Who Is Destabilizing The EU? Greece or Germany?

By Jon V Kofas

Does Greece with just 2% of EU GDP have the ability to destabilize the EU simply by refusing the IMF-EU imposed austerity program, or does Germany have such power because it has been trying to impose its economic hegemony over the rest of Europe?

On 19 February 2015, German Finance Minister Wolfgang Schaeuble rejected a Greek compromise proposal for a Greek “bridge loan” that would essentially buy six-month time for the new SYRIZA government in Athens to restructure the fiscal system and stabilize the government’s finances while meeting domestic needs.

Rejecting the proposal from Athens, a proposal that most of the EU members are willing to support, Germany demanded that the new SYRIZA (center-left) government of Greece continue with IMF-EU austerity as previous (neo-liberal oriented) governments had agreed in the past five years. Of course, austerity has resulted in a drop in GDP of 25%, drop in one-third of incomes (wages, benefits and social security) for about two-thirds of the population, unemployment of 26% and a mass exodus for college educated people, while leaving the public health care system in shambles because money was transferred from health care to paying interest on debt. At the same time, debt-to-GDP ratio rose from 110% before austerity to 175% in 2015. The strongest argument against austerity is that every single promise the IMFand Germany made about its results – economic development, lower unemployment, lower debt-to-GDP ratio, healthier government revenues – turned out to be entirely false.

For its part, Germany insists that Greece is trying to negotiate an extension of euro zone funding with no strings attached and it must abide by all neo-liberal policies previous governments agreed to implement, regardless of the cost to the middle class and workers, to health care and education, as long as the defense sector stays untouched because Germany exports weapons, submarines, etc to Greece. Meanwhile, Athens promises to meet its debt obligations as long as it has better terms and no interference in domestic policies. This means no interference in the country’s institutions impacting everything from health care and education to the fiscal system and privatization of public assets that Germany wants sold for pennies on the euro to billionaires waiting for the fire sale. Ruling out any compromise, Schaeuble argued that: “Our room for maneuver is limited. We must keep in mind that we have a huge responsibility to keep Europe stable.”

The German finance minister clearly presents his government as the guarantor of EU stability and Greece as the catalyst for instability. The EU’s largest creditor nation, Germany is the victim of the EU’s largest debtor nation, Greece, so Berlin must protect the integrity of the EU as far as Schaeuble is concerned. The question is whether this is the case, or is the German finance minister demonizing the weak debtor nation, buying time and forcing it to make even more compromises so that the failed IMF-German-imposed program prevails in Greece. This would then send a message to all of the EU that Germany is hegemonic and its austerity and neo-liberal policies will prevail over the periphery members in the EU that Germany has reduced into quasi-colonies, as the Greek prime minister implied in a recent speech before Parliament.

Germany has a long history of trying to impose its hegemony over Europe, going to war when Prussia led the unification of the Germanic states in 1870. Germany went to war again in1914 in a blatant attempt to secure more colonies, semi-colonies and spheres of influence, and global markets. In 1939, Hitler, following the long-standing German tradition of hegemony went to war against the rest of Europe, putting an end to the strategy of war as a way of securing the goal of hegemony. In the second half of the 20th century, Germany turned to the concept of European economic integration to accomplish the goal of hegemony where war had failed in 1914 and 1939.

One of Germany’s best historians of the 20th century, Fritz Fischer, argued in his works dealing with the German Empire that the goal of Prussian (Junker aristocracy)-led regime from 1870 to 1914 was to be a world power, otherwise the alternative was decline. (See Fischer’s Weltmacht oder Niedergang: Deutschland im ersten Weltkrieg, 1965)

The concept of global power status is deeply ingrained in German culture and today it manifests itself in the patron-client integration model that Angela Merkel has been pursuing in order to achieve the goal, while at the same time enjoying the support of German banks and corporations, many of which the government is itself a stockholder. In other words, German contemporary foreign financial and economic policy as practiced through the mechanisms of the European Union have a historical basis, and reflect the “Fischer Thesis” of World Power or Decline!
One could argue that just because Germany was founded as a nation by going to war against neighboring France in 1870, that does not mean Germany in early 21st century is militaristic like old Prussia. The same argument could then made about Germany’s quest for hegemony in 1914, and again in 1939. In this case, let us wipe out the memory of the holocaust, Jews, gypsies, Communists, among other war crimes, including those that the Third Reich committed throughout the Balkans, including Greece. Let us simply accept that Germany in the early 21st century is not militarist and it is not pursuing political hegemony at the expense of its neighbors, having learned bitter lessons from history. Can we possibly make the same argument about German economic hegemony ambitions?

The obstacle for Germany is not Greece and the periphery nations in the EU that are powerless to determine what happens to the monetary bloc. After all, Greece like all of the periphery EU members have always been dependencies of the core countries. From its creation as an independent nation in 1832 until the present Greece was always a debtor nation and always a dependency of Great Britain from 1832 until the Truman Doctrine, and then on the US from 1947 until the 1970s when it took a turn toward much greater European integration and depndence.

Germany’s problem today is actually the core EU members, especially the UK that wishes to redefine its relationship with the EU, and the US that wants a balance of power in Europe with a modicum of containment imposed on Germany through the EU and NATO. At the same time, there is the reliance of Germany on Russian energy that makes it vulnerable and the global competition from China that is investing hundreds of billions in Europe, thus investing in market share at Germany’s expense. Greece is small, symbolic, and a political issue that reflects Germany’s larger problems in its quest for global status.

The issue for Germany is to inject sufficient fear into the rest of Europeans about any nation deviating from German policy dictates so that they follow faithfully as they have in the past. Greece is only the example Germany is using to accomplish its goal, because Greece has only “negative political and economic leverage” while Germany has positive leverage. In short, Greece, like all debtor nations in our modern times can threaten suspension of payments thus causing instability among private and public bondholders who would rather secure a deal securing some return on investment than no return.

The massive transfer of wealth from Greece to Germany in the last five years of austerity has resulted in several billion euro profits for German banks. True, German taxpayers have provided loans to Greece used to repay German and other EU creditors, but the money never goes to Athens, but directly to the banks including European Central Bank that has also made huge profits from Greek bonds. In other words, in the short term European taxpayers are making loans to Greece to pay the EU banks, while Greece will be saddled with debt for the next 80 years. This kind of negative leverage actually destabilizes markets because large institutional investors fear not making as much money as they hoped. Of course, there is one other type of negative leverage Greece enjoys that really angers Germans, even if they do not support their government’s tough policy. The left-center SYRIZA government has repeatdly asked Berlin to open negotiations for war crimes and several billion – anywhere from 30 to 150 billion euro – that Germany owes Greece. Berlin insists it will not discuss war crimes and damages owed to Greece.

On the other hand, there is the positive leverage that Germany exercises as the hegemonic creditor nation. In order to secure austerity that keeps the currency strong at the expense of debtor nations whose economies are weak and become even more dependent on the creditors, Germany and by extension the EU is refusing liquidity to the debtor nation. The threat of Germany immediately throws off the bond and stock markets, because it means that the absence of agreement with the debtor will mean financial and economic turmoil.

Germany’s positive leverage stems from its massive economic power within the EU and clearly as the dominant country it has the ability to stabilize or destabilize as it wishes. At the same time, Germany feels the pressure from the US and China, pressure it resents as we have seen over the disagreements on the Russia-Ukraine crisis. In its quest for global power status, Germany wants a freer hand in the EU that it considers its back yard, just like the US considers the Caribbean and Central America its back yard. With France politically and economically weak, the major obstacle to Germany is the persistence of anti-EU sentiment coming out of the UK. It is possible that the UK will have an even larger economy than Germany at some point before 2024, and this is something that Germans take into account when they position themselves for hegemony today. In short, the German-UK power struggle is important today, though hardly fierce enough for these two economic rivals to go to war as they did in 1914.

German power means the power to stabilize or destabilize the entire euro zone. Greek weakness means that it must use every other power from China and Russia to the US in order to counterbalance Germany’s pressures. Berlin resents that the UK and US, as well as China and Russia want a European balance of power with a Germany that is weaker than it is. Not too long ago, a US government official noted that the German trade surplus is a destabilizing factor in the EU and it comes at the expense of the other members. This kind of thinking prevails among the other great powers in the world, and it is something that Germany is trying to surpass when it adopts a harsh negotiating posture toward Greece. Unlike many analysts who insist that the issue is a culture clash, a difference between a northern European vs. a southern European country, I believe that those are marginal issues and at the core rests German strategy for hegemony and Greek insistence at preserving a modicum of national integrity and sovereingty.

Jon V Kofas is a novelist. He blogs at http://www.jonkofas.blogspot.in/

20 February, 2015