Tag Archives: Grexit

Pleven Plan.

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You can think of the early Cold War as having had layers.[1] Between 1945 and 1947 the Soviets had it pretty much the way they wanted. The Red Army occupied Eastern and much of Central Europe. Chase away or kill the supporters of democracy in Eastern Europe. Stage a bunch of elections. (Run by guys waving pistols saying “Who is against? Raise your hands.”) The Western European countries were in ruins and bankrupt. The Americans cut off Lend-Lease aid as soon as Japan surrendered and they wanted to bring their troops home as soon as possible. The Communist Parties of France, Belgium, and Italy were under Soviet control, so most of the labor unions were under Soviet control as well.[2] Wait for the Americans to leave, use the unions to wreck the economy and the Communist parties to paralyze government, and march in.

From 1947 to 1950, the Americans changed their minds. You can imagine Henry Fonda going “Hey, wait a minute.” With a combination of money, technology, know-how, a basic decency that we used to possess, and that casual ruthlessness Americans adopt when they belatedly decide that they don’t like you, the US slapped the Russkies silly.[3] The Marshall Plan, the CIA, NATO, the Berlin Air Lift all followed.

Then, in June 1950, North Korea invaded South Korea. Apparently, the Cold War wasn’t just about politics and economics in Western Europe. It also was about being willing to die at a freezing dawn on some ridge in a wide spot in Asia. If it happened in a divided country in Asia, then it might happen in some divided country in Europe—like Germany. The Americans demanded that the Western Europeans prepare to fight the Russkies. If you wanted people who knew about killing Russkies, the natural place to look was Germany.[4] So, re-arm the Germans.

The French (and Italians and British and everyone else) went buggy over this idea. After the Blitz, after Oradour, after the Ardeatine Caves, the last thing any European wanted was the same Germans with new guns.

So, cut to another feature of post-war Western European history: “integration.” By 1947, uniting the nations of Europe “at the peak” hadn’t worked out, so an engaging schemer named Jean Monnet had proposed uniting “at the base.” In 1948 he got the French foreign minister, Robert Schuman, to pitch the idea of a European Coal and Steel Community. Every member country would pool its resources and an international authority would apportion them.

How about trying the same thing with the scary prospect of German soldiers? The Germans put in the soldiers, while the British, French, and whoever put in the officers. Jean Monnet got the French defense minister Rene Pleven to pitch this idea in late 1950. They called it the “European Defense Community.” No one liked it except the Americans. However, they were the ones with the money, so…

Years of negotiations followed. French resistance proved most important.[5] In August 1954 the French rejected the EDC. People said “It’s the end of the ‘European’ project.” Right.

[1] Rather like yon Shrek beastie.

[2] Sorry if this offends any progressive-thinking people. It’s just another “inconvenient truth.” Like androgenic climate change for Republicans. See: Franz Borkenau, The Communist International (1938); Stephane Courtois, ed., The Black Book of Communism: Crimes, Terror, Repression (1999). Just for a hoot, see Paul Hollander, Political Pilgrims (1981). While you’re at it, see Ronald Radosh, with Joyce Milton, The Rosenberg File (1983).

[3] There were probably old guys up at Standing Rock wondering what a Russian reservation was going to look like. Maggots in the flour, watering the cattle before weighing them, ministers with Bibles and “boarding schools.”

[4] Of course, Germans also knew a lot about being killed by Russkies, so they weren’t enthusiastic about this idea.

[5] In 1954, the CIA thought about bribing a majority of French parliamentarians to win passage of this EDC, but concluded that French politicians are like beer: you don’t buy it, you just rent it.

Why are the Germans so mad at the Greeks?

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You can’t get blood out of a stone. The Greek debt will have to be “restructured”[1] for the crisis to end. Germany owns the largest single chunk of the debt[2] and is the dominant force in Eurozone decision-making. The Germans are obdurately refusing to restructure the debt, at least until the Greeks show a firm commitment to economic reforms. This position is opening a gap between Germany and other countries like France, and threatens to drive Greece right out of the Eurozone. Why are the Germans so determined to play the “bad cop”? Here it is worth thinking about two factors.   One is German formative experiences; the other is Greek behavior.

While journalists invoke the great post-WWI inflation as an explanation for German insistence on austerity and probity, a more immediate influence may be that of German reunification in 1990. An old Russian joke about Communism held that “they pretend to pay us and we pretend to work.” The same held true in the former East Germany. Inefficiency went hand-in-hand with feather-bedding. Massive shut-downs of uncompetitive eastern factories followed unification. West Germans bitterly complained of the poor work ethic of the “Ossies.” Unemployment doubled in the eastern territories between 1990 and 1995. Nevertheless, western Germans kept faith with eastern Germans. Wages and pensions doubled in the east,. One informed estimate of the total cost of German reunification between 1990 and 2010 runs to 2 trillion Euros, or 100 million Euros per year for twenty years.[3] Much of this came in the form of subsidies paid from western Germany to the eastern Germany. In the end, however, Germany emerged as the highly-competitive dynamo that dominates the European economy today. No one helped the Germans pay these costs. Two figures in this trauma were Angela Merkel and Wolfgang Schauble. Now they have the same prescription for Greece.

In contrast, the Greeks have behaved disgracefully from one end of this long crisis to the other. Anyone who lives in Britain, Canada, Australia, or the United States knows Greeks to be hard-working and entrepreneurial. Those aren’t the Greeks who were left behind by the great emigration. The Greeks of Greece can excite only contempt. They obtained much of the loans through outright fraud. They spent the money on artificially raising living standards (wages, pensions, public employment), rather than on productive investment that would allow Greece to repay its debts. They ignore the fact that a huge write-off of Greek debt already took place back in 2009. They have tried to prosecute the Greek official who revealed that Greece governments had been “cooking the books” for a decade. From first to last, they have resisted carrying out most reforms so that the economy could return to economic viability. They denounce being asked to pay their bills or to work for a living as “humiliation.” Lots of German tourists have seen Greeks ‘”at work”: for example, 2.3 million German tourists visited Greece in 2007.

The Germans are in the wrong on the need to restructure the Greek debt. The Germans fail to realize that Greece today is a much poorer country than was western Germany when it bailed-out eastern Germany by itself. However, the Greeks are just in the wrong. The Greeks of today are not the Greeks of the Peloponnesian War. Resolution, honor and self-sacrifice are not Greek characteristics today. Neither side seems to recognize the truth.

The truth is that the Greeks will not pay. Do the Germans want to destroy Europe and create a “humanitarian” crisis to make a point? What can be saved of and for “Europe”?

[1] The IMF has recommended a 30 percent reduction and a stretching out of the payment period to reduce annual payments and to allow inflation to further reduce the real value of the obligations.

[2] See the chart at http://www.bbc.com/news/world-europe-33426328

[3] https://en.wikipedia.org/wiki/German_reunification#Cost_of_reunification

Coming Soon to a Theater Near You: Grexit Rising:

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When it comes to tossing around their weight, it doesn’t matter that each country has a single vote at the U.N. General Assembly. There are a few big, important countries and there are many little, unimportant countries. You can see this at work in the current stand-off over the Greek debt issue.

The I.M.F., although chock-full of technical experts, still has an acute political awareness. So, the I.M.F. has long favored pairing a reduction (“restructuring”) of the debt owed by Greece to its European creditors (especially Germany) with economic reforms by Greece. Greek debt is up to 180 percent of GDP. There is no way the Greeks are going to make the sacrifices necessary to pay the debt, but the European creditors have refused to absorb the losses. The Greeks revolted against both austerity and the reforms pushed by the I.M.F. and the European Union. Now there is a dead-lock. However, in public the I.M.F. has laid the blame for the impasse at the feet of the Greek government. Complaints about the intransigence of the creditors were uttered sotto voce.[1] That reflects the importance of Germany and France on the world scene and within the European Union. The harsh stance toward the Greeks also reflects the utter unimportance of their country. Greeks are by nature Hellenophiles, so they have some difficulty registering the reality that no one else cares what happens to Greece.

Before joining the Eurozone, the Greeks could have dealt with their debt problem (and did) by devaluing their currency. Effectively, this robbed their creditors. Served the creditors right for lending to the Greeks. Financial Darwinism in action. Nobody much cared. Joining the Eurozone, with its single exchange rate, robbed Greece of this option.[2]

In a normal bankruptcy, the creditors would have to eat a lot of their claims on the grounds that they had been foolish to lend the money in the first place. The Greek case is different because the crisis arose when it became apparent that several Greek governments representing different parties had “cooked” the national accounts in order to deceive lenders. So, it seems perfectly reasonable to me that Greece would get its head held under the tap while someone (with a German accent) gave them a good scrub with a steel brush. Still, you can’t get blood out of a stone. Why not say “enough is enough”?

I conjecture that there are several reasons. First, once all is forgiven, and the debt has been written down, and the Greeks have agreed to some cosmetic reforms of unions and pensions, and enough time has passed for people in financial markets to forget about the whole thing[3], the Greeks will do it again. There is no solution to this problem except to boot the Greeks out of the Eurozone. Second, what will be the effect of a Greek default on the creditors? Back in August 2012, it was estimated that the Eurozone Central Banks could lose as much as 100 billion Euros from a Greek default, with the German Central Bank getting soaked for up to 27 billion Euros.[4] I have not seen much discussion of the impact on the creditor economies of a Greek default (but maybe I wasn’t looking). Economically, but even more politically, accepting that the money is gone will be hard for democracies to choke down. Still, push is coming to shove. Either before or after a new “extension,” the Greeks will get shoved out the door.

[1] Liz Alderman and Landon Thomas, Jr., “I.M.F. Recalls Negotiators as Deadline Looms for Greek Deal,” NYT, 12 June 2015.

[2] In exchange, the Greeks gained the transient psychic benefit of believing that they did not live in a banana republic.

[3] In all likelihood a relatively short span of time. Which should make Americans wonder whether anyone learned any lessons from our own “recent unpleasantness.”

[4] See: https://en.wikipedia.org/wiki/European_debt_crisis#Greece