Can Europe Make It?

Why does Germany insist on a failed programme for Greece?

The elephant in the recent Eurogroup meeting room was Greece's 2010 failed structural readjustment programme, admonished by Yanis Varoufakis as 'fiscal waterboarding'. Why does Germany persist in defending it?

Alexander Kazamias
27 February 2015
Eurogroup meeting 2015

Eurogroup meeting 2015. Flickr/EU Council Eurozone. Some rights reserved.

As the Eurogroup meeting of 16 February focused again on the Greek crisis, further wrangling over deadlines, bridging programmes and the notorious ‘Eurozone rules’ were to be expected. The elephant in the room, however, is the failed structural readjustment programme which was implemented in Greece since its first bailout in 2010. Five years on, the country’s economy has contracted by 25 percent, unemployment has risen to 27 percent and national debt, seen by many as the root cause of the Greek crisis, instead of contracting has soared from 124 to 180 percent of GDP.  Thanks to the migration of 2 percent of the population and the increase in suicides and deaths linked to cuts in electricity and healthcare, unemployment did not rise further. 

Many will be wondering why Germany and its allies continue to support Greece’s return to such a disastrous programme

Despite these dreadful statistics, Europe’s leaders continue to mutter that, on balance, the Greek adjustment programme has shown promising results. During last week’s joint press conference with Yanis Varoufakis, the German finance minister spoke about ‘acknowledging the progress achieved in Greece in recent years’, citing unemployment as an example to show that this ‘has been dropping’. The not so good news, however, is that the rate of joblessness in Greece fell last year from 27.5 to 26.6 percent. Dr Shaeuble also referred to ‘IMF data showing that Greece has come much further than anybody expected’. IMF projections, however, are notoriously unreliable. When the austerity programme began in 2010, the IMF forecast that in three years Greek growth would be restored to 2 percent and unemployment to 14 percent. In its latest report, however, which Shaeuble mentioned, the real figures for 2013 were -3.9 and 27.3 percent respectively. Clearly, the German minister was not sincere when he claimed that progress in Greece had exceeded expectations.  

As the Euro is hanging over a cliff in these ongoing negotiations, many will be wondering why Germany and its allies continue to support Greece’s return to such a disastrous programme. Despite Angela Merkel’s evasive attitude whenever asked, equally telling is the fact that no serious economist has come out to defend it. Indeed, Nobel laureates like Joseph Stieglitz, Paul Krugman, Sir Christoper Pissarides and other leading economists have sided with Syriza and share its opposition to the bailout programme which Varoufakis has admonished as ‘fiscal waterboarding’.  So, why does Germany persist in defending it?

A known, but unspoken truth is that the dominant way of thinking within the EU is driven less by sensible economic argument and more by political zeal and cultural stereotypes.  As post-development economist Arturo Escobar has pointed out,

‘there is an orientalism in economics that has to be unveiled – that is a hegemonic effect achieved through representations that enshrine one view of the economy while suppressing others’. 

Long before Syriza’s victory on 25 January, Angela Merkel approached the Eurozone crisis through a policy based on suppressing alternative solutions. When president Obama asked her last Monday to ‘work with the new Greek government to find a way that returns Greece to sustainable growth’, she responded by defending austerity in Ireland and Portugal and said nothing about Greece. Hegemony, especially when exercised by inexperienced powers, often resorts to ‘one size fits all’ policies which discount the distinctive problems facing different subaltern states.    

Equally important is the cultural subtext of orientalism... or ‘Balkanism’,

Hegemonic power and ideological rigidity, however, are not the only causes of Germany’s fixation on the failed Greek programme.  Equally important is the cultural subtext of orientalism or, more precisely, what Maria Todorova has called ‘Balkanism’, a discourse founded on the discriminatory belief that people in southern Europe uphold, and by implication expect, lower standards of humanity than other Europeans. On this basis, since her 2011 Meschede speech, Merkel has embraced the view that the unity of the Eurozone is undermined by the ‘lazy southerners’ in Greece, Spain and Portugal. ‘We can’t have a common currency where some get lots of vacation time and others very little’, she said. Similarly, Dr Shaeuble had little difficulty speaking last week about a 27 percent rate of unemployment in Greece as ‘progress’, although he would have found it much harder to use similar words if the jobless rate in Germany or France were half of this. 

Despite the cautious optimism which has emerged from the Eurogroup and EU Council meetings on 11 and 12 February, there is still a worrying possibility that Greece might be denied a growth-oriented new programme, thus fuelling new scenarios of ‘Grexit’ and a resultant meltdown of the entire Eurozone. If such an outcome were to prevail, it would not be because of any economic thinking or necessity. It would be chiefly because hegemonic politics and Balkanist bigotry have gotten seriously out of hand.

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