Wolfgang Schaeuble and his favourite topic…Greece
“All of the countries which are in a program, except Greece, which is in a particularly difficult situation, have made remarkable progress. Even though they are not in a program, what Spain and Italy have achieved is grand,” German finance minister Schaeuble said at a conference last Thursday. His statement came just over a week after he told reporters that it is not time to speculate about Greece and it is best to wait for the troika report – something that many in Greece interpreted as a product of the gradual restoration of the two countries’ relationship after the Greek Prime Minister visited Berlin in August. But the German finance minister seems incapable of helping himself when there is an opportunity to brand Greece a “special case” that has failed to make the progress that the official sector creditors expect.
Schaeuble has first hand information on the intense negotiations between the Greek government and the troika, the divide in the discussions as a result of the troika’s insistence that 9 billion of the 13.5 billion euros come from “hard” measures – mostly cuts to pensions and social welfare – and the tension that is surfacing on a daily basis in the streets of Athens from small scale protests of groups ranging from shipyard workers to people with special needs who see their lives deteriorating due to months of unpaid wages or loss of disability benefits. The German finance minister must be well informed about the rise of an ultra nationalist party that on Friday staged and filmed scenes of tension in the Greek Parliament, thereby dealing another blow to the already battered political system in Greece.
Surely there is no one more informed than him about the fact that in just three years and for the first time in ten years, in 2013 the Greek state will spend less than it actually collects, achieving a primary surplus in the region of 2 billion, before debt servicing costs. Debt servicing costs that he partly guarantees so Germany included receives uninterrupted interest payments for the loans to Greece as part of the first ‘bailout’ program.
Despite this 360 degrees view of the situation, his choice was again to single out Greece. Anyone following the Greek crisis is aware that large part of the European discontent supposedly comes from the lack of progress on what they call structural reforms. Surprising though, given the importance that German politicians have very vocally placed on the commitments to the structural aspect of the Greek program, Greece’s creditors never had any qualms about massaging quarterly reviews in such ways that delay in the reforms implementation would not jeopardise the disbursement of bailout tranches, which would lead to a messy default. They never held Greece’s political establishment truly accountable for the restructuring of the public sector, the opening of closed professions or the modernisation of the business environment.
They would always turn a blind eye to the significant distortions of the Greek economic model and administration – distortions that hinder any implementation success or driver for growth – but would show their steely determination instead on the fiscal aspect, the labour market and wages. There is strict conditionality regarding those aspects, which is always linked to a favourable review or, even most critically, the agreement of the second program and the successful completion of the PSI.
In the areas of the creditors’ true interest, what Greece has achieved should be deemed “grand” by Schaeuble’s standards. The scale of fiscal consolidation is phenomenal and unprecedented during a depression that by the end of the year will have wiped out one fifth of the country’s economy and has one in four Greeks without a job. On the wages front, Greece is the only country in the EU that sets the national minimum wage by presidential decree as dictated by the government’s compliance with the troika’s requests. The situation is so extreme that all employers’ groups are calling for a rise to the minimum wage, repeatedly stressing that wages are not the hindering factor to competiveness in prices. At the same time, Greece at the moment must have the most elastic labour market in Europe where companies can sign company level agreements containing very limited conditions with their employees below the sector wage agreement and movement of employees is effectively unrestricted with the ability to fire and hire at very low cost. Furthermore, the troika is insisting and will probably get a further 30% reduction to severance pay and the shortening of the notice periods. Greece’s labour market is so ‘reformed’ that according to the Labour Inspection Office 400’000 employees in 120’000 companies across the country have not been paid their wages for more than three months.
With regards to the two key objectives of the troika: fiscal belt tightening – so the creditors don’t finance Greece’s excessive deficit; and the IMF signature “internal devaluation” strategy – through the suppression of incomes with the aim of narrowing the current account deficit – three successive Greek governments should be considered star pupils. Even the current government has been arm wrestled into the implementation of approximately 9 billion euros of spending cuts – close to 5% of GDP – next year, thereby pretty much negating its key strategy of extending the fiscal consolidation period to 2016.
One could potentially assume that Schaeuble’s comments are just a continuation of his, and other northern Europeans, view of moral hazard since the start of the debt crisis. However, even if that were the case, his recent radio silence with regards to Portugal’s one-year extension to achieve its program targets, just highlights that he is not impartial. Even last night, in a televised interview with ZDF he mentioned that he will remind colleagues at an annual IMF meeting that reducing budget deficits “You have to do that step-by-step in a growth friendly manner”. Greece is a “unique case” in his own mind and he seems to have a crystallised view that the country still has to be penalised for the ‘sins’ of the past. Although he has full knowledge that, with all its flaws, if this coalition government fails Greece could fall into a political, social and economic void, he insists on turning the screw on Greece and its people.
It is evident that the German finance minister is just fed up with Greece and if his ideology of the ‘weakest link’ that once dropped will make the euro chain stronger had prevailed early in the summer – it took the intervention of the US and China for him to back off – Greece would have been escorted to the exit by now. Most worryingly, Schaeuble’s views reflect those of many in certain circles within the German coalition that remain ignorant enough to believe that a Greek exit is the solution to the problem. Given that Germany is soon entering an election year, these coalition dynamics will require a balancing act from Chancellor Angela Merkel to keep her government together and design her election strategy.
As much as Schaeuble’s theory of excluding Greece has for now lost out to more sensible voices who have responsibly evaluated the risks of contagion, there should be no doubt that he will keep up the pressure and push the coalition and the Greek society to the brink through his tough stance on negotiations and demands for further austerity.
Those in Greece’s political establishment that celebrate the PR points and expect to get a boost from Merkel’s visit on Tuesday better keep this in mind.