This is yet another post in my ongoing discussion with Yanis Varoufakis. Please have a look at Yanis’ most recent response on the transition period to his Modest Proposal. Three quick remarks before I start with the topic of this post:
- The MP basically leads to each existing government bond being partly backed by the ECB, and party by the national government. No legal problems, more like the “two bonds” transition I suggested. It also means that the refinancing of existing debt will be cheaper in the future (unless MM theorem holds, which it probably doesn’t).
- Marginal debt, however, will not. It will be more expensive to sell new bonds above refinancing old ones. My mentioning of the MM theorem was supposed to show that interest rates on remaining “red” debt will go up, and considerably so. What are the consequences if you don’t believe that the MP will make the crisis go away? Yanis doesn’t really seem to want to answer this question…
- Finally, the fact that countries don’t have equity is not relevant to whether the MM theorem applies or not, in my view.
Today’s post is in our terminology KE4 in response to YV1 and it deals with the blame game between Germany and Greece, as well as historical comparisons.
In my original post, I claimed that Yanis had in the past blamed Germany for economically exploiting Europe. I didn’t mean to suggest that he is playing a simple blame game, my apologies. I should have been more precise: the view that Germany has benefited from the euro and that its economic model brought the periphery into these troubles in the first place (the alleged German “mercantilism”), is misplaced in my view. But more importantly, such statements about the German economy open the door to blame games, which is dangerous.
Because let’s be honest, Yanis: whether Germany on aggregate has benefited or lost from the euro is a question that cannot be answered with a sufficient degree of confidence, there are valid points on both sides, and nobody knows the counterfactual. The same is true for whether German workers have benefited from it, or were hurt. Neither of us should put too much faith into his own analysis and judgement, the German economy is much too complex for that. It is fine to endorse Hainer Flassbeck if one agrees with him, or Hans-Werner Sinn for that matter, but one should also note that there are very well-reasoned positions all the way to the other side. I am somewhere in the middle, arguing that benefits and costs of the euro roughly balance for Germany.
A strong statement about Germany’s gains, however, opens the door to blame games by others who read it. Let me quote one commentator on Yanis’ blog, accusing Germany (emphasis mine):
Your government shouldn’t force illegal loans and corrupted deals for imports and artificial standards of leaving in any country and other governments shouldn’t accept. So, not only you grew your economy at the expense of others, now you say it is not logical to pay for the problems caused. Stop crying and pay up. Not the people, but your government. … The whole country of yours should go to jail on a far away planet.
If you think that this surely is not representative of Greek public opinion, I am afraid, you are wrong. I was shocked to read about this recent poll in Greece, in which 51% agree that Germany’s economic success is based on a “lack of transparency in handling big projects abroad (Siemens, corruption, bribes)”, whereas 18% think it is the competitiveness of the German economy (14% think it’s both).
This poll brings me to historical comparisons. I probably don’t have the amount of historical knowledge that Yanis has, and I know that Germans are sensitive when it comes to historical comparisons, war metaphors etc. But suggesting that Germany is imposing a “Versailles Treaty” on Greece is highly problematic. After all, what should the motivation be for such a treaty today? Retribution like in 1919?!
A New Versailles haunts Europe, by Yanis Varoufakis
… Retribution [=Vergeltung] was the order of the day, especially in the mindset of a nation that, over the past century, has accepted its collective punishment gracefully and managed to rise out of the mire through sheer hard work and extensive reform. Greece should to pay for its sins too. For Germans, the cost of saving the Greek state from the clutches of the money markets was not the issue. The issue was that Greece should suffer a deserved punishment for putting at risk a club which gallantly bent the rules to have it admitted as its member. And when the said club is the one issuing the currency in which the German people trade, save and take collective pride, that punishment took on the significance of a crucial bonding ritual. …
This is just flat-out wrong. And offensive. Germany’s motivation was never retribution. Many German policy makers simply misdiagnosed the crisis as one of public debt alone and argued, correctly according to their diagnosis, that Greece should simply spend less and tax more to get out of it. Others claimed that Greece was “under attack by speculators”, and just needs liquidity support. Both is, of course, bad economics. But the consensus policy of these two diagnoses is to loan money to Greece at high interest rates (it’s a liquidity crisis after all…), on the condition of massive budget cuts. IMF-style policy, somewhat 1980-ish, if you want. Nothing of this is retribution, and contrary to what Yanis claims, “the cost of saving Greece from the clutches of the money markets” was the main concern for the German public.
So no, I am not accusing Yanis of a blame game. But I do want to point out that his writings are at times not particularly cautious either when it comes to using slightly one-sided statements about Germany’s economy, or historical comparisons that are more often than not unnecessary, hopelessly imprecise and very dangerous. Yanis does influence the tone of the debate, he has 30.000 followers on Twitter alone. Readers may be tempted by such statements or comparisons to go where Yanis doesn’t want them to go – to blame Germany. Or, if the readers are German, they may feel offended and start retaliating. Neither of which is very helpful. Because here comes the truly shocking part of the poll above: the Greek public is so desparate that historizing myths seem to easily take hold.
- 74% strongly agree that Germany wants to dominate Europe through its financial power, and a shocking 69% strongly agree that Germany wants to build a Fourth Reich.
Needless to say to anyone with just a shred of knowledge about Germany, both claims are beyond ridiculous. But it is hardly surprising, then, that 87% and 81% of the participants in this poll strongly agree that some form of late reparations from the Second World War should be paid to Greece.
Two caveats are in order. First, the poll, besides being poorly designed, might be biased. And I hope it is. Maybe Yanis can tell us more about the background of the institute that conducted it. Second, my German readers should not feel offended by the poll, but rather take this as a sign of just how desparate the situation in Greece really is.