The Daily Mail — Amid the tumult over Brexit, an annual ritual is being played out which demolishes the notion that Angela Merkel’s Germany is a benign power working for the greater good of its partners in the European Union and the eurozone.
Berlin is demanding its pound of flesh from the government of Greece, which is beset by high debts, economic desolation, broken banks — and the flood of migrants that resulted from Merkel’s catastrophically mistaken open invitation to refugees from Syria.
June and July are when repayments on Greece’s loans are due, and when future repayment arrangements are negotiated.
And Germany, as Greece’s main creditor, is playing hardball — as it has every year for the past five years.
On Tuesday, the former Greek finance minister Yanis Varoufakis warned that Chancellor Merkel’s relentless insistence on keeping to strict repayment agreements was a ‘loop of doom’ for his country, in which the only flourishing industry today is soup kitchens.
‘The German [repayment] condition amounts to imposing permanently escalating austerity on Greece,’ he said, adding that it was spreading new misery through a nation that is already Europe’s most depressed economy.
Angela Merkel has been criticised in Germany for being too weak on the migrant crisis and not being tough enough on the Greeks, so she is determined to play hardball now
The truth is that Merkel wants to run Europe her way, whether we (the UK) are inside the camp or out, and she is determined to impose tough medicine to bring basket-case economies to heel. No matter that these ruthless policies are seriously jeopardising the very countries they are designed to restore to a sound financial footing.
The harshness of German policy has increasingly opened up a chasm between the haves and have-nots in the European Union.
It has poisoned the political atmosphere and led to considerable acrimony between countries like Greece and their unbending paymasters. Every year, as the date for repayments looms, the bitterness increases.
Far from building bridges among nations and advancing peace, as Remain campaigners insist, the EU and the single currency are provoking deep divisions in Europe and impoverishing large regions of it.
The great irony is that Germany recovered after World War II to become Europe’s richest and most powerful nation only thanks to the immense generosity of the allied nations, which forgave large chunks of German debt and funded the country’s reconstruction in the Fifties.
More recently, Britain experienced its own example of unashamed German bullying in the run-up to the UK’s ignominious 1992 departure from the Exchange Rate Mechanism, the predecessor to the euro which pegged sterling to other European currencies.
UK’s exit was forced upon us by Germany’s determination to raise its interest rates to curb inflation in the face of pleas by the then Chancellor Norman Lamont to cut Britain some slack.
The subsequent economic and political convulsions led to a 17 per cent devaluation in the pound. But the silver lining was that, once we were outside German influence in the ERM, this weaker pound enabled our sinking economy to make a dramatic recovery from which we are benefiting to this day.
The trouble is that, because it is trapped in the eurozone, Greece is unable to devalue its currency — the best way to boost exports, encourage trade, investment and tourism, and thereby help its economy to recover.
The only alternative is for richer nations in the eurozone to help it out. This, surely, should be the essence of a currency union in which the better-off countries make sacrifices to ensure weaker members survive and the union flourishes.
Yet Germany makes no such sacrifices. Despite the turmoil that has beset Greece since the eurozone crisis flared in late 2009, Germany consistently blocks efforts to relieve the country of its debt burden — an act that would allow it to recover and grow again.
It is true that, before the financial crisis, Greece was appallingly corrupt and profligate, with huge numbers failing to pay taxes, and state spending and borrowing running completely out of control. But the country’s predicament today paints a very different picture.
In the six years since the eurozone crisis erupted, Greek economic output has plummeted by 27 per cent — about the same as for the U.S. during the Great Depression.
Meanwhile, cuts in public spending mean that less than 10 per cent of those who are out of work receive any unemployment benefit.
As Yanis Varoufakis puts it: ‘An ugly reality looms . . . Small businesses have been crushed by punitive taxes, and a wave of foreclosures is on the way. Greece’s hospitals are running out of basic necessities, while universities cannot even afford to provide toilet paper in their restrooms.’
Greece has a debt mountain of €323 billion — 176 per cent of its total output. The hard truth is that it would be almost impossible for any country to repay debts of that level.
Even the Washington-based International Monetary Fund, known for its commitment to financial responsibility and austerity, argues that Greece needs some breathing space.
Indeed, it is demanding that Europe frees Greece from all of its loan payments for decades to give it a chance to repair its economy.
A debt moratorium of this kind, in effect a declaration of bankruptcy for the country concerned, is the classic way of giving heavily indebted democracies a second chance. Yet Greece’s eurozone creditors, led by Germany, are holding out against the IMF plan.
If any country ought to understand the importance of debt forgiveness it should be Germany.
In February 1953, a German External Debt Agreement was signed in London, which cancelled half of Germany’s loans of 30 billion Deutsche Marks to the rest of the world and stretched out repayments of the rest over many years.
I keep a copy of the 145-page document near my desk as a reminder of how statesmanship should work.
A huge act of generosity by Germany’s biggest creditors, including Britain, the U.S., France and Greece, helped clear the decks for a war-destroyed nation and led to the most remarkable economic renaissance of modern times.
The IMF proposes that Greece’s creditors should offer a similarly generous deal as an alternative to the stuttering, stop-go efforts to bring closure to the Greek crisis.
Under its plan, Germany and other creditors would have to wait until between 2040 and 2080 for repayments to be triggered on existing loans. Interest would still accumulate at 1.5 per cent a year, but would add to the total outstanding and would not have to be repaid now.
Such a scheme would give Greece a quarter of century to restore its economy, as the value of the debt would be eroded by inflation.
Germany fears, however, that such a debt moratorium within the EU would spark a domino effect and encourage other struggling eurozone nations such as Portugal to demand similar forbearance.
Yet if Germany does not compromise, the IMF will walk away and the proposal will be dropped, leaving Athens without the cash it needs to pay bills that fall due in July — triggering a political and economic crisis across the eurozone. For the moment, the impending doom in Greece is being overshadowed by the debate over Brexit. Britain, after all, is the world’s fifth largest economy and the second biggest in the EU, and its departure would be a seismic event.
But we should not underestimate the crisis that would result if Germany, forgetting how it was rescued in its darkest hour, confines Greece to a pit of despair while continuing to punish Spain, Portugal and other more peripheral eurozone countries for their failure to obey monetary rules made in Berlin.
These are rules drawn up by the Bundestag and executed by the European Central Bank and the hapless European Commission.
There is no doubt which country and which leader calls all the shots in Europe. Just look at the geopolitical, humanitarian and budgetary mess Germany has unleashed over open-door immigration.
Its insensitivity to Greece is truly chilling — and tells us why the Remain campaign’s glowing picture of a harmonious, secure and prosperous EU is quite simply a preposterous pipe dream.
