Tuesday, 21 February 2012

It’s not the Fourth Crusade, but stolid German economics



From time to time, the nationalist in me decides that this annihilation of Greece by austerity is all an evil plot by the West/Franks/Germans, a continuation of the Fourth Crusade (1204), which, in more recent times, has seen attempts to destroy Cyprus and Serbia too. Ask yourself what Cyprus, Serbia and Greece have in common? Compare, why don't you, the EU’s treatment of Croatia – set to join the EU in 2013 – with Serbia, which cannot get anywhere near EU accession until it recognises the independence of Kosovo. Surely everyone knows that the break-up of Yugoslavia was done in such a way as to emasculate Serbia and was precipitated by Germany as part of a plan to extend its political and economic influence in the Balkans? And why have the Germans, Dutch and Finns not been as scathing, callous and insulting to Portugal as they have to Greece?

Now, there may or may not be some truth to the above scenarios; but I suspect the bottom line for Germany is cold, brutal economics. If you watch (above) Yanis Varoufakis’ exchange with Robert Halver, Baader Bank’s chief economist, it is clear that for German financiers, Greece (and Portugal) is just an accounting problem, and a problem that needs to be got off the books. For Germany, it just makes stolid economic sense that Greece leave the euro, reform – or not – its economy, this would be up to the Greeks – and then rejoin the euro when its ready, or when Germany decides it’s ready, after poring over the Greek books.

Talking of the Greek books, below is a report from BBC’s Newsnight on another aspect of Greece’s economic downfall: which is how Goldman Sachs, with the knowledge of EU authorities, connived with Greek officials to conceal Greece’s debts through swap agreements and give the impression that Greece was going to be a fit and able member of the eurozone. The report argues that while the swaps were full of risks for the Greek side, for Goldman’s, Greece’s anxiety to join the euro meant the deal they put to the Greeks was so tilted in its favour as to almost amount to loan sharking.

And, finally, even someone with my basic understanding of economics can tell that the new ‘bailout’ for Greece agreed this morning is not what it seems and that its assumptions – of Greece returning to growth in 2014 and continuing to grow until 2020 so that its debt will be reduced to 120 percent of GDP (extremely high, but manageable because of the robustness of this new Greek economy that will have risen from the ashes) – are pie in the sky; and that the more pessimistic scenario painted by the troika – leaked to Reuters and the Financial Times – of austerity stifling the chances of growth, of continuing political instability in Greece and the debt in 2020 being 160 percent of GDP and of Greece requiring assistance of €245bn, is more likely.

3 comments:

Anonymous said...

Surprised no one commented on this one. John you would not be the first person who noticed that the former axis countries seem to be getting off lightly with this crisis. You may be on to something. I don't know but there is a bias against Greece for sure. I believe that the current zeitgeist is very western in General and since this kind of thinking became in vogue Greece and its legacy have been mocked.

ted

Anonymous said...

The reason the Germans, Dutch and Finns are more scathing etc of us than the Portugese may be because our debt to gdp ratio is 160% as compared to Portugal's 118%; our bailout borrowings are 240 billion euros as compared to Portgugal's 78billion euros; and their government has whole heartedly imposed the austerity measures whereas our government has been at best half hearted.

Anonymous said...

Anon what you say is true now abut at the beginning of the crisis Greece's Debt was around 110% and the crisis itself caused the debt to balloon. But most articles I have read show that even with a slightly smaller debt the European banks are much more exposed to Portugal debts than Greece's. They are obviously making a show of Greece to show they are doing something while quietly making sure the Portuguese crisis quietly goes away.

ted