Russian or Greek – Who is more dangerous for us?”. This was accompanied by pictures of Putin and Tsirpas. For most EU citizens, neither; for Germany, both – equally.
Germany’s horrific performance in the past week with regard to Greece was anything else but a demonstration of a responsible, competent government, but a government in crisis. We may possibly be currently witnessing the unravelling of the era Merkel – and of German hegemony. That the situation with Schäuble was able to reel so dramatically out of control is a nod in this direction.
The accord on Friday between Greece and Germany had the same function for both sides: gaining time to sort out where things go from here. There has been enough analysis concerning the next steps to be taken by Greece and the Greek government seems to be muddling through the corridors of EU-power somehow.
More important is what the German government will undertake. They have painted themselves into a corner. They can go back into storm trooper mode, forcing Greece to leave the Eurozone, claiming this measure was necessary to defend German hegemony (although they will call it “protecting the Eurozone”) and Germany’s neo-liberal programme. If so, the Germans may arrange for the troika of creditors or another eurogroup nation to do its dirty work by repudiating Friday’s agreement, absolving themselves of blame. On the other hand, they could compromise and try to regain some loss ground. That will be difficult after indoctrinating the German populace into believing that the lazy, corrupt, cheating, greedy Greeks have only one goal in life: plundering the Bundesbank. They will probably follow the usual policy of the Eurozone in crisis and kick the proverbial can down the road.
The problem is that the past two German administrations have been intellectually weak and at the same time increasingly hindered by its ideology of austerity and ambition of European hegemony. The danger of ideologues is the more things go wrong, the more bloody-minded and inflexible they become – even to the point of self-destruction, as was the case of Germany’s last gambit in this direction.