x Abu Dhabi, UAESunday 23 July 2017

Germans and Greeks get nasty over debt

The war of words is worsening between the euro zone partners, which will not make it any easier to resolve Greece's debt problems.

No small change: Greece's debt crisis threatens the collapse of Europe's 11-year-old monetary union.
No small change: Greece's debt crisis threatens the collapse of Europe's 11-year-old monetary union.

Europe's struggle to solve the Greek debt crisis and protect the euro is being threatened by an increasingly bitter war of words between Germany and Greece. Old stereotypes and grievances between the two countries are resurfacing, and this could stiffen resistance in the Greek public to drastic government spending cuts and tax rises needed to ward off a debt default that may trigger the collapse of Europe's 11-year-old monetary union.

Passions are running high, partly because the crisis has touched raw nerves in both companies. For the Greeks, the radical austerity measures being imposed by the EU are a reminder of their painful history of domination by foreign powers for much of the last 2,000 years. For the Germans, the prospect of currency turmoil is anathema after the hyperinflation and economic collapse of the 20th century.

The thrifty Germans have started to vent their anger at Greece for running up a budget deficit that was four times higher than the EU limit last year. Opinions polls show a vast majority of Germans are opposed to their country helping to bail out Greece, even though such a move is looking increasingly necessary as speculators are driving up the price of Greek debt and pushing down the euro. Germany's best-selling newspaper, the tabloid Bild Zeitung, said this month that the "proud, cheating, profligate Greeks" should be thrown out of the euro zone after recent revelations that the country masked the true state of its public finances to secure entry into the exclusive single currency club in 2001 - and then continued concealing much of its debt through accounting tricks.

Last week's edition of Focus, one of Germany's leading news magazines, summed up popular German sentiment by printing a photo montage of the classic Greek sculpture Venus de Milo holding up its middle finger in an obscene gesture alongside the headline, "Swindlers in the Euro Family". Greece, already stung by the humiliation of having its public finances placed under close EU scrutiny, responded angrily to the German vitriol and has predictably raked up the Nazi occupation of Greece in the Second World War.

One Greek newspaper printed a photo montage of Berlin's Victory Column, a 19th century monument to Prussian military power, with a giant swastika planted on top of it. Theodoros Pangalos, the Greek deputy prime minister, said Germany had failed to compensate Greece for the Nazi occupation in the Second World War. "They took away the Greek gold that was in the Bank of Greece, they took away the Greek money and they never gave it back," Mr Pangalos told the BBC last week.

Margaritis Tzimas, a member of the Greek opposition New Democracy, has demanded further compensation for Greek victims of the war. "There are still Greeks who are crying for their lost brothers. How dare Germany have the cheek to denounce us over our finances?" Ms Tzimas says. A German government spokesman has denied that Germany owed compensation and says that bringing up the past would not help solve Greece's problems.

"I must reject these accusations," says Andreas Peschke, a spokesman for the foreign ministry. Germany had paid compensation of 115 million marks (the equivalent to about ?59m at the time) to Greece by 1960 and had made additional payments to forced labourers of the Nazi regime, Mr Peschke says. He adds that Germany has, since 1960, paid about 33 billion marks in aid to Greece bilaterally and via the EU.

Handelsblatt, a leading German business newspaper, has reported that the Nazis did not get hold of the 18.86 tonnes of gold held by the Greek central bank. The treasure was smuggled out of the country in 1941 and the Bank of England handed it back to Greece after the war, the newspaper said. "The Germans plundered and murdered in Greece in the Second World War, and they stole too - but not the gold of the Greek central bank."

Germany, the richest member of the 16-nation euro zone, says it has not decided whether to help Greece and has so far resisted pressure from other member countries such as France for a quick bailout. But preparations for a rescue are going on behind the scenes amid fears that a Greek insolvency would have a domino effect on other euro nations with painfully high deficit levels and rising borrowing costs: Portugal, Italy, Ireland and Spain.

The Greek crisis has confirmed fears that Germans had all along about exchanging their rock-solid mark for a common currency, the stability of which depended on southern neighbours that did not live up to Germany's standards of fiscal discipline. Germany's national psyche is still scarred by the hyperinflation of the 1920s and the economic collapse that resulted from the two world wars. The mark, introduced after the Second World War, became a powerful symbol of economic might and of the stability that Germans crave after all the upheaval of the 20th century.

Many Germans were deeply sceptical about exchanging their cherished currency for the euro in 1999. Helmut Kohl, the German chancellor from 1982 to 1998 who was one of the main architects of monetary union, allayed their fears by arguing that the single currency would be a guarantor of peace in Europe. Economic and political integration, Mr Kohl said, would ensure that the peoples of this war-ravaged continent would never again take up arms against each other. That struck a chord with Germans.

Strict monetary and fiscal rules were put in place to guard the euro, such as the requirement that a nation's budget deficit must not exceed 3 per cent of its GDP. But there has never been much doubt in Europe that monetary union was driven more by the political desire for closer integration than by economic considerations. The sense that their fears have been proved right has intensified the German fury at the mess. Even the Greek prime minister George Papandreou has admitted that the country is beset by widespread corruption, nepotism and tax evasion.

Membership of the euro enabled Greece to refinance at low interest rates and build up bloated civil service and welfare systems in which workers are entitled to pensions of 111 per cent of the average net income after just 15 years of employment. Germans have to work at least 35 years before getting 61 per cent. "That is hair-raising," exclaimed one of Germany's most senior economists, Hans-Werner Sinn, the president of the Ifo economic institute. "They're going to have to tighten their belts so much that it hurts. There's no way around it."

Focus magazine devoted a long article last week to the decline of Greek civilisation, bemoaning that the land that invented democracy, philosophy and the Olympic Games today "possesses no significant poet, composer, artist or philosopher". Food connoisseurs shun Greek cuisine and the wine is "for barbarians", Focus ranted. The land that built four of the seven ancient wonders of the world was no longer capable of digging a simple tunnel, the magazine said, as it pointed out a recent construction mishap in the town of Kozani where two teams of engineers digging from either end of a mountain missed each other by 35 metres.

Articles such as this are bound to fan national tensions and make it harder for the Greek government to obtain public support for fuel tax increases, public pay cuts and pension reforms to slash its public deficit, which hit 12.7 per cent of GDP last year. A general strike against the cutbacks brought Greece to a standstill last Wednesday. But behind all the finger-pointing and national abuse, Germany is quietly benefiting from the crisis. The euro's 10 per cent fall against the dollar this year is making German exports cheaper outside the euro zone and has increased demand for German government debt in an investor flight to quality.

The Greek debacle has also increased the chances that Axel Weber, the head of the German central bank, will succeed Jean-Claude Trichet as president of the European Central Bank next year. And it will give Germany an even greater say in drawing up fiscal probity rules to prevent a repeat of the Greek crisis. business@thenational.ae