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.