Germany and Greece: A Critical Bond

17 October 2017
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Relations between the countries with the European Union’s strongest economy and its most troubled one have been testy at times, but the bond has held. Yet just when it needs strengthening, the link between Germany and Greece may be at risk of fraying further.

During Greece’s debt crisis, angry exchanges in the Greek and German news media and populist rhetoric on both sides encouraged national stereotyping, affecting each country’s domestic politics and relations between them. But the need for Germany and other countries to support Greece also prompted moves toward closer union in Europe. Passions in Greece seem to be abating, but now Germany is in danger of being swayed by simplistic narratives — at potential cost to Greece and the European Union.

Failure to keep the eurozone intact would be a disaster — in economic and human terms for Greece, and as proof that the political will to protect the European project is lacking.

In Greece, the political center fragmented, to the benefit of formerly marginal extremist groups that have exploited public anger without solving the problems that cause it. This has hindered the consensus needed for recovery. Germany’s recent elections suggest that the combustible mix of political passions and simplistic economic narratives has taken center stage there, too.

Greece’s economic problems triggered the European Union’s first major crisis. Chancellor Angela Merkel of Germany was in favor of Greece remaining in the eurozone but made a point of not making things easy for Athens. This was ostensibly to avoid moral hazard, but perhaps more to appease critics at home. Now, with her conservative party having won the elections by a reduced majority, she is likely to be under pressure to make things even harder for Greece.

The irony is that until recently, it was Greek politicians who railed loudest against the bailouts, with opposition parties branding governments as sellouts for signing on to reforms and austerity in exchange for loans. The present government — a coalition of the radical left and nationalist right — came to power in early 2015 on an anti-austerity, frequently anti-German platform. Prime Minister Alexis Tsipras demanded support with no strings attached.

When Greece’s partners and creditors called his bluff, the country defaulted on a payment to the International Monetary Fund and was on the brink of exiting the eurozone when Mr. Tsipras signed on to a new bailout agreement with even tougher terms. Forced to abandon his radical policy, he came to rely on the German chancellor for support and understanding. But his brinkmanship undermined earlier efforts and pushed Greece back into recession.
The country is still trying to pull itself together, with the economy showing modest growth this year.
Now it is German politicians who threaten to derail the relationship that held the eurozone together. Even before the Sept. 24 election, the surge in support for the extreme-right-wing Alternative for Germany party had skewed the country’s politics, with members of other parties echoing some of its demands, including opposition to the eurozone and to support for Greece.

In trying to forge a governing coalition, Ms. Merkel will have to reconcile contradictory policies among potential partners and placate critics within her own party. The Free Democrats, who are likely partners, advocate a hard line on Greece. Recently, the party leader, Christian Lindner, accused the soon-to-be-former finance minister, Wolfgang Schäuble, who had repeatedly proposed that Greece leave the eurozone (at least temporarily), of being too soft. Mr. Lindner is in a position to demand commitments that there be no debt relief for Greece and that Germany maintain a strict fiscal policy with regard to Europe.

This is a difficult time for liberal democracy. The threat to the European Union and its principles demands a stronger union, as the new French president, Emmanuel Macron, has stressed. The European Commission president, Jean-Claude Juncker, refers to the need for social values that go beyond the concerns of the single market and the eurozone.

Over the past few years, Ms. Merkel has agreed to move toward closer union. This was not so clear at the start of the crisis. In 2010, there was no centralized fund to rescue Greece. The system that was adopted, mainly at Germany’s insistence, involved eurozone countries making bilateral loans to Greece; its terms were punitive, and it also made taxpayers in donor countries keenly aware that their money was going toward bailing out the Greeks rather than protecting the common currency.

This caused lasting suspicion of Greece in many countries. It kept the focus on national interests rather than encouraging confidence in the European whole. The immigration crisis magnified this, with several countries breaking ranks with the European Union’s policy, erecting walls and refusing to accept their quota of refugees, choosing their own perceived interests over the bloc’s principles.

The eurozone now has the institutions and procedures to cope with economic emergencies. It dealt with crises in Ireland, Portugal and Cyprus without provoking turmoil similar to that in Greece or inciting anger in donor countries. The European Central Bank — despite German protestations — plays a more active role defending the euro and member states than it did in 2010. As long as Greece remains in bailout limbo, however, it is shut out of the E.C.B.’s bond-buying program, which would give Greek banks greater liquidity and improve confidence in the economy.

It is no surprise that populists have made gains in Germany. But they still account for a small percentage of voters and should not be allowed a disproportionate say in national policy. There is too much at stake. In Greece, we saw what happens when politicians with slogans rather than serious proposals dominate the scene. In Greece, though, it is the Greeks who pay for their mistakes. The world cannot afford for Germans to make the same mistake.
If Germany is kept from working toward European unity, this will mark a lack of leadership of historic consequences. If the European Union’s weakest link cannot hold, the union may fall apart. If nations allow irresponsible minorities to dictate policy and sow division, what will keep them, too, from falling apart?

Source: nytimes.com

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