What a strange rebellion against the international financial order. On Sunday 5 July, Greece voted “No!” by a resounding 61% to the bailout conditions insisted upon by Berlin, Brussels and “the creditors.” But, what is truly unique here is the alignment of international forces for renegotiation of Greek debt.
Throughout the post-War era, whenever it came down to imposing “discipline” on other small, debt-defaulting states, the most intrepid champions of the norms of the international financial order have consistently been Washington and the IMF (just ask Argentina’s Mrs. Kirchner, she’ll tell you).
Yet, look who agrees with the Greeks that their debts–in their present magnitude and structure–are impossible and potentially disastrous for the country:
First off, there’s the IMF with its public report dated 26 June: (IMF Country Report No. 15/165. “Greece: Preliminary Draft Debt Sustainability Analysis”): As the NY Times put it: “The International Monetary Fund, a big Greek creditor, conceded a point … that the Athens government has long been making: Without some reduction in the country’s staggering debt load, Greece has little hope of a sustained economic recovery.” IMF staff also criticized the Syriza government for significantly worsening the Greek economy.
Second, there’s Washington. The Administration has long made it clear that the E.U. needs to write down the enormous Greek debt and has spent a lot of effort trying to convince European leaders of that point, but to no avail. “The US is a helpless bystander on Greece: Washington has urged the EU to write off Athens’ debts in return for restructuring, to no avail.” [Edward Luce, FT, 5 July 2015].
And, then there are the economists. “The Greek referendum united economists with very different views of how the world works, including Paul Krugman, Jeffrey Sachs and Hans-Werner Sinn. There is no reputable economic theory according to which an economy that has experienced an eight-year-long depression requires a new round of austerity to bring about economic adjustment.” [Wolfgang Munchau, FT, 5 July 2015].
Meanwhile, who stands on the other side of this confrontation? The bulk of the leaders of Europe itself, and their Berlin “leader by default” plus “the creditors.” Who are these creditors?
Since earlier debt reductions largely eliminated private creditors and banks, besides the IMF and such the remaining creditors are mainly the taxpayers of other E.U. countries that provided funds to Greece. To grant major relief from full repayment here generally requires votes by national parliaments. This is a political issue on which leaders of not only Germany but most E.U. states have been unwilling to face their electorates. Of course, much of the popular opposition they fear is precisely the result of the rather-populist morality stories with which these same politicians have endlessly lectured their electorates.
In this situation, one might imagine Germany, of all countries, would lecture its fellow E.U. creditor states on the practical and moral inadvisability of forcing any nation to pay what it cannot in spite of the fact it may have behaved irresponsibly. Clearly, Greece has acted irresponsibly in running up a tab of some €300 billion; and so did Germany before it by initiating WWI. In the German case, we know what came of the moral righteousness–and greed–of the allies who imposed humiliating reparations at Versailles. Then as now with Greece, the nation relegated to marathon austerity complained bitterly that those demanding ruinous payments were themselves hardly innocent in the whole affair.
On the other hand, Berlin leaders might lecture their E.U. counterparts on the positive experience of the generous and liberal-minded Marshall Plan, which fostered a prosperous and democratic German nation.
Unfortunately, the reality, however, is that both the conservative CDU and liberal SDP of Mrs. Merkel’s coalition government are united in their intransigence against restructuring what is an impossible Greek debt burden and in insisting on more austerity. In fact, the most vociferous threats against a “No!” vote in Berlin were not uttered by Chancellor Merkel’s hard-line Minister of Finance, Wolfgang Schäuble of the CDU, but from the Minister for Economy and Energy, and Vice Chancellor, Sigmar Gabriel of the SDP, “… who even doubled up on his threats after the results came out.” [FT, 5 July 2015].
Meanwhile, Washington and the IMF, in pushing Europe to reduce Greek debt, are not doing so out of sympathy for Greek “populists” and Marxist politicians. Nor have become self-hating capitalists against “the global markets of el imperio,” as Venezuela’s Hugo Chavez often put it. Rather, the IMF and Washington have taken their enlightened positions to preserve international financial markets and the all-important project which is the European Union. That is to say, the E.U. and Euro are all-important for liberal-democracy in Europe, and hence for American and global business. (Luce also argues to this effect.)
If every time a European state gets in this sort of trouble, such an impasse arises from both sides to face realities and act with solidarity, the Union will become an ever more tired and polarized one. Resentment of the European Union within Europe will continue to erode hope for economic prosperity and stability and for the democracy and peace it is supposed to guarantee. It is no wonder Mr. Putin publicly claims he can set one state against another on energy and other matters, and get his way.