The Spiegel story that “Athens is considering withdrawing from the euro zone” is not exactly false – just economical with the truth. Yes, a few weeks or months ago, the Greek government commissioned (as it ought to) several secret studies of the repercussions of various scenaria involving different forms of debt restructure, including one desperate scenario hypothesising an improbable exit from the eurozone. The real question is why Der Spiegel chose to isolate this one scenario and focus on it even though Spiegel’s journalists know full well that Greece will never propose an actual exit from the euro?
It is my considered opinion that Der Spiegel, in consultation with certain circles within the German government (in particular the Finance Ministry) was trying to send a message to the German Chancellor but also the Greek Prime Minister. And what is this message? That there are far worse things than a debt restructure, the worst being a step-by-step dismantling of the euro that will begin once a country like Greece is forced into an impossible situation. And that continuing to live in denial, and to peddle blatant lies about the sustainability of the present course will no longer be tolerated.
The article and the inevitable denial
Let us begin with the quote of the day from the internet version of Der Spiegel:
Greece’s economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou’s government is considering abandoning the euro and reintroducing its own currency. Alarmed by the attempt, the European Commission has called together a crisis meeting in Luxembourg on Friday night. In addition to Greece’s possible exit from the currency union, a speedy restructuring of the country’s debt also features on the agenda.
That the Greek government is considering an heroic exit from the eurozone is false. While it is one of the many scenaria that it studied at some point, it was never a scenario that it contemplated. Alas, the Greek government can deny this (after Der Spiegel’s article saw the light of day) till the cows come home but no one will believe it. It is the price one pays for not having heeded the message of the child’s tale involving a boy, a number of fake cries and a wolf. Worse still, by blaming, quite implausibly, Der Spiegel for buttering the speculators’ bread, the Greek government is sacrificing cheaply the last morsels of credibility it has. Sad, very sad. For everyone knows that Der Spiegel is a veritable publication that would not lend itself to the games speculators play. It has much bigger fish to fry. Indeed, Der Spiegel is part of Germany’s institutional network of authority and political power. So, why would such an institution be economical with the truth in this manner and at this point in time?
The message
The Spiegel article was meant as a salvo that would sound long delayed alarm bells. It was intended to raise a small storm of panic as a means of reminding Mrs Merkel that the crisis so far is akin to a tea party when compared to that which will follow if she continues to live in lies and to deny basic truths.
If I am right, who sent this message? Der Spiegel would never act by itself and without coordinating with powerful German policy makers. My sources tell me that these circles are mainly located within the German Finance Ministry and, to a lesser extent, in one or two of the larger banks. In association with Der Spiegel they have been sending tamer messages along similar lines for a while, namely that the Greek debt is not sustainable under the present policy mix (see FTAlphaville’s account of that series of messages utilising Der Spiegel as the main conduit).
Having lost patience, once their signals were largely ignored, Germany’s Finance Ministry’s ‘people’ must have decided to employ the big guns of yesterday’s signal. They took a partial truth (that the Greek PM had looked at the potential costs of a Greek exit from the euro), amplified it by omitting to mention all the other scenaria which were considered and, hey presto, a small tempest was unleashed on Europe’s leadership. All they then did was to watch the panic perform its miracle. What miracle? Concentrating the mind of Mrs Merkel, Mr Papandreou and assorted ministers on the importance of living, for once, in truth.
More precisely, the message sent by the Spiegel incendiary article was that the policy of fresh expensive loans for insolvent states, combined with savage austerity at a time of deep recession, does not and will not work. That the time for debt restructuring for the eurozone’s stressed periphery has come, as has the time for a rational resolution of Europe’s banking crisis. To drive their point home, the circles within Germany that saw to it that Spiegel publishes this article illustrated vividly, for Mrs Merkel’s and Mr Papandreou’s benefit, that there is something far, far worse than a debt restructure: the commencement of a successive elimination of countries from the eurozone that will give rise to magnificent levels of speculation in the money markets as to who comes next and when.
By causing a mild, early panic, along these lines, they sent the stark message that the time for lies is over, that more liquidity to insolvent states and bankrupted banks will make things worse, that it is time to have the debate we ought to have had more than a year ago in Europe.
The gist
A year ago, Greece went bust and was induced into an IMF-like program that had the added complexity caused by membership to an effectively foreign currency union which precluded, by definition, devaluation (and all the automatic stabilising effects it brings). The multiple crisis that occurred within the state sector, the real economy, and the banking sector was ‘tackled’ by throwing more expensive loans onto these insolvent sectors. The Der Spiegel article marks a turning point: Some powerful German policy makers seem no longer willing to continue down that cul-de-sac. Undoubtedly, they chose a strange way of stating their decision. However, despite the cowardly manner in which they stated their new conviction, a new chapter is beginning for Europe. It will not necessarily be well written or make for a happy read. But at least it offers the prospect of an escape from a dreary lie that delivered misery en masse and which is guaranteed to submerge the idea of a United Europe in a sea of discord, xenophobia and generalised malice.
