Wednesday 18 September 2019

Dig deep to find the real meaning of debt-forgiveness

The Germans are stubbornly marshalling Europe into crushing Greece's attempts at resistance to subjugation by the Troika.

Greek prime minister Alexis Tsipras
Greek prime minister Alexis Tsipras

Peter Casey

It is now time for Germany to repay a debt of honour to Greece and save the eurozone in the same way as Athens saved Bonn when they needed it 62 years ago.

"If the euro fails, then Europe will fail as well," German chancellor Angela Merkel told her nation's parliament in 2010.

She has also maintained that Germany's responsibility for two world wars obligated the nation to maintain a steadfast commitment to both the euro and to Europe.

This conviction of Germany's moral burden was the reason she decided in the summer of 2012 to keep Greece in the eurozone.

Post-war European history serves only to strengthen Merkel's sense of national obligation.

In 1953, Allies in the fight against Hitler's Germany were joined by victim nations as well as some neutrals (Ireland among them) in signing the London Agreement on External Debts.

With multiple strokes of several pens, half of West Germany's massive debt was cancelled.

The agreement further stipulated that the remaining debt was to be paid for exclusively out of Germany's trade surplus, with annual payments capped at 3pc of that year's exports.

The enlightened terms were not the product of collective altruism, but of a recognition that Europe and the rest of the Free World needed an economically strong West Germany.

Even Greece, a poor nation that had suffered a brutal German occupation, endorsed an agreement that wisely gave creditors a stake in their debtor by enabling West Germany to not only repay them but to ultimately contribute to the prosperity of all.

Despite its moral foundation in war guilt and economic redemption, Merkel's decision to keep Greece in the eurozone has hardly been executed with the generosity of 1953.

Where the London Agreement had extended an empowering open hand to Germany, the Germans now scolded Greece by wagging the finger of austerity.

And in electing Alexis Tsipras as prime minister, Greece has finally responded.

A majority of the electorate rallied to Tsipras's promise to end austerity - five years of "humiliation and suffering," he called it - imposed by a German-dominated EU and ECB.

Key to his pledge was Tsipras's announced intention to immediately negotiate with the Troika of the EC, ECB, and IMF to get a write-off of much of the nation's €320bn debt (representing a staggering 175pc of the Greek GDP).

Angela Merkel has already pronounced this a non-starter, declaring that Europe will continue to show solidarity for Greece, as for other countries hit particularly hard by the crisis, if these countries undertake their own reforms and savings efforts.

While the intention of Merkel's statement of "solidarity" was diplomatically veiled, the threat made by ECB policymaker Erkki Liikanen - to cut off funding to Greek banks if Athens does not agree to renew its austerity-based bailout package - was stark naked.

Hence the emotional humiliation and suffering rhetoric of Alexis Tsipras - language that nevertheless seems mild compared to that of Panos Kammenos, leader of the newly elected prime minister's coalition partner, the right-wing populist Independent Greeks (ANEL).

Kammenos calls Greece an occupied country, whose former head of government, Antonis Samaras, got his orders from Angela Merkel.

He has pointedly called the EU itself a "Fourth Reich", and in response to EU demands for Greek austerity, demanded that Germany pony up reparations for its World War II occupation of Greece.

The language of Tsipras's political bedfellow is inflammatory, to be sure, and it could be dismissed as hollow rhetoric - if it weren't for the very history Merkel herself has invoked, by declaring the survival of the euro and the EU as Germany's moral debt, compensatory payment for starting two world wars.

Even during the global recession that began in 2008, markets blithely assumed the eurozone was essentially safe because investors assumed that eurozone members would effectively guarantee all eurozone debt.

This prompted those investors to hold debt at low interest rates despite the fact that countries such as Greece, Italy and Ireland had high debt levels.

Given that, it is little wonder that Greece, among others, lacked motivation to vigorously address its debt problems.

As the recession deepened, investor scepticism belatedly took hold. In the case of Greece, the magnitude of its public debt prompted investors to begin unloading their bonds, which, in turn, raised interest rates, thereby increasing Greek debt even further.

Panic soon gripped the eurozone as it became apparent that EU debt was not, in fact, guaranteed.

Moreover, the ECB declined to intervene in the crisis as a lender of last resort.

By refusing to buy the imperiled bonds of individual European countries, the ECB deepened the liquidity crisis and general default loomed.

All of this is bad enough, of course. But the angry defiance behind the election of the new Greek prime minister points to something far more sinister.

It is not just the common currency that is under threat, or even the EU.

It is the very resolve to transform Europe, after two catastrophic 20th century wars and nearly two millennia of continual warfare, from a battlefield into a peaceful and prosperous community.

The threatened loss of this epoch-making resolve is the real European crisis.

Alexis Tsipras now leads a nation with 26pc unemployment (51pc among those aged between 15 and 25). The dispossessed are everywhere and businesses are being shuttered at an alarming rate.

Tsipras has promised to rehire nearly 10,000 government employees, who had been laid off to cut costs. Who will pay their salaries? He does not say.

With very good reason, Tsipras and those who elected him are being widely accused of inability to face economic realities. The prime minister's defiant resistance to Merkel's austerity drive likewise invites dismissal as just one more symptom of desperate delusion.

Yet he is by no means alone in his thinking, and so what he represents cannot be so easily disposed of.

There is a movement rippling throughout the Continent and the United States, driven by the proposition that just because austerity may feel moral, it may well be, in practice, immoral.

It is a movement that argues against the common sense assumption that a collective belt tightening necessarily leads to recovery and growth - rather than perpetual stagnation.

Yes, the Greeks look desperate, and no, Alexis Tsipras may not have the answers.

But the questions his election has raised do demand to be answered - if Europe's postwar prosperity is to return and its postwar peace continue.

Peter Casey is CEO of Claddagh Resources and the author of 'Tata: The World's Greatest Company'


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