Germany Caused the Crisis, Germany Must Solve It
TRNN Top Stories of 2015: Heiner Flassbeck, former director of UNCTAD, says German economic policy put Greece into crisis and progressive Germans must stop the irrational bleeding of the Greek people
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to the Real News Network. I’m Paul Jay.
Paul Krugman in the New York Times writing about Greece, and Krugman as someone I often don’t agree with, but I guess I do this time, he says Europe’s attitude or treatment of Greece is sort of like medieval doctors. First you bleed the patient, and if it doesn’t work, bleed them again.
Now joining us to talk about the results of the referendum in Greece and the continuing austerity policies pushed by the European Troika, as they’ve come to be known, is Heiner Flassbeck who joins us from Vienna. Heiner was the director of the Division on Globalization Development Strategies at the UN known as UNCTAD. He’s also the co-author of the book Against the Troika: Crisis and Austerity in the Eurozone, which he co-wrote with Syriza MP Costas Lapavitsas.
Thanks very much for joining us, Heiner.
HEINER FLASSBECK: Thank you for having me.
JAY: So first of all, let’s talk about the moment of the vote on Sunday. How significant is it?
FLASSBECK: I think it’s very significant, the vote. Particularly the outcome 60-40 is quite significant. With 51-49 everybody would have said well, this doesn’t really count. But 60-40 is very clear, and so far I think it’s giving a very strong signal to the rest of Europe. Whether this signal is received in the right way, that’s an open question. But the signal is quite strong, and if you look around and you hear the voices here and there, not in Germany but in particular in France and some in Italy, and the people are thinking hard whether they can continue as they did.
JAY: Now, it’s not like this was new. The Greek people elected Syriza on an anti-austerity platform in the first place. So the European finance–czars of European finance, the Troika, as you call them, the European Commission, European Central Bank, and the IMF, they didn’t care about that vote, so why are they going to care about this vote?
FLASSBECK: Yeah, because you see, in the meanwhile they have been talking about Syriza in many, many ways. Blaming them for not representing really the people of Greece. They said they didn’t have 50 percent, not even 50 percent. They needed a right-wing party to come in, into the government to have a majority. They said meanwhile people are frustrated with Syriza, and all these arguments, you see. And all these arguments are gone with Sunday’s outcome, and that’s an important point.
JAY: But the other argument you hear a lot from European–especially right-wing politicians. I heard someone on BBC who is in Merkel’s party. It’s actually, they do blame the Greek people. It’s not just Syriza and the Greek government, they blame the Greek people themselves. And this guy, this member of Merkel’s party says, well, it’s time for us to teach the Greek people a lesson. Not just the Greek government, the Greek people.
FLASSBECK: Yeah. As I said, in Germany, the attitude has not changed very much. Germans are still feeling like the kings of the universe, and they can dictate to other people, to other countries, what they think is reasonable policy, which is nonsense, as we all know.
But you see, as I said in France, there are different signals. I’m curious about the meeting of president Hollande tonight with Madam Merkel. Maybe the outcome will be a bit more nuanced. This is what we have to hope for, because if the hardliners win the field again and they start negotiating as they did in the last five months then forget about all this, and then Europe will go very quickly into a very dark age, so to say.
JAY: Now, Varoufakis, the Greek finance minister resigned. There’s a new finance minister whose name I am going to probably butcher here, Tskalotos. He’s the guy that has been more or less the lead negotiator so far. We understand he’s pretty committed to staying within the Eurozone, but I don’t quite understand now how there is a possibility of staying within the Eurozone. There seems to be a, quite a united front more or less of the Troika. They’re going to teach Greece a lesson. And they’re not going to–it doesn’t seem there’s going to be any significant move in the, Europe’s position. What else does that leave Greece?
FLASSBECK: As I said, only there’s a changing, they are changing political circumstances, then Greece has a chance. That’s absolutely clear. Syriza was all the time committed to stay in the Eurozone, to stay inside Europe, and it still is. What Alexis Tsipras wanted to achieve with this referendum is just to have a better negotiating position, and to give a strong signal that the people of Greece are backing him.
But as I said, if we continue, the negotiations continue as they did before, namely step by step going into every detail that the Greek government can do and cannot do and has to do, and if the whole package is going to remain restrictive and not expansionary, then it was all in vain. That’s absolutely clear.
But the only way out is, the only way out is a change at the highest political level in a number of countries. If there would be a coalition, for example, only a coalition of say, cautionary change in Italy and France, and different language in these countries, then it would also impress Germany. Because in Germany there are many people who are very critical of the approach, only but now the government has no major political challenge because all the parties that are opposing, or the one party that is opposing this way into the negotiations with Greece is too small.
JAY: Right. We’ve talked about this before, Heiner, but I think it’s worth revisiting because there’s so much of this in the media, all in Europe and in North America, I guess around the world. The idea that–and this is what this right-wing politician says on the BBC last night. Why should the taxpayers of Europe, particularly Germany and France, and the Nordic countries, why should they bail out Greece when Greece refused for years to live within its means? That’s the idea we keep getting, hearing [repeated].
FLASSBECK: That’s a very stupid argument for two main reasons. The one reason is, one country is living beyond its means, which Greece indeed did and some other countries did, then one country or other countries have to live below their means, and that is clearly Germany. So, and it is absolutely open who is responsible, in terms of who’s guilty for the imbalances that we see inside Europe. So Germany is as guilty as Greece, at least, if you look at the inflation performance of Germany and Greece’s inflation performance [of] the wage on [Germany] labor cost development in the two countries, then Germany is absolutely responsible for that.
And that, by the way, was a mistake not to be mentioned any time. I haven’t heard it at all by Alexis Tsipras or by Yanis Varoufakis. They should have been talking about the history of all this. So the first argument, this is really stupid–.
JAY: Let’s break–let’s just, to break it down quickly. The basic point you’re making is Germany kept wages so low it created this imbalance in Europe.
FLASSBECK: Yeah. Yeah, exactly. Germany went for a policy of wage dumping. It was clearly wage dumping, even under the rules of the WTO, World Trade Organization. You would be allowed to impose tariffs on German imports. Nothing like that has been happening. And the other, the neighbors were really sleeping. They didn’t realize what is going on. So Germany accumulated huge advantage in competitiveness vis-a-vis the other countries, and that is absolutely untenable.
And the currency unit, that’s the main thing that is untenable. The only thing that is really untenable, if there’s a huge gap in competitiveness, because the other countries cannot easily, and we have seen it in Greece, cut wages without producing huge damage for the domestic economy. Greece has cut wages more than any other country, but the damage for its domestic economy was incredible.
JAY: And the other part of this, too, is that the Germans, Germany, which is the biggest holder of Greek debt–I think it’s something like $68 billion, which is not a lot of money in the scheme of things. There’s ind–Warren Buffett has more money that that, one guy.
But that being said, all that money was lent to Greece, and the Greek banks and the investors, they knew what the situation was in Greece. I mean, they were the ones–there were various governments in Greece which Germany more or less agreed with. They were generally in support of neoliberalism. They loaned all this money knowingly, and now, now all of a sudden it’s all Greece’s fault.
FLASSBECK: Yeah, sure. But to say the point is, it is not only Greece. Many other countries have been [inaud.] Germany, even France, that got it right in terms of the inflation target and wage increases. France has a huge gap with Germany. Italy has an even bigger gap than France. A bit smaller than Greece’s gap. So all the countries have gaps with Germany. So Greece is not the main problem. The main problem is France and Germany, the relationship between France and Germany. This is still under the carpet, so to say, nobody talks about that. But that will come up later then, when the Greece case is solved in one way or the other.
But let me make one point. You asked about the German taxpayer. This is really a foolish argument, because the people say, so we, we cannot ask the German taxpayer to pay for the Greek people. First of all as we said, the imbalances are not Greece’s fault alone. But the second point is, the German taxpayer will pay if they do foolish policies as they imposed on Greece in the last five years. So austerity policy is killing the ability of the debtor to repay its debt. And they want to continue with this policy, with this unreasonable policy, with austerity, in the midst of the deepest recession that one can imagine.
So this is destroying, indeed, Germany’s liabilities in Greece and all around Europe.
JAY: Now, if the phone rings, and the Greek government calls you and says okay, what should we do now, what are some specific things you would suggest?
FLASSBECK: Well, the main thing is you have to understand that Greece cannot solve the problem. Greece cannot solve the problem of the huge imbalances inside Europe. So it has to be solved by Germany. That’s the only, the only hope, so to say, you can have. Is that in Germany some people realize where they are going, that crashing a wall sooner or later. But at this moment of time as you said, politically there’s not much change. There’s not even an open discussion about this. So there is little hope that this will, the change will come from Germany.
That is why the only hope we can have, if we have any hope, is that in France and in Italy the people realize what’s at stake and that they are the next victims, so to say, of the German austerity policy.
JAY: Okay. So let’s say that doesn’t change, because there’s no sign of any short-term, dramatic change. And right now the Greek banks are running out of money. They have to, they’re going to have to decide to either give in on the conditionality of the bailout, which is exactly more or less what people voted against doing, or they’ve got to get out. And is getting out a real option?
FLASSBECK: Yeah, getting out is the difficult thing. It’s an extremely difficult operation. In principle it’s an option. And Costas and me, we described in our book the conditions of getting out. But this is an academic treaty, and it’s not a political strategy, so to say.
First of all what you need is you need to convince the majority of the people of Greece that getting out is the only way to restart the normal life. Which may be the case, but you have to convince the people. And Greek people still want to stay inside the Euro and inside Europe, in particular. Then–but even if you would convince them and you would have a political majority for that, then it’s still a difficult operation because you need the assistance of the, of the, of the other countries in Europe, and you need again the assistance of the Troika. And one where the other, or the other to stabilize the new currency and to help to avoid a crash of this currency in the international market, and so on.
So you need, you need a controlled devaluation. You need a controlled exit. And for that, nobody’s ripe. There’s no, no willingness all over the place, in Brussels or Berlin, to go for such an option.
JAY: Some people are speculating or theorizing the only real objective of the Troika now is the demise of Syriza.
FLASSBECK: Surely that’s one of the objectives. Up to now it was, up to Sunday, I mean, they expected the yes vote would have a majority, and then Syriza would be a thing of the past. But now it’s much more difficult. With Syriza getting 60 percent it’s much more difficult to just to put your, all your money on the demise of [inaud.]
I’m not seeing that. Because there is still no viable alternative in terms of a credible political party in Greece. So Syriza is the only party that is credible in the eyes of the majority of the people, and this will not change so quickly. Well, they can blackmail them now. They can blackmail them to death, so to say, if the European Central Bank in particular would play that game. But I’m not sure. Up to now the European Central Bank tries to remain cautious, neutral, and tries to stabilize the system as much as possible so that that doesn’t, it doesn’t collapse. Not more. So they’re waiting for political signals.
But you see, the point is the window of opportunity is open for a couple of days or a couple of weeks. Then it’s, then it’s over and then something dramatic may happen every day.
JAY: The stock markets are skittish, but they’re not going crazy yet. The Euro, the people running the Euro, seem awfully confident. Do you think the Americans are actually sending signals to the Troika that we will back you? The United States I would think has as much interest in teaching Greece a lesson as the Troika does.
FLASSBECK: Well, I think yes, whether they want to teach Greece a lesson or this government. I mean, I think you mean this government. They don’t like this government.
JAY: Yeah, I don’t think they want to open the door to these left-wing governments throughout Europe any more–the Americans don’t like the idea any more than the European elites do.
FLASSBECK: Yeah, yeah. But on the other hand I think the United States and the government of the United States should understand how idiotic austerity is at this point of time. I mean, in Europe it’s very difficult to communicate that. But in the United States everybody more or less knows, in the Democratic party most of the people know that it’s stupid to go for austerity in the midst of the deepest recession that you can imagine.
So there one would hope that economic reason prevails against political short-term [ism]. But I’m not sure.
JAY: Yeah. Certainly reason does not seem to be prevailing. It certainly didn’t. There’s many times in European history reason has not prevailed. It’s starting to look like [inaud.] another one.
FLASSBECK: That’s unfortunately true, yeah. That’s unfortunately very true.
JAY: All right. Thanks for joining us, Heiner.
FLASSBECK: Thanks for inviting me.
JAY: And thank you for joining us on the Real News Network.
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