I didn’t think it was possible, but the situation between the Greeks and the Germans just grew considerably more ridiculous. German finance minister Wolfgang Schäuble said in a radio interview that the Greeks should postpone national elections planned for April and instead adopt a technocratic government that leaves out the country’s major political parties (h/t Tyler Cowen, who correctly files this under ‘Department of Yikes’, and it’s worth noting that the Finns and the Netherlands are also apparently on board with the German plan).
Wow. Due to the Eurozone crisis a lot of things which would have seemed unthinkable a few years ago are now plausible, but even by our new 2012 standards this is just insane. Suffice it to say, the German finance ministry should not be in charge of determining whether Greece is a democracy or not. A situation where the Greek people want to choose their own government and the German finance ministry tells them they cannot is completely untenable. For anyone who forgets their European history, the response from Greek President Karolos Papoulias was a not-so-subtle reminder: “[W]e cannot accept insults from Mr Schäuble. Who is Mr Schäuble to insult Greece? … We have always defended not only the freedom of our own country, but the freedom of Europe.”
What’s particularly bizarre is that the current fight comes down to the Germans demanding various Greek politicians sign letters saying they’ll stick to austerity after the next election, and not all the politicians are happy about it. For the life of me I don’t understand why the Germans care about these letters. It’s clear that Greek politicians have a problem credibly committing to undertaking wide-sweeping austerity measures, and for good reason – their people don’t want them, and austerity without political buy-in doesn’t really work. But how are signed letters supposed to solve that problem? What magical powers are these letters supposed to have?
The most logical explanation is probably that, like with the call to impose a budget commissioner a few weeks back, this is ultimately another attempt by the Germans to accelerate the Greek endgame. Both the Germans and the Greeks seem to be inching toward the realization that they could live with Greece outside of the Eurozone, at least relative to other available alternatives. The simple fact is, real relative wages in Greece need to fall a lot if the Greek economy is going to sustainably grow again. This can happen one of three ways: through Greek nominal wage cuts (which the Greeks can’t accept), through high Eurozone inflation and stable Greek nominal wages (which the Germans won’t accept), or through Greece getting control over its own currency, which will depreciate considerably relative to the Euro. It increasingly appears the only question left is how to get to the latter option with minimal collateral damage to the European banking system.
Geoffrey Gertz is studying International Relations at the University of Oxford. This post also appears on his blog Tomorrow’s Economy.