The German Problem

The Greko-German dispute over bailout terms has worsened in recent days, with the Greek Justice Minister threatening to seize German property in Athens to pay for alleged unpaid WW2 reparations.

To many in the UK, and certainly in Germany, this may sound like the posturing of a spoilt and ungrateful child. The reality is that, whilst bringing up Nazi crimes is irrelevant and an exaggeration of current Greek turmoil, Germany's demands of austerity have imposed colossal welfare costs upon the Greek people.

The conditions attached to extending Greece the EU's loan facility have largely been driven by Germany. France, the second-greatest power in the Eurozone, has taken a more liberal view of the requirements that ought to be placed on Greece, saying that Greece's primary budget surplus is open to discussion.

The requirements that Germany has placed on Greek are unprecedented. The UK's fiscal austerity, criticised as it is by economists for being too draconian, has amounted to 3.5% of GDP between 2009 and 2014, whilst the Greeks' has shrunk by 19.7% of GDP, more than five times as much! In 2010, meanwhile, Merkel called her plans to implement a mere 1.5% fiscal turnaround by 2014 an "unprecedented feat". I wonder what the Merkel of 2010 would have said about a fiscal turnaround of 19.7% of GDP...

The double-standards, however, are probably not a major concern for most Greeks, as most of them are too busy trying to earn a living. 44% of Greeks now live below the poverty line, up from 2% in 2009, and 26.9% are unemployed, more than during the Great Depression in the USA.

The German hypocrisy is even greater when you take into account the fact that Greek membership of the Eurozone has been instrumental in facilitating German economic growth since 1999. By running a trade deficit Greece, along with other countries like Spain, applied depreciating pressure to Euro. The trade surplus Germany was running would have caused the Euro to appreciate had it been in a monetary union without Greece. In other words, Germany's trading competitiveness came at the expense of Greek uncompetitiveness.

The blame for this does not necessarily lie with Angela Merkel, Wolfgang Schauble, or any other German politician. The cultural transition which now allows Germany to see itself as a victim has come at an inopportune moment for Greece, as the German public apply pressure on its political leaders. In the 20th century, Germany was far more shy and apologetic, keen to throw off its Nazi past. In the 1990s, when former Communist countries like Poland applied for NATO membership, Germany was vocal in expressing its support. This was partially the result of war guilt.

The Germany of the 21st century is a very different country. It now has both the means and the will to persuade and force change. Unfortunately for Greece, the double-standards Germany has enforced upon it has been devastating for its people. If kinder terms are not agreed, Germany will be responsible for a generation of Greek sorrow.