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The Greek Mouse and the German Elephant

I apologize to my foreign readers for being so lazy in this period. But I have a good excuse. For the first time since the beginning of this blog in 2011 facts are moving faster than ideas, anti-austerity policy-makers than anti-austerity economists, optimism than pessimism. For a Cassandra like me, it is time to step aside and watch European History in the making.

It is quite a show, let me tell you, this Euro-Greek affair. A show that is capturing not just the interest of bystanders like me, but is stimulating the intervention of relevant geopolitical actors, like President Obama. Who, sensing with great flair the critical juncture, could not resist pushing Europe to adopt a new strategy:

“you cannot keep on squeezing countries that are in the midst of a depression. At some point  there should be a growth strategy so that these countries pay-off their debt and eliminate some of their deficit … there is no doubt that Greece … in order to compete … had to initiate a series of changes ….but  it is very hard to initiate changes if people’s standards of living are dropping by 25%… over time eventually the political system and society can’t sustain it. My hope is that Greece can remain in the euro zone … this will require compromise on all sides. I think there is a recognition on the part of Germany and others that it would be better for Greece to remain inside rather than outside…. But more broadly I am concerned about growth in Europe”.

Behind words, Obama fears the embrace of non-euro Greece with Russia and its geopolitical implications in the Mediterranean area in a very delicate international situation there. He is also obviously concerned with the economic performance of the Old Continent, damaging for US exporting firms. Whatever the reason, the new strategy he calls for is not so much growth, but a pre-condition to it in the European setting: compromise.

The European political and economic history is filled over the past centuries with experiments to end the deep engrained cultural separation between the focus on stability first – in the Northern German-led core – and growth first – in the Mediterranean France-led core. While the two have to come together, have to reinforce each other, the history of Europe is one where parties have divided in an uncompromising way over where (who) to start first.

So many European exchange rate agreements – mostly of a fixed or semi-fixed nature – have collapsed, either over time or following a sudden crisis, for the stubborn resistance of the North to enlarge credit in difficult moments to weaker countries and of the South to adopt restraint in the easier moments when economies were enjoying fast growth typically driven by spurs of innovation or greater global trade.

Monetary Union was, we might say, the last – desperately hopeful – attempt to end this constant historical pattern of failed cooperation. Its creation made  exchange rates “semantically” irreversible by claiming simply that it was so (by the way, the heart of the Greek crisis is all in this: its exit from the euro would destroy forever that semantic, showing that the remaining countries are bound not by a common currency but by the n-th fixed exchange agreement of their history, prey to the thirst of speculative attacks by profit-making driven markets).

Was Monetary Union a good idea? Oh absolutely yes for the purpose of solving the issue of exchange rate stability with which Europe has struggled for centuries. In a time where everybody seems to say that the construction was ill-fated, destined to destruction, I dare to say that it has shown, in the face of the greatest – unexpected – economic crisis of the past 80 years, the capacity to help European countries to stay together even in the face of the hardest temptation to quit the boat and proceed in solitude. No other exchange rate agreement would have been able to sustain such a shock and we would have seen the German mark appreciating immediately and strongly against the Lira and the French Franc (not to mention the Greek dracma). Its best success, invisible to most people, is shown by the events unfolding in Switzerland in the past few weeks: a country culturally similar to Germany, in love with price-stability and for a few years locked in to the euro, decided to abandon the European currency  and let its Franc appreciate against it. The recent aggressive European Central Bank stance to fight deflation via monetary expansion was too much for the Swiss citizens, as they feared importing inflation. A similar attitude could have easily been the one adopted by Germany only a few years ago, and the fact that the Germans have accepted instead (with minor concocted noise from the Bundesbank, the German central bank) to go along  and play the euro dance is the best sign of the cultural change passing through the DNA of German society, readier than before to abandon a bit its fixation on stability first.

Clearly it is not enough. Clearly the depth of the crisis of some Mediterranean countries shows that the institutions that have been forged in the euro area are not capable of making the system, in the words of Obama, sustainable. Clearly societies have to find in their own interest to participate to a party, otherwise they don’t show up and this is what Greece is pondering right now. Should I stay or should I go. It is remarkable that even in the face of such social disruption Greece is still debating the question, is still strongly determined to try to remain in the euro area.

But the compromise must go on, at a faster speed. If Germany has agreed to enter into a monetary union of unequal, just like in the United States where Mississippi and Alabama sit side by side with California and Massachusetts, to replicate its success it must push its cultural stance one step closer to the Greek one. Explicit transfers from the rich states to the poor states like in the USA are too fast an acceleration: but debt restructuring and ending austerity – the requests of the Greek government – are not. Solidarity is the price that Germany has to pay to obtain stability. Not a bad deal, but a deal that requires, indeed, compromise.

Obviously Greece is currently the Ambassador of Mediterranean countries, and its Prime Minister’s successful trip across Southern European countries seems to say only one thing: that Greece has become the leader of the Southern coalition. The mouse will visit the elephant in its quarters in the next few days and it is not clear at all who the winner will be. But it must be obvious that if a sole winner will emerge we will soon deal with the usual bitter taste of European defeat. But history can still surprise us: possibly the Greek mouse will wake up the German elephant and make it move forward in a joint adventure across the world.


  1. Concordo che la storia è aperta a tutte le possibili soluzioni. Credo che arriveranno ad un accordo con la Grecia sul debito, ma non credo che permetteranno a Tzipras di realizzare le promesse che ha fatto in campagna elettorale. Fino ad oggi la Germania nei confronti della Grecia mi è sembrata essere più interessata a salvare le sue banche e a costringerli a onorare i pagamenti delle sue forniture militari. Il QE di Draghi come sostengono tutti avrà qualche effetto ma non sarà risolutivo per l’Europa. Quello che servirebbe, anche qui a maggioranza, sarebbe un aumento della domanda dei paesi ricchi e un piano di investimenti serio ( non certo il piano Junkers). Mi auguro che abbia ragione lei è prevalga l’ottimismo della volontà e non il pessimismo della realtà.

  2. Marco Calabrò

    05/02/2015 @ 13:37

    “…and the fact that the Germans have accepted instead…”
    Sure! It’s been a sacrifice for Germany to have a currency undervalued! Let me say I don’t think so. I think they took all the advantage to have a common currency.

    You say that
    “No other exchange rate agreement would have been able to sustain such a shock and we would have seen the German mark appreciating immediately and strongly against the Lira and the French Franc (not to mention the Greek dracma).”
    It would have been the normal working principles of adjustment, and if you don’t use it, you’ll have to be ready to face the current crisis with all the consequence we know: recession, unenployement, deflation, austerity in a never ending vicious cycle.

    Moreover, you speak about a “monetary union of unequal, just like in the United States”, but do you think that a Central Bank could order and blackmail a democratic elected Governement ? Is this what you call democracy?


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