What Merkel’s Third Term Means for Europe

(This article was commissioned by The New Left Project – click here for the NLP’s site)

A few days before the German federal election, the American commentator Bob Kuttner called upon German Chancellor Angela Merkel to use the election victory that was clearly in the making to change tack regarding the European Periphery. Focusing on Greece, Kuttner added to a chorus of commentators who have called for a Marshall Plan, accompanied by a generous degree of debt forgiveness, as a ‘second phase’ of the program of budget austerity and reform imposed on Greece over the past three years. Kuttner even suggested labeling it The Merkel Plan, so as to afford the Chancellor a timeless legacy for genuine ‘tough love’, as opposed to being permanently remembered, at least in the Mediterranean, for unremitting heartlessness toward citizens of countries bankrupted when the Eurozone’s architecture was found wanting.

The problem with Kuttner’s noble suggestion is that Germany cannot afford such largesse. For it is impossible to imagine that Greece will be treated to a therapeutic combination of debt relief and large scale investments without similar overtures towards at least Portugal and Ireland, the other two original ‘fallen’ Eurozone member-states which, it must be said, had sunk less into the mire of debt than Greece and have since displayed a great deal more ‘moral enthusiasm’ for adopting austerity measures.

How could Merkel ever look the Irish in the eye and explain to them why the Greeks should receive, primarily from Germany, a fresh multi-billion aid package while they remain under a cloud of austerity? How can she tell them that, while the Greek government is excused massive loans that Athens’ Parliament approved while fully cognizant of their size and nature, the Irish people, who were never asked about the hideous promissory notes issued by their government to corrupt private banks, must continue to repay those illicit loans in full?

Similarly with the Portuguese: is Merkel at liberty to present to the Portuguese people such a generous change of heart toward the Greeks after three years of having been impressed by Lisbon’s cross-party Merkelite commitment to progress-through-austerity? Not unless she can offer Portugal similar debt relief and analogous investment injections.

Merkel knows all this. She knows, too, that, were she to institute a Merkel Plan for Greece, Ireland and Portugal, its repercussions for Spain and Italy would be powerful and far-reaching. Italy, a country that has managed to stay very close to the Maastricht deficit limit (of 3% of GDP) and which is a sterling high added value exporter, is already straining under recession-inducing fiscal constraints set by Brussels. Could it continue to consent to them if, at the same time, a Marshall-like Merkel Plan were doing the rounds in Greece, Portugal and Ireland? And what of Spain? Will Madrid, or its electorate, accept the idea that, while Spanish unemployment bolts past the 30% mark, neighbouring Portugal is experiencing a Merkel Plan-induced boom?

Kuttner’s well-meaning proposal will, then, find no advocates in Berlin, even if Merkel warms to the idea of a Merkel Plan and the favourable legacy it will grant her. Put simply, a Merkel Plan would have to be on offer to the bulk of the Eurozone, since most of its member-states could, and would, present Berlin with reasonable claims for assistance. Alas, Germany could not afford this. To fund it, Merkel would have to find at least €300 billion a year for something like a decade. Even if the other surplus countries, plus stuttering France, could be convinced to provide half of that sum, that would mean that Germany would have to channel nearly 4.5% of its GDP to the rest of the Eurozone, as pump priming within the context of a Merkel Plan. Recalling that the Marshall Plan cost the U.S. 2% of GDP annually, it is abundantly clear that a proper Merkel Plan is a bridge too far.

It is not just the cost of a Merkel Plan that makes it prohibitive. The German economy is facing a barrage of problems whose impact will be felt very, very soon. When it is, no German Chancellor, however concerned she might be about her legacy, will dare tell the Bundestag that Germany ought to fund a European Marshall Plan named after her good self.

First among these impending problems is the anticipated diminution of Chinese demand for Germany’s capital goods. As Chinese investment tapers off, courtesy of the simple fact that its current level is unsustainable given the level of effective demand for China’s output, Germany’s capacity to replace falling demand from the Eurozone (mainly from Italy and Spain) with additional demand from China will wane substantially.

There is also a brewing crisis due to the high, and rising, cost of energy; the ‘fuel’ behind Germany’s export-oriented heavy industry. In Texas, where I now live and work, German corporations (e.g. BASF) are building gigantic new production facilities at the expense of investing in Germany. As the energy price differential between Germany and the U.S., but also Germany and the rest of Europe, rises, the German economy will increasingly feel the pinch.

Merkel’s third term will also be plagued by a political backlash that will be difficult enough to cope with even without a Merkel Plan for the Eurozone. The country’s demographics are putting a strain on German hospital, pension and social security systems. Meanwhile, the growing masses of Germans living in poverty and working dead-end, soul destroying ‘micro-jobs’ are unlikely to take kindly to a massive Merkel Plan for countries which the German press and an assortment of German politicians, including many of Merkel’s colleagues, have been painting for three years now as profligate, debt-driven, unworthy Eurozone partners.

Merkel’s Third Term Dilemma

Granted that Germany cannot afford to pay for the Euro Crisis, what can Merkel do during her third term to prevent the disintegration of the Eurozone and the effective dismantling of the European Union that would surely follow?

While it is clear that Merkel would love to do nothing much (i.e. to continue with the well-tried policy of “extending and pretending”[1]), she knows that, sooner or later, her chickens will come home to roost, the Eurozone’s integrity shattering under the pressures of the tectonic plates that are shifting under the surface.

One option being contemplated by Merkel and her colleagues is to “amputate and print”: that is, to go back to the idea of a mini monetary union, expel countries like Greece and Portugal and print sufficient quantities of euros to flood the remaining Eurozone money markets with liquidity. This is a dangerous game, as Merkel well knows, and will most likely cause the death of the Franco-German axis as the process of sequentially ‘amputating’ Eurozone member-states cannot end without France being forced out too. And as the Franco-German axis is the one around which the European Union has been revolving, since it started life as a coal and steel cartel, Europe-as-we-know-it will spin out of control.

But there is a second option, proposed by Stuart Holland, J.K. Galbraith and myself. We call it a ‘Modest Proposal for Resolving the Euro Crisis’ and we think that it offers Merkel immediate solutions, feasible within current European law and treaties and, above all else, without any need for the German taxpayer to fund debt relief or needed investment in the Periphery. The idea is to deploy existing institutions that require none of the moves that many Europeans oppose, such as national guarantees, fiscal transfers and troublesome treaty changes, which many electorates could anyway reject. Taken together, these four policies amount to not a Merkel-Marshall Plan but a European New Deal. Like its American forebear it would yield decisive progress within months, through measures that fall entirely within the constitutional framework to which the German government has been committed.

1)    A Case-by-Case Bank Programme would bypass the impasse of Banking Union, by sequentially Europeanising troubled banks currently under the jurisdiction of fiscally stressed member-states. One by one, peripheral banks in trouble would fall into the lap of the European Stability Mechanism which would, in association with the European Central Bank, oversee their recapitalisation, resolution or merger, before re-selling them to the private sector. In this way stressed sovereign debt can be de-coupled from bank recapitalisations swiftly but also sequentially, allowing for a proper banking union to be effected only when Europe is genuinely ready for a common resolution mechanism that includes all banks. And when this process is over, and the banks have been cleansed, the European Stability Mechanism will sell its shares into the cleansed banks recouping (most probably with interest) the capital that Europe’s taxpayers will have put into the project of cleaning up their (now unified) banking sector.

2)    A Limited Debt Conversion Programme, with the ECB administering a simple Debt Conversion Program for any member-state that chooses to participate. The gist of it would be that the Central Bank pays (as opposed to ‘purchases’) a portion of every maturing government bond corresponding to the member-state’s public debt that it was ‘allowed’ to have under the Eurozone’s foundation Treaty, known as Maastricht (their Maastricht-Compliant Debt or MCD hereafter). To fund these payments (or redemptions), the ECB will issue its own bonds (ECB-bonds) in its own name, guaranteed solely by the ECB but repaid, in full, by the member-states (on whose behalf the ECB will have issued them). This is how: Upon the issue of ECB bonds, the ECB will simultaneously open a debit account per participating member-state into which the latter is legally bound to make deposits (to cover the ECB-bonds’ coupons and principal).  And who will stand behind the ECB-bonds in the case of a defaulting member-state? First, the ECB debit accounts of each member-state shall enjoy what is known as super-seniority status vis-à-vis all its other debts (i.e. they get repaid first by the member-states if the latter cannot repay all their debts to all their creditors). Secondly, the European Stability Mechanism will insure, against a hard default, the repayments by each participating member-state into its ECB debit account.  In summary, member-states will enjoy large-scale interest rate reductions (having refinanced their MCD at low rates secured by the ECB) at no cost either to the ECB or to… Germany. Instead of monetising debt, or having German taxpayers pay other nations’ debts, the ECB will have played the role of a go-between member-states and money markets, insured by the ESM. Additionally, the ECB-bond issues will help create a large liquid market for European paper that advances the euro’s reserve currency status.

3)    An Investment-led Recovery and Convergence Programme to help shift idle European savings into productive investments and, more generally, to re-cycle global surpluses into productivity enhancing ventures in the parts of Europe that most need them. To do this, at a level that is comparable to FDR’s 1933-1937 New Deal, all Europe needs do is empower the European Investment Bank (EIB) to administer such an investment program utilising its long-held capacity to issue its own EIB bonds (thus mobilising idle savings for investment purposes) to cover 50% of a massive Pan-European investment program while the ECB backs, on behalf of the Eurozone, the remaining 50% of the EIB’s investments. That is the way to inject investment in the ailing Eurozone without asking German taxpayers to foot the bill.

4)    An Emergency Social Solidarity Programme to meet basic human needs caused by the crisis and funded by monies, currently accumulating in the guts of Europe’s central bank system, generated from the same asymmetries that helped cause the crisis.[2]

Four policies for addressing Europe’s four intertwined crises, each involving existing institutions and requiring no Treaty changes, no German guarantees of other nations’ debts, no tax-funded stimuli, no Central Bank monetisation, indeed none of the commitments that Europe’s ‘family’, Germany in particular, is so clearly unready for.

If Merkel is seriously interested in her legacy, she should adopt the aforementioned proposal. This would make her third term synonymous with the overhaul that the Eurozone desperately needs, without mortgaging Germany’s future GDP or committing to an oppressive federal-like ‘marriage’ that neither the French nor the Germans want. All it would require is a rational re-assignment of existing European institutions. All that is missing is the will. “But why?”, I hear you ask.

The sad answer lies in the political realm. Europe’s tragedy is that those with the power to re-design, and in so doing fix, the Euro-system, i.e. Mrs Merkel during her third term, stand to lose a great deal of bargaining power within the Eurozone if they do so. Put succinctly, if Mrs Merkel uses her power to fix the Eurozone along lines such as the ones that were mentioned above, she will be forfeiting the exorbitant power of the German Chancellery (within the Council of Europe) to dictate policy to the rest of Europe. Thus, she is unlike to use it in her third term, with the result that the perfectly save-able Eurozone is crumbling all around us. With immense human cost and at the great benefit of thugs like Greece’s Golden Dawn.



Back in July I published an article in Handelsblatt that called for a hegemonic, rather than an authoritarian, Germany. Coming from a Greek author who vehemently opposes current German policies, that article provoked considerable reaction. But my point was a simple one. If Europe is to prevent its own disintegration, Germany must adopt an hegemonic role similar to that played by the United States following World War II. Merkel has the option of doing so, by adopting policies like the ones in our Modest Proposal, at no cost to the German taxpayer and with gigantic benefits for Europe and, by extension, for Germany. Alas, I very much fear that she will do no such thing. Instead, she will stick to the current “extend (the crisis) and pretend (that it was sorted out)” policy. If so, her third term will go down in history as a tragically missed opportunity.


[1] ‘Extend and pretend’ is the bankers’ favourite ploy when they want to hide the fact that some large loans they gave to some corporation or states has become ‘non-performing’. Rather than admit that they lost the monies, and be forced to write off these as bad loans, they grant a second and a third and a fourth loan to the, effectively, defaulted party. Thus, they ‘extend’ the loans and they ‘pretend’ that they are being serviced.

[2] As we ‘speak’, every time a Portuguese purchases a Volkswagen or a Greek send her savings to a German bank (fearing that her Greek bank will fail), the European System of Central Banks registers (in an accounting system called TARGET2) a net asset in favour of Germany’s Central Bank (the Bundesbank). At the end of each year, Portugal’s and Greece’s Central Banks pay interest to the Bundesbank on these liabilities (which are, of course, the Bundesbank’s assets). This accumulating interest is a reflection of the imbalances within the Eurozone and they get worse and worse as the Euro Crisis flares up. So, our modest proposal, in this regard, is that these interest payments, which are mere reflections of the Crisis, are channeled toward financing the basic food and energy needs of the Crisis’ victims. Notice that not one cent of this money will be sourced from the German taxpayer. All we are proposing is that the German Treasury (which is the final recipient of these interest payments now) should not benefit from the suffering of people in the Periphery.

30 thoughts on “What Merkel’s Third Term Means for Europe

  1. Well Merkel can always recite the 3 good old lies and Implement a Merkel Plan just for Greece, no?

    1. Ireland is not Greece
    2. Portugal is not Greece
    3. Spain is not Greece

  2. Soros’ thought process is truly outstanding. Can’t get any better than this:

    “When the euro was introduced, the authorities actually declared government bonds to be riskless. Commercial banks were not required to set aside any capital reserves against their holdings of government bonds and the European Central Bank (ECB) accepted all government bonds on equal terms at its discount window. This set up a perverse incentive for commercial banks to buy the debt of the weaker governments in order to earn what eventually became just a few basis points, because interest rate differentials converged to practically zero.

    This convergence in interest rates caused divergences in economic performance. The weaker countries enjoyed real estate, consumption and investment booms, while Germany, weighed down by the burdens of reunification, had to adopt fiscal austerity and structural reforms. This divergence was not envisioned by the Maastricht Treaty, which assumed that only the public sector produces disequilibrium.

    Then came the Crash of 2008. After the Lehman bankruptcy European finance ministers declared that no other systemically important financial institution would be allowed to fail but Chancellor Merkel insisted that the obligation should fall on each country individually, not on the European Union or the Eurozone collectively. That was the onset of the euro crisis but it took markets more than a year to react to it. Only when Greece revealed a much larger than expected fiscal deficit did markets realize that Greece may actually default on its debt – but then they raised risk premiums with a vengeance not only on Greek bonds but on the bonds of all the so-called periphery countries. By then those countries became saddled with much more debt than a third world country would have been able to accumulate.

    The outbreak of the crisis put the European financial authorities in a bind. They had to deal with the crisis in accordance with rules that were patently inappropriate to prevailing conditions; yet they couldn’t change the Maastricht and Lisbon Treaties because public opinion especially in France and Germany was opposed to any further steps towards European integration. Consequently, the authorities had to resort to all kinds of legal subterfuges to prevent the euro from collapsing. This made the rules governing the euro much more complicated than they would have been if they had been designed de novo. At the same time some of the changes that arose in practice, notably the risk of default and the bail-in of bondholders were gradually given legal recognition. This has put heavily indebted countries at a large and recurrent disadvantage, which has not been properly acknowledged.

    In this context the double meaning of the German word “Schuld” has played a key role. It means both debt and guilt. This has made it natural or “Selbstverstandlich” for the German public to blame the heavily indebted countries for their misfortunes. But that is not justified by the facts, except in the case of Greece. The Greek government had blatantly violated the Treaties, but the other debtor countries had played by the rules. Indeed Spain used to be held up as a paragon of prudent fiscal management. Clearly the faults were systemic. The responsibility for the misfortunes of the heavily indebted countries rests mainly with those who decided the rules that govern the euro, Germany and France foremost among them. But this conclusion would be stubbornly resisted in those countries.

    The euro crisis is now over. This became official in the German elections where the rules governing the euro were not even discussed. Yet the system that emerged from the crisis is far from satisfactory. Mainstream economists would call it an inferior equilibrium; I call it a far-from equilibrium situation. The euro crisis has already transformed the European Union into something radically different from what was originally intended. The EU was meant to be a voluntary association of sovereign and equal states that surrendered part of their sovereignty for the common good. It has turned into a relationship between creditors and debtors that is by its nature compulsory and unequal. When a debtor country gets into difficulties the creditor countries gain the upper hand. The rules they have established merely perpetuate this state of affairs. That is liable to be politically unacceptable and it has the potential of destroying the European Union altogether. Only the creditors are in a position to prevent this outcome but they do not seem to show any inclination to do so.

    The defects of the currently prevailing situation fall into two categories: political and financial. On the political side Germany has emerged as the de facto hegemonic power. Germany cannot dictate to the others but the European authorities cannot make any proposals without obtaining Germany’s permission. Democracy flourishes in Germany but debtor countries stumble from one political crisis to the next. And the German Constitutional Court has emerged as the most powerful judicial authority in Europe. Since Germany, mindful of its recent history, did not want to play a hegemonic role, it is unwilling to accept the responsibilities and liabilities that go with that role. As a result Germany is reviled in some other countries while Germany feels unjustly accused of occupying a position that it actively sought to avoid.

    Contrast that with the United States, which acted as a benign hegemon at the end of World War II embarking on the Marshall Plan; subsequently it was acclaimed as the leader of the free world and enjoyed the lasting allegiance of Europe. Current German attitudes are also in sharp contrast with the attitude prevailing at the time of German reunification. At that time Germany became the engine of European integration in order to achieve that goal.

    On the economic front the austerity policy advocated by Germany proved to be counterproductive. Every euro of reduction in the fiscal deficit caused more than a euro of reduction in GDP – in other words the fiscal multiplier turned out to be more than one. The German public found that difficult to understand. The fiscal reforms introduced by the Schroeder government were successful; why should a policy that worked for Germany not work for Europe? The reason is that the Schroeder government operated in an inflationary environment and the current environment is deflationary. It took a long time for the European authorities to recognize this fact but eventually they did and they stopped imposing additional austerity measures. That relieved the downward pressure and allowed the Eurozone to hit bottom and the financial crisis to abate. The Eurozone is now in a mild rebound led by Germany but the heavily indebted countries are lagging behind. The divergence is largely due to their higher debt burden and the higher cost of money. Since these are recurrent, the divergence is bound to get wider with the passage of time.

    What needs to be done follows directly from this analysis of what has happened. Recognizing the mistakes and identifying the misconceptions that have created the current situation is the first step; correcting them is the second. Only Germany can initiate the process because, as the country with the highest credit standing, it is in the driver’s seat. If a debtor country tried to do it would merely aggravate its own position. Admitting and correcting mistakes is never easy. In this case there is no shame attached to it because the situation was so complicated that it boggled every mind. Doing it would earn Germany the long lasting gratitude of the rest of Europe. Failure to do is much worse. It has created a nightmare in which the victims of the current policies have to live in their waking lives. Now that the euro crisis has ended, Germany has emerged victorious. But it is a Pyrrhic victory that would be better to avoid.”

    • Soros proved beyond doubt that he is aen enemy of various states, as for instance the UK learned the hard way. To hail his grotesquely reality-bending analysis of the past and extremely dangerous proposals for the future requires a certain level of ignorance, to put it mildly.

  3. “German elections gave the opportunity to the representatives of neoliberal dictatorship in Greece, to restrict the neo-nazi monster that threatened to break out of their control. The reelection of Merkel, secures the expansion of destructive neoliberal policies across Europe in favor of bankers and big capital and the nazist monster can go back to the closet, until further instructions.”


  4. I do insist: our debt is our force! If all debtors countries do not use it to force changes, there will be not. Austerity have made its work and southern countries are now generating net cash-flow to payback their debt. The high cost of it, in terms of social pain, who cares? The potential DGP lost, due the high unemployment, who accounts and cares?

    The modest proposal could work, yes; but who will implement it if no one forces? Is not only Germany who fails, also fail the peripheric countries which prefer to go alone. The neoliberal faith has won the battle: as religious, they believe that losers must go to hell.

  5. Pingback: Yanis Varoufakis: What Merkel’s Third Term Means for Europe « naked capitalism

  6. Excellent analysis of what to expect from Merkel and co. I think it is safe to say that none of your points will be materialized. At best maybe we could see some sort of debt management mechanism but I doubt that they would allow the ECB to come into play. Personally I would be more interested in an elaborate explanation of your amputate and print solution, even if it would concern primarily Greece. I find the dissolution of the euro zone the most favorable long term solution for Europe and its people. Finally a note on all efforts trying to convince Germany on a change of policy. These efforts coming from academia such as yourself or the political establishment of peripheral countries are falling on deaf ears. I think it is time for a history lesson. Keynes in his book “The economic consequences of the peace” wrote of Clemenceau’s understanding of German psychology: :You must never negotiate with a German or conciliate to him, you must always dictate”. This is the primary mistake of all periphery leaderships, they try to negotiate. German leadership will never budge as long as it has the upper hand. Greece blew it between 2010 and 2012 now the only country that has a decent chance of either altering German policy or forcing their way out of the euro is Italy.

  7. Dear Yanis,

    After reading this article, I was struck with the idea of Joachim Sauer placing a copy of your article on Merkel’s beside table after a romantic evening…is it within the realm of the possible that the new German government would contemplate such a generous & constructive proposal to reduce the pain and suffering?

  8. I wish they would listen to you in Berlin.
    It wouldn’t even matter if everybody agreed on every detail of the modest proposal or any other attempt at a practical solution of the immediate crisis as long as they would only finally realize that what they’re doing right now is steering full throttle towards the iceberg.
    But as it is, they’re not even thinking about an alternative to austerity.

    Ms. Merkel won the elections by advertising her politics of muddling through and generally doing nothing except quoting her sacred mantra of competitiveness as the pinnacle of stability and reliability to the german public.
    What is still left of the critical media compared her unspoken general campaign message to Adenauer’s famous quote “no experiments!” and I believe that this is not just campaign strategy but reflects the core of the chancelor’s personal idea of good and reasonable government either for Germany or the European Union.

    In fact, with the exception of “Die Linke” (“The Left”) none of the parties that had any voice in parliament before last sunday’s elections have even mentioned the Euro-crisis during the campaign – at least not in any substantial way.
    Although they were voted into parliament with almost 12% of votes in the previous general election and thus were the second largest opposition party in the Bundestag, The Left has been constantly and quite successfully ridiculed or marginalised by the other parties and the media and accused of being communists, enemies of Europe, or even anti-semitic and a generally irresponsible assembly of hacks and weirdos who were beyond any reasonable political discourse. I guess something similar is happening to Syriza.

    One has to keep in mind that the whole austerity concept was not even Merkel’s Idea in the first place. On a national level Germany has been suffering a less radical version of it at least since the social democrat/green coalition of chancelor Gerhard Schröder implemented their Agenda 2010 in 2003.
    The notion that spending cuts on social security, privatization of public assets, deregulation of financial and labour markets and general reduction of unit labour costs unfortunately has not only become widespread consensus among conservatives and ‘liberals’ but also among social democrats and greens, both of wich – even while they were in oppostion during the last legislature – have been voting for every single one of Merkel’s laws that were passed by the Bundestag to establish the various Instruments allowing brussels and the troika to impose these measures on the deficit countries.

    Since the media in Germany are becoming increasingly concentrated and dominated by a few very large corporations like Bertelsmann and Springer who more and more openly support neoliberalism and since econonomics in academia took a likewise turn to almost exclusively neo-classical, neoliberal, or at least anti-keynesian, there is no real opposition to this kind of thinking in the public sphere.
    The general consensus is that Germany’s ‘prosperity’ even during the crisis is a result of the self-imposed austerity programme of the last decade, even among the majority of the workforce who did not get any share of the sky-rocketing profits of the 1% and major corporations and who are suffering the consequences of this massive redistribution scheme from the bottom to the top.

    As to Merkel herself, I really believe that she and Mr. Schäuble are sincerely convinced that what they are doing to the Eurozone is the only way to make Europe – as a whole – competitive and thus impervious to the effects of globalization even if it means more suffering to the European peoples, including the germans. They simply cannot grasp the idea that nations can not compete like corporations without destroying their very customers in the process.
    I don’t think it is power that they crave or fear to lose, keeping them from even considering a reasonable alternative. It is their honest conviction that their path is the righteous one and their utter inabilitiy to think outside that box.

    Unfortunately the same goes for the most likely coalition partner of Ms. Merkel. The current leadership of the social democrats have practically been raised in the spirit of Schröder’s neoliberal reformation of the nation and of their party and are just as unlikely to abandon their belief system as Ms. Merkel is.

    It’s not a question of who get’s to rule over whom, who gains power and who loses it or who has the best arguments. That doesn’t really matter anymore. We’re approaching a renaissance of medieval times. It’s a question of faith now.

    • You are absolutely right in your last sentence what we are experiencing constitutes a regression towards Europe’s medieval times. It is uncanny that there are many similarities between the last age of the classical era and our times. Both these ages saw a completion of what we know call globalization an extremely high level of technology and science and basically a single currency market. As we well know it was only downhill from that high point and it took more than a thousand years to get back on track.

    • Thank you both, Yanis for this great analysis and ideas, and Hubert for the comment. Learned a lot, as usual.
      One can add (and horrible elections make one angry, so excuse the lengtj) that the green party are a bunch of liars, who exactly during election night forgot about their liberal-left election program and returned to their neolib politics they had begun with SPD in 1998 – 2005. They had, in fact, blurbed a bit against Merkel’s austerity politics – but always backed her in parliament since 2008. Too funny, I spare the details, but it is a course in arrogance and halftruths at best, while many media still spread the myth of a “leftist” party. More than a few bad jokes here…but not important for Greece, they will stay the Merkel-does-wrong-sayers and pro-Merkel-voters, if as very lame “opposition” or with Merkel in the german government.

      It’s a mess in Germany. We got only the “Linke” at the left side (nothing could be more wrong than veryserioussam commenting in german “taz” – he thought left+the 4 liberal “Mitte”-parties were the same – to push his “AfD”). Then we got the so-called “opposition” of social democrats and green party who in fact are like Merkel – neoliberal. Then, as people in Germany as always when a crisis is possible tend to vote right-wing, we got the self-called “alternative for Germany”. They lie into the faces of people and attract many that way. Not empathy for southern Europe, like they pretend, is what gets voters to hooooray them – they want to make a “final payment” and throw out the southern countries then. In May leader Lucke said Greece would “like” that. in fact he likes it….First they talked about returning to Deutschmark, now they are open for this and for “a northern Euro”,it seems. Right wing, indeed.

      They new right-wing AfD had 4,7% in the elections and not the 13-15% they expected (the leader even went to court against an institute who does prognoses – and lost the case). Yet they are on the rise. They attract all kind of people, even protest-voters who came from the left. (horrible, and a sign of how much indepth-knowledge is missing in these nearly media-dictatorship that comes with a smile).
      The voters who understand what the party seems to want are rich men who think they were “the victims of the Eurozone”. Sometimes the AfD shows their true mindset, like when Lucke during the election-night spoke about “entartete Demokratie” (a Nazi-term, “degenerated” – like in “entartete Kunst”, the Nazi-way to term art as “degenerated”).

      Riexinger from the left who visited Greece and Tsipras seems to know best about the problems, but media still bash him. I wrote to Oskar Lafontaine, nearly retired co-founder of “Linke” and an old fighter against hedge-fonds and de-regulation, what he thought about the modest proposal. Yet of course economists should write to all those people, not one who is no economist^^.

      Merkel is the opportunist. So the basic idea that she might like – like Kohl – some fame instead of being remembered as the coldhearted lady that only some german papers called “mother” (really, what an ugly joke of a headline…horrible, indeed) was maybe a good one. But thanks to you we learned why the idea does not work. And – Merkel is opportunist only in all other areas – not in the part of her politics that she herself labelled, as we all know,”market conform democracy”. A true neoliberal mind who faked the “mother” – with the help of 95% of our media.

      Let’s see what will happen. We have around 10% leftists, Linke plus the small “Pirates” who got only 2%. We got the big “go on like before” neoliberal block. And new is that we got the “AfD” to the right of the CDU/FDP. They will stay, sadly enough. The FDP is out – but I bet they will make a reappearance later, or the green party will replace them. Nobody would find any difference – only in propaganda and words – anyway.

    • Nobody declares to prefer unemployment, but unemployment maintain the wages lower and that increases the capital profits. Nobody in Europe declares to prefer the south in failure but it maintains the euro cheaper and this is of the great interest for the European worldwide exporters. Where are those exporters? Why should they change their politics?

      Fear moves the people first. Thereafter, ambition is the driver.

      Stabilize the EZ is not an interesting issue for the plutocrats, because they probably would lose. But they would lose much more if the euro crashes. That’s why Papandreu was killed. And if we, the southern countries, are interested in changes in Europe, the only serious menace is to quit altogether the euro and write off the debt. And we must be ready to do that, otherwise they laugh.

      Alternatively, the Modest Proposal must demonstrate its benefits to satisfy plutocracy ambition if we want them to apply it. It means, not to demonstrate that it’s fair or even necessary, but to demonstrate, for example, that economic growth should be clearly greater. Because economic growth is up to now the promise that gives the majority of votes to the plutocracy.

      The paradox is that economic growth is really greater under competition that under plutocracy, but it means that plutocrats must disappear and they are not willing that.

      How to exit from this paradox?

    • To be honest I would prefer to be unemployed than to work, paying 50+% taxes and having a huge shareof that sent to other countries for whatever reason!

  9. The “Modest Proposal…” is rational and should be given a chance to succeed. But sadly it lacks more punishment for depressed Euro economies (to appease Germans and all austerity believers).

    If you look at history Great Depression lasted over tens yrs and was really stopped by WWII. Euro crisis is only 5 yrs down the road. Until there is social revolt (sadly to be led by fascist groups) most Euro countries in 2013 will limp along with high employment and only Germany (net exporter) will have any real growth.

    Speaking on where GDP in Euro zone stands now see this passage from The Economist Aug 17, 2013 article:

    “The record of the euro-zone economy since the peak reached before the global financial crisis five years ago is even more depressing. Output is 3% lower; in America it is more than 4% higher (see chart). Among the big euro-zone economies only German GDP now exceeds its pre-crisis peak, by 2%. The economies on the periphery of the single-currency club have suffered drastic falls, although Greece is in a league of its own with a
    shrinkage of 23%.”


  10. We have had an extensive debate over the so-called modest proposal and the vast majority of commentators agreed then that it is just like re-arranging the deck chairs on the Titanic as I put it at the time. I think, it is high time to ask how much longer the “extend and pretend”, as you call it, can go on.

    You have rightly pointed at the violent crimes that are being committed in Greece and are allegedly linked to Golden Dawn. It is almost irrelevant, whether the fascist party bears any direct responsibility. What matters is that the violence is directly correlated to the misery in Greece.

    Germans should be especially sensitive to this. In the waning days of the Weimar Republic Communist and fascist thugs and even the Social Democrat gangs fought in street wars. As in Greece today, this was directly related to an economic and social system stressed to its limits. It ended in the end of the republic. Already we hear if coup rumors in Greece.

    I fear that critical and massive decisions to prevent a further social decline must be made fast, but that they will not be forthcoming.

    It simply proves that a monetary union made up of a great number of sovereign nations has a high risk of failure.

  11. Pingback: “What Merkel’s Third Term Means for Europe | Yanis Varoufakis” | Arjen polku

  12. Schauble will do none of the things suggested because he has already won the argument. Greece is on her own. Greece is also being used as an avoidance example so rushing to her aid deprives the pedagogical value of Greece’s current condition used by Germany as a weapon of intimidation towards other EU states. Therefore the only way out for Greece is the Stournaras way.

    To invoke humanitarianism, fairness and justice issues are not for this German government. They couldn’t care less nor is there an effective mechanism to make them care. Telling the Germans of future problems that might arise but which the Germans forewarned could easily avoid, is not a persuasive strategy. It’s a plea falling on deaf ears.

    Trying to unite Europe into a common response towards Merkel is also futile. Each country has different issues – which although curable by common medicine – do not lend themselves to a coalition forming X-Germany. There is a strong element of divide and conquer at play here which can not be overlooked.

    • Dean, I am puzzled. Truly puzzled. You state that Germany is beyond rational arguments. That they will continue along the present (calamitous) path come what may. You may be right. But then you state also that the only way is “Stournaras’ way”. Which is nothing more, nothing less than capitulating to everything Merkel-Schaueble demand. Irrational policies that will sink all of us. Do you see the incongruity?

    • Yes, I do Yanis and you are right.

      There is an oxymoron here too big to be missed.

      But hear me out if you please. IMHO the objective is to get rid of Troika ASAP. They are already at the end of their rope and soon out of a job. I know it pains you to admit a “success story” because to some extent this also puts Syriza out of a job but here is the oxymoron part. Join those who say that Greece is finally turning the corner. Yes, after needless and unnecessary sacrifice Greece is doing something that others (not your people) claim to be a “success”. So, play with it. Indulge them for crying out loud because that’s the quickest way out of the mess.

      The truth is that despite at an enormous social expense, Greece has recorded the largest current account surplus for the last 20 years. And you ain’t seen August, September and October yet. So try for a “win-win” for a change. Acknowledge that freaking Schauble has done something (even if he didn’t) and then ask for remedies beneficial to your cause. You may find that you might get them faster this way. Otherwise this antithesis of “us against them” only slows down and reverses gains (alright not gains; call them what you want) already made.


  13. “Germany could not afford this.”

    Indeed. This is a very, very good text! Until and including “Europe-as-we-know-it will spin out of control.”

    Then it flips. Since Germany could also not afford to support your ‘modest proposal’. Which is mostly just another finance alchemy plan to institutionalize even larger money transfers from Germany and a few others to the GIPSIFs.

    This does not start to work work for a lot of reasons, and is not sustainable because it doesn’t tackle the root causes of the status the GIPSIFs have put themselves into.

    For instance, item 3) of the mp: there just are not enough sense making projects for the EIB to invest. To build a bullet train from Athens to Berlin certainly makes no sense, and even such a multi billion euro project would be much to small to make a real, sustainable change.

    Another point: if the GIPSIFs economies would be attractive for investors, there would be no need for public money. They would just invest there. They don’t. They even flee, like Coca Cola from Greece. There are reasons for this, and they have nothing at all to do with Germans stance regarding the future eurozone politics.

    I have to come back to *my* very modest proposal: if the GIPSIFs want to make a change for the better, the only realistic possibility is that the people there start with substantial changes in their own country. Others, like Germany, will provide generous support. More is not possible, and not necessary.

    • “To build a bullet train from Athens to Berlin certainly makes no sense,”

      No sense? That is a very nice way of putting it! There is not even a normal train connection between Munich and Prag! The 2 cities are 350 km apart, instead of mountain ranges in between there is an area with real value added economic activity!

      Germany needs better infrastructure to connect to Poland, Czech Republic and Slovakia, These countries have competitive labor and high quality production perfectly suited as suppliers to German and North Italian industry.

      The Balkan Bullet Train is repeating the same mistake as when Germany built Autobahns in North East Germany. Todays there are empty or a few jobless people use them to go to the beach. The roads did not bring Jobs in the area, which proved the central planners wrong (again).

  14. Just an oversight (easily done!) European Council NOT Council of Europe! ….if Mrs Merkel uses her power to fix the Eurozone along lines such as the ones that were mentioned above, she will be forfeiting the exorbitant power of the German Chancellery (within the Council of Europe) to dictate policy to the rest of Europe.

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