Hot News! The Wehrmacht Failed to Take Greece. Now Germany Tries Again, With a Different Method.

Summary:  Germany used it power over the European Monetary Union to institute a monetary policy that disproportionately benefited itself, to the disadvantage of the periphery nations.  Germany prospered, they lost competitiveness.  Now Germany acts to continue the game, attempting to force the losers to stay in the game.  Now it’s Greece’s turn to go under the hammer.  Will they comply or resist?

Contents

  1. The Financial Times breaks the story
  2. Update: The Greek government responds
  3. Update: Replies to Greece by the EU and the German goverment
  4. For more information about the European crisis

(1)  The Financial Times breaks the story

Call for EU to control Greek budget“, Financial Times, 27 January 2012 — Opening:

The German government wants Greece to cede sovereignty over tax and spending  decisions to a eurozone “budget commissioner” to secure a second €130bn  bail-out, according to a copy of the proposal obtained by the Financial Times.

In what would amount to an extraordinary extension of European Union control  over a member state, the new commissioner would have the power to veto budget  decisions taken by the Greek government if they were not in line with targets  set by international lenders. The new administrator, appointed by other eurozone  finance ministers, would take responsibility for overseeing “all major blocks of  expenditure” by the Greek government.

Here is the “proposal” obtained by the FT.  Only fools would accept this insulting and contemptuous offer.

Assurance of Compliance in the 2nd GRC Programme

I. Background

According to information from the Troika, Greece has most likely missed key programme objectives again in 2011. In particular, the budget deficit has not decreased compared to the previous year. Therefore Greece will have to significantly improve programme compliance in the future to honour its commitments to lenders. Otherwise the Eurozone will not be able to approve guarantees for GRC II.

II. Proposal for the improvement of compliance

To improve compliance in the 2nd programme, the new MoU will have to contain two innovative institutional elements on which Greece will have to commit itself. They will become further prior actions for the second programme. Only if and when they are implemented, the new programme can commence:

(1) Absolute priority to debt service

Greece has to legally commit itself to giving absolute priority to future debt service. This commitment has to be legally enshrined by the Greek Parliament. State revenues are to be used first and foremost for debt service, only any remaining revenue may be used to finance primary expenditure. This will reassure public and private creditors that the Hellenic Republic will honour its comittments after PSI and will positively influence market access. De facto elimination of the possibility of a default would make the threat of a non-disbursement of a GRC II tranche much more credible. If a future tranche is not disbursed, Greece can not threaten its lenders with a default, but will instead have to accept further cuts in primary expenditures as the only possible consequence of any non-disbursement.

(2) Transfer of national budgetary sovereignty

Budget consolidation has to be put under a strict steering and control system. Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time. A budget commissioner has to be appointed by the Eurogroup with the task of ensuring budgetary control. He must have the power a) to implement a centralized reporting and surveillance system covering all major blocks of expenditure in the Greek budget, b) to veto decisions not in line with the budgetary targets set by the Troika and c) will be tasked to ensure compliance with the above mentioned rule to prioritize debt service.

The new surveillance and institutional approach should be formulated in the MoU as follows: “In the case of non-compliance, confirmed by the ECB, IMF and EU COM, a new budget commissioner appointed by the Eurogroup would help implementing reforms. The commissioner will have broad surveillance competences over public expenditure and a veto right against budget decisions not in line with the set budgetary targets and the rule giving priority to debt service.” Greece has to ensure that the new surveillance mechanism is fully enshrined in national law, preferably through constitutional amendment.

(2)  Update: The Greek government responds to German’s assertion of authority over Greece

(a) From a written statement by Pantelis Kapsis, the offiical spokesman for the Greek government and one of the two Ministers of State.

“The government stresses that this responsibility lies exclusively with the Greek government.”

(b) Statement by Evangelos Venizelos, Deputy Prime Minister and Finance Minister of Greece, 29 January 2012

The people of Greece is fully aware of the extent of assistance the country receives from its institutional partners in Europe. With their sacrifices, Greeks will fulfill their historical obligation to take Greece out of the deep fiscal, social and developmental crisis, and will take and implement tough, yet necessary, decisions.

On the other hand, our partners do know that European integration is based on the institutional parity of member states and the respect of their national identity and dignity. This fundamental principle fully applies for countries that go through periods of crisis and adjustment and are in need of their partners’ assistance for the benefit of the whole of Europe and the Euro Area in particular.

Anyone who puts a nation before the dilemma of ‘economic assistance or national dignity’ ignores some key historical lessons. I am certain that the political leaderships of all European nations –particularly bigger nations that bear increased responsibility for the course of Europe — are aware of how friends and partners, who have joined their historical destinies, raise questions.

The October 26 EU Summit conclusions provide a comprehensive provision about the monitoring mechanism for the implementation of the Greek program. This mechanism is completely securing the mutual interest of Greece and its partners for the timely and successful implementation of the program and the relevant commitments of our country. The very foundation of that mechanism after all is the implicit assumption that Greece itself has both the responsibility and the motive to make sure that the program will be implemented.

(c) Various reactions from Greek political leaders, from the Keep Talking Greece website, 28 January 2012

Education Minister Anna Diamantopoulou (PASOK) described it as the product of a sick imagination. “Tt’s an issue of sick imagination, whoever thought it” Diamantopoulou told private Mega TV on Saturday morning.

Greek Communist Party (KKE) said “if the Commissioner be necessary for the plutocracy, it will accept him. But with or without a commissioner, crime against the people is predetermined by the co-ruling of the EU the ECB and the plutocracy in general. ”

Alexis Tsipras, chairman of left-wing SYRIZA asked the Greek government to resing immediately and general elections to be held in February. He describeed the transefer of budget control as “a plan beyond any reason. “It is a plan to loot the country and the transfer of its sovereignty to the Eruopean banks and the international usury” Tsipras said (via Proto Thema)

KKE and SYRIZA are the third and fourth strong parties respectively in the Greek parliament.

(3)  Update: Replies to Greece by the EU and the German goverment

(a) Dow Jones reports that the European Commission sent a response, which came through a written correspondence by a spokesman:

… {the spokesman} stressed that an October decision on the conditions attached to Greece’s second bailout package called for its “enhanced role” on the ground in Greece. {and} that the European Union’s technocrats were in the process of building their presence in Greece and that their new roles would be reflected in the contract — or memorandum — that Greece will sign for its second bailout package.

(b) Statement by Philipp Rösler from an interview with Bild newspaper to be published Monday, reported by Reuters on January 29.  He is the Federal Minister of Economics and Technology, the Vice Chancellor of Germany, and Chairman of the Free Democratic Party (FDP).

We need more leadership and monitoring when it comes to implementing the reform course. …. If the Greeks aren’t able to succeed themselves with this, then there must be stronger leadership and monitoring from abroad, for example through the EU.

The Reuters story ends with another important statement:

A government source in Berlin said Germany’s proposal was aimed not just at Greece but also at other struggling euro zone members that receive aid and are unable to make good on their obligations.

(4)  For more information about the crisis of Europe

Other articles:

Other posts about the crisis in Europe:

  1. The post-WWII geopolitical regime is dying. Chapter One , 21 November 2007 — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
  2. Can the European Monetary Union survive the next recession?, 11 July 2008
  3. The periphery of Europe – a flashpoint to the global economy, 8 February 2010
  4. A great speech by the PM of Greece. How soon until an American President says similar words?, 3 March 2010
  5. Governments cannot go bankrupt, 2 April 2010
  6. Our government’s finances are broken. How do we compare with our peers?, 8 April 2010
  7. The EU does Kabuki for Greece. Is it the next domino to fall?, 14 April 2010
  8. About the Euro crisis: the experts are wrong; the German people are right., 7 May 2010
  9. Former Central Bank Head Karl Otto Pöhl says bailout plan is all about ‘rescuing banks and rich Greeks’, 20 May 2010
  10. The Fate of Europe, nearing the point of decision, 13 September 2011
  11. Europe drifts towards the brink of a cataclysm, 26 September 2011
  12. Delusions about easy fixes for Europe, dreaming during the calm before the storm, 30 September 2011
  13. Every day the new world emerges, yet we see it not.  Like today, as Europe begs China for loans, 15 September 2011
  14. Is Europe primed for chaos, as it was in July 1914?, 7 October 2011
  15. We see the outlines of the next cure for Europe.  Will it work?, 14 October 2011
  16. Today Europe’s leaders took another step towards the edge of the cliff, 27 October 2011
  17. Where to from here, Europe?  Some experts share their views., 8 November 2011
  18. Status report on Europe’s slow re-birth (first, the current system must die), 10 November 2011
  19. Europe begins its endgame.  Watch and learn, for Europe’s problems are the world’s., 11 November 2011
  20. Looking ahead to see the new shape of Europe, 22 November 2011
  21. The simple explanation of why night falls over Europe, 9 December 2011

This post originally appeared at Fabius Maximus and is posted with permission.

4 Responses to "Hot News! The Wehrmacht Failed to Take Greece. Now Germany Tries Again, With a Different Method."

  1. demandside   January 30, 2012 at 8:22 am

    The Greeks, of course, are right. They have the benefit of the experience of austerity over the past two years. To cede sovereignty, particularly to a regime that demands the absolute priority of debt service would be treasonous. It is peculiarly instructive that the ECB can give cheap money to banks which are as insolvent as the Greek government, or worse, without any objection by the Germans.

  2. MZW   February 1, 2012 at 3:33 am

    Very Serious Sam is very seriously misinformed — sadly, like most of the very serious people that dominate the very serious official discourse. While Greece's budget wasn't so great, collectively the fiscal stance of the countries now in trouble (GIPSI) was better than Germany's before the financial crisis. Yes, read that again, it's true — which tells you something about the big lie going on in the official discourse.

    Germany prospered by squeezing wages and pressuring the ECB into loose monetary policy, which was helping them grow out of the post-reunification slump by exporting goods and capital to the periphery. These policies led to an enormous expansion of private credit in the periphery (and associated wage inflation and loss of competitiveness), which the corresponding governments had no power to stop (capital controls to keep private credit out are obviously a no-no under EU rules). It was the role and the duty of the ECB to stop the private credit bubble. Instead, they kept things loose: monetary policy by Germany, for Germany.

    Now that loose monetary policy is desperately needed to recover from the hangover of the crash from this private credit bubble (and associated wage differentials and structural current account imbalances), Germany is giving the orders for tight policy.

    In short: Germany caused the crisis, and Germany is preventing a solution to the crisis. To make it all the more offensive, they're now moralizing and blaming everybody else.