Yanis Varoufakis: Was Maastricht Another Versailles for the German Nation? A Reply to Klaus Kastner

Lambert here: This post gives some insight into how hard the hardball that led to the Euro really was. Makes “the mess in Washington” look like pattycake (though not, admittedly, the run-up to the Civil War).

By Yanis Varoufakis, a professor of economics at the University of Athens. Cross posted from his website.

Klaus Kastner suggests that Germans cannot sympathise with my analogy of the Greek Bailout as a new Versailles Treaty because many, in Germany, feel that Maastricht was another Versailles Treaty imposed, by France, upon them. While there is no doubt that France tried, and failed, to adopt a predatory attitude toward Germany (and toward the Bundesbank in particular), the Maastricht-Versailles analogy is unsustainable and patently incorrect – in sharp contrast to the Greek Bailout-Versailles parallelism which is spot on. 

Kastner’s Alternative Versailles Analogy: Maastricht as a Drain on Germany

Klaus Kastner reminds us that, on 18th September 1992, Le Figaro led with the following headline:

The opponents of Maastricht fear that the common currency and the new Central Bank will fortify the superiority of the D-Mark and the Bundesbank. But the exact opposite will happen. If it comes to Maastricht, Germany will have to share its financial might with others. ‘Germany will pay’, they said in the 1920s. Today Germany does pay. Maastricht is the Treaty of Versailles without a war

Kastner then asks this question of us, his readers:

“Given the choice, would you rather be a borrower who owes billions but who knows that he will eventually pay that debt at best partially, if at all? Or would you prefer to be a lender who has billions of claims but who knows that he will eventually have to write much of that off, if not all of it (without having provided for such losses as yet)? I am not saying that Greece is in a better position. All I am saying is that huge costs will hit Germany once they can no longer be covered up. And they cannot be covered up forever, that’s for sure!”

Maastricht Was No Versailles Imposed Opon Germany

Kastner is right in one important sense: In late 1946 France was persuaded by the United States to drop its insistence that German industry be raised to the ground on condition that France would administer the US-designed European common market. In Charles de Gaulle’s inimitable words: “The EEC is a horse and carriage: Germany is the horse and France is the coachman.” And when a few years later, in a discussion with Henry Kissinger, who asked him how he would prevent German dominance of the EEC, de Gaulle answered: Par la guerre!

Kastner is also right in implying that Jacques Delors’ grand plan, in the lead up to Maastricht, was to usurp the Bundesbank’s autonomy vis-à-vis interest rates policy and gradually to harness the Bundesbank to a primarily French administered Eurozone. Le Figaro‘s headline reflected that ambition. It also reflected something else: The desperate struggle French elites were caught in to persuade a sceptical French electorate to say ‘yes’ to the Maastricht referendum (which almost produced a ‘no’). In this sense, Le Figaro was procuring an illusion that it hoped would sway voters; the illusion that France was about to score another victory against the German by accepting monetary union with Germany. Alas, however offensive that propaganda campaign might have been for the German people (and I have no doubt it was), it remained just that: a sad propaganda campaign that had no basis in truth – as the French people, deep down, understood.

What Kastner neglects to tell us, is that the French elites’ campaign to subjugate the Bundesbank, to usurp German industrial and financial power, was something that the Bundesbank had sensed and fought powerfully against. It destroyed it first by allowing the European Exchange Rate Mechanism to collapse (giving the green light to George Soros to speculate against it) and then forcing France into a savage recession (with interest rates well above what Paris would have wanted) that broke the French elites’ spirit. Then and only then, did the Bundesbank concede to the creation of the euro.

This is why I am arguing that Kastner is wrong: Maastricht was not imposed upon a weak Germany. The opposite happened. Once the inane illusions of the French elites (that they would remain, in de Gaulle’s words, the coachman while Germany is the horse) had been ruthlessly crushed by the Bundesbank (giving rise to a slow burning permanent recession in France – which has been strengthening the National Front on a permanent basis), only then did Germany accept Maastricht, making sure that it would work beautifully in its own national interest.

More precisely, the Eurozone operated as a single currency within which German surpluses would grow inexorably helping its larger corporations to fund their globalisation drive. Part of the surpluses German companies extracted from the deficit Eurozone countries were used to build capacity in China, Eastern Europe, the United States and Latin America. The rest of these surpluses were exported by German banks to the Eurozone periphery funding ponzi growth (real estate in Ireland and Spain; and in the public sector of Greece) which fed, in turn, demand for BMWs and Mercedes-Benz.

And when these bubbles (caused by vendor-financing provided by the German banks to the periphery) burst, the bailouts that followed were nothing more than predatory loans for the purposes of ensuring that Irish banks would not default (as they should) to German bondholders and that Greece would not burn a hole in the books of Deutsche Bank etc. That some of these losses will be passed on to the German taxpayers, after years of ultra low bund yields and a massive flow of capital to the periphery to the Frankfurt banks, can hardly be thought of as a new Versailles imposed upon… Germany.

From this perspective, to see Maastricht as another Versailles imposed upon the German nation is both to underestimate the German authorities of the early 1990s (the Bundesbank in particular) and to err badly regarding the historical record. It is also to add considerable injury upon the destitute Greeks, the wronged Irish etc.

The Bailout Was a Versailles Treaty for Greece, for Ireland and for the Rest of the Eurozone’s Long Suffering Periphery

In a final note, Kastner argued that there is a ‘technical’ difference between Germany’s post-WW1 and Greece’s current predicaments:

“Versailles required of Germany to pay foreigners (which I guess it didn’t, anyway). The 2010 memorandum required Greece to get by with less money from foreigners than before. Only since the primary balance went into surplus does Greece sacrifice domestic expenditures by prioritizing payments to foreigners. So from that standpoint, the ‘Greek Versailles’ has only begun once Greece turned its primary balance into the positive.”

  • Germany did not, in the end, pay the agreed reparations because it was impossible to do so – as the Allies had imposed repayments on the defeated German nation that its economy could not fund.
  • Greece will, in the end, also not meet the agreed loan repayments because it is impossible to do so – as the troika has imposed repayments on the defeated Greek nation that its economy could not fund.

The parallel is obvious. Kastner’s ‘technical’ difference obscures a grim reality: Greece should never have borrowed the money it borrowed from the troika. That loan was imposed upon an insolvent nation by lenders keen to transfer losses from the books of the northern banks to the shoulders of, first, the Greek taxpayers and, later, the European taxpayers (including to a small extent the German ones). Greece was as much bailed out by the troica as Germany was ‘saved’ by the Allies in 1919.


A rational Europe should never have imposed, and a virtuous Greek government should never have agreed to, the predatory loans also known as the Greek Bailout. They forced Greece in a situation similar to that of Germany after 1919. To portray these loans as a bailout for Greece (and to argue that Greece was simply being asked to live within its means), while at the same time arguing that Maastricht was a form of Versailles imposed upon the German people, is to undermine whatever remnants there are of hope that Europeans can find common ground based on a mutual commitment to Truth and Reason.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Gerard Pierce

    I thought it was truth, justice, reason and the American way, or something like that. What are those arrogant Europeans doing infringing on our cliches.

  2. not_me

    The way to help Greek borrowers without hurting German savers is a Steve Keen like universal fiat distribution PLUS new credit restrictions so the distribution would not cause a net change in the money supply.

    But apparently credit restrictions are unthinkable to most – so credit-addled is the world. To those who realize that government subsidized credit for the private sector is a form of theft, the solution is obvious but to others the cognitive dissonance must be great.

  3. Moneta

    The only way these loans work out over time is with inflation. Yet no one seems to see any coming. Markets are betting on deflation for the long-term. Hmmm…..

    1. not_me

      The only way these loans work out over time is with inflation. Moneta

      No. A Steve Keen-like distribution of new fiat could be done with little price inflation risk IF it is combined with sharp restrictions on new credit creation.

      There IS a mostly pain-free solution so let’s not pretend that misery is necessary; it isn’t.

  4. Jon Cloke

    Pedantic historical aside: whereas Versailles really wasn’t an apposite simile, there is a more fitting historical one – that of Canossa, of which Bismarck famously (1872) said “We will not go to Canossa!” In that episode (as wikipedia tells us) Canossa became “famous as the site where Holy Roman Emperor Henry IV did penance in 1077, standing three days bare-headed in the snow, in order to reverse his excommunication by Pope Gregory VII.”

    So a powerful German HRE was forced to humble himself in front of a weak Pope with little/no temporal power and who had taken refuge in Canossa to escape the HRE – because of the spiritual and moral power possessed by the Pope.

    You can see I didn’t get out much when I did Modern History at Oxford…

  5. Banger

    It is not reason that counts but propaganda/PR and the perceptions it creates. All major institutions with real power are twisting reality into weird and fantastic shapes such that the publics in the West have no-clue about what is actually going on in the world. Sometimes I think that the fascination with the “Mystery” genre in popular entertainment is a funny way of helping us sharpen our skills in discerning reality. Imagine what Columbo or Poirot would make of our collective political situation.

    I find it difficult to understand but something weird is going on in Germany and it bears close inspection. The financial chaos the EU seems to be spreading and the mishandling (?) of the Ukraine crisis point right at Germany and the German ruling elites. What is going on?

    1. Generalfeldmarshall von Hindenburg

      I wish I had the resources to track all that down, as it really is fascinating. I remember a lot of intimations that one of the main drivers behind the breakup of Yugoslavia was German intelligence. Ditto the dismemberment of Serbia. A very weird alliance between crypto-fascists in the BND, neocons (the Noodelman/Kagan crew), drug mafias and big banks in London and Frankfurt. Are these people working to an agenda? Or just playing off one another’s relentless drive for expansion and power?

    2. susan the other

      Yes. I’m thinking the same thing. I read Lavrov’s speech to the Russian foreign affairs group on PCR and thought it was a masterpiece of understatement. The thing that stuns me is that now, after being acolyte atlanticists, the Russians have suddenly become very interested in developing their own eastern frontier and doing business with east Asia. And Germany is playing it very cool. But it doesn’t take a genius to realize that Germany’s future lies to the east. There must be a serious disagreement in this country about whether Germany should actually join Russia since we spent almost a century trying to ring-fence Germany and boycott Russia. Is it the old Heartland theory all over again? Whoever controls the Heartland controls the world? Or is it a planned division of two economic blocks including two giant oil blocks? Is it globalism or bi-globalism. What is goin’ on. I really do not think bankruptcy has much of anything to do with anything. But it certainly causes hardship.

      1. susan the other

        So the next thought naturally goes to the famous Wolfowitz Doctrine. An alliance of Germany and Russia?

        1. Tom

          Being familiar with Germany, Russia and the US, but living now in Germany I would say that Germany to her great relieve has swallowed the talk of freedom and democracy lock, stock and barrel. The Anglo-US worldview has assumed something like the status of a state religion. But now though reality is rearing its ugly head. And the reality is that the old way of letting the US decide while Germany confines herself to economic foreign policy doesn´t work anymore. It is very disturbing for everybody here. On the one hand first Sowden, then Ferguson (where some of the most US friendly and right wing German journalists had truly awful experiences) and on the other hand Russia and Ukraine. For a country that has mostly lived in a world of illusions that is truly awful. The far right and the far left are the only ones who look reality in the eye. The center together with the mass media tries to pretend or really believes that nothing has changed and that as before there are the “good ones” and the “bad ones”. The population doubts and doesn´t believe the mass media anymore. There are tough choices ahead and it doesn´t look good at all.

  6. Min

    “France was persuaded by the United States to drop its insistence that German industry be raised to the ground”

    Surely that’s “razed to the ground.” ;)

  7. different clue

    Why, after all this time, doesn’t Greece repudiate its debts, leave the Euro, and burn the fucker down on its way out the door?

    1. John Jones

      One party does want to repudiate the debt and leave the Euro and E.U but it is very small has no money and it is blacked out in a lot of the t.v I think.

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