6 Jul 2015

Merkel’s dilemma: give in to Greece or stand firm against democracy

Angela Merkel, the German chancellor, was pictured arriving at her office this morning looking as if she had been doing ouzo shots all night long.

If she got any sleep at all, it was probably troubled by the sound of cheering and jeering echoing through Syntagma Square in Athens. Make no mistake, the no vote has been a resounding “nein” to Germany’s chancellor, who has been calling the shots on the Greek crisis ever since it erupted four years ago.

From the very beginning, Frau Merkel has been more concerned with her own Greco-sceptic electorate, German banks heavily exposed to Greece, and a Lutheran loathing for excessive indebtedness. Remember, the German word for debts is “Schulden”, from the word guilt (“Schuld”).

The calculation in Berlin had been that Tsipras had over-played his hand and would lose face, credibility and – so they hoped – power when the Greek people came to their senses, smelt the fear after a week of bank closures, and voted yes.

The opposite happened. The heart or gut prevailed over the head in a crisis that has become more and more about emotion and less about accounting principles. Angela Merkel now needs to decide whether to make good on a threat explicitly made by others like her finance minister, that a no vote would mean voting against the euro, or whether to get back to the haggling ring with the Greek prime minister.

This might be made a little easier by the departure of Finance Minister Varoufakis. But that’s probably not the way they see things in Berlin today. Angela Merkel wisely said last week that she would only resume talks after the vote.

This is her dilemma: if she gives in to more demands for less austerity from the Greek government, she will appear weak to her own electorate, the financial markets and, of course, interested parties watching from the sidelines like the Russians and the Chinese. Mutti will be seen to go mushy.

If she stands firm and gives no ground, she will be at loggerheads with the very principle of democracy. It is a Gordian knot (forgive yet another cliché from ancient mythology) pitting the principle of democracy against the power of creditors.

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21 reader comments

  1. abner says:

    This is not “Merkel vs democracy”. I am sure if a plebiscite was conducted in Germany, the outcome would be a similarly resounding mandate for Merkel to stand her ground in negotiations. She may well be the leading “EU” figure, but I’m sure she hasn’t lost touch with her local, German electorate, and their rather different views of the Greek debt mess.

    The Greeks may well find, much to their cost, that they have democratically decided to withdraw from the Euro, since they have now shackled their government with a negotiating mandate incompatible with any outcome currently available from the creditor group. While there is no legal mechanism to formally eject them from the currency, from a practical standpoint it will be impossible for them to remain, unless their banks and government can keep the EU taps open.

    1. Andrew Dundas says:

      Why don’t Germans spend their large and persistent trade surpluses instead of lending that cash to Greece?
      If Germans could be persuaded to lighten up a bit and spend more of the money they earn instead of wasting it on dodgy investments, we’d all be better off.

  2. StuartM says:

    “If she stands firm and gives no ground, she will be at loggerheads with the very principle of democracy.”
    Why is Germany subject to democratic voted by the Greeks ? When Greece votes for being given more German taxpayer money does that automatically mean the Germans have to hand over their hard earnt cash because that is democratic (those Germans who earnt the money having no democratic say because Greece has voted) ?

    If democratic decisions in one country require other countries to go along with the referendums, can we have a UK referendum to get our hands on some German cash … and maybe to half our contributions to the EU … etc.

    1. Dave Hansell says:

      Unfortunately it was not the Greeks who saddled the German electorate with this debt but Merkel and her Government who transformed the private debt of the German banks into a public debt which she and the economically illiterate Troika have tried to foist on that section of the Greek population least able to pay it.

      Anyone following the negotiations cannot fail to have noticed ( unless they have ideological blinkers on) that Greek negotiators proposals to obtain further funds by which to pay off the (originally private) debt by increasing and collecting taxes on the wealthy sections of Greek society who have been welching on their tax commitments for far too long were emphatically rejected by the class warriors of the Troika. Who prefer to punish the weakest and privatise the whole of the Greek economy for outside corporate interests in the full knowledge that by doing so the Greek people and the country will never ever be able to use its own resources to grow out of its current situation and pay off its debts.

      The reality is that creating a way forward which will allow Greece to pay off its debt and maintain control over its own economy is the last thing the Troika, on behalf of the corporate sector of which it works for, actually wants. Screwing them over by taking over their economy, resources and means of production will provide private interests with a cash cow based on indebted servitude and low wages.

      Arguments that it is the German taxpayer bailing out t lazy Greeks is as far away from the reality as it is possible to get.

  3. Charles Smyth says:

    The Greek government is arguing that all the other democracies in the EU must be held hostage to the democracy of the Greeks who have no liability towards any other EU democracy.

  4. Philip Edwards says:

    The Greek people have made their wishes clear:

    They were rooked by crooked bankers and a their own far right government who agreed an untenable contract. All to keep the banks in profits at the expense of the most vulnerable Greek citizens.

    Now those citizens have woken up, organised and fought back. They are a classic example of strength through desperation and outrage, that enough is enough. The great hope is that their example is taken up by everybody else in Europe who is under attack from an unelected gang of tenth rate capitalist thieves.

    The enemy is not Merkel or Europe or even the European Union. It is the hidden anti-democratic cowards of banker thieves around Europe and the USA, the ones who try to stay anonymous while burgling decency of every last remaining coin in the house. Except THIS time they got called out for what they are.

    None of those banking scumbags speak in my name. Nor for anyone else with due regard for human decency and fairness.

    In the long run, given current circumstances, Greece may well lose out to the corrupters. But by every respectable measure the Greek people have made sure the robbers know they’ve been danced with, that resistance is not only possible but desirable and necessary. The precedent has been established. No matter how long it takes, sooner or later the dam will burst.

    At which point the whole econofascist raft of IMF/ECB/World Bank will be swept away. It can’t come soon enough for this citizen.

  5. JaDo2 says:

    Not sure this claim makes sense: “If she stands firm and gives no ground, she will be at loggerheads with the very principle of democracy.”
    Let’s be claer: Democracy doesn’t mean you can overrule physics or the law of gravity – only in your dreams.
    If you borrowed lots of money from your neighbour and then organize your friends and family to vote by a large majority that you don’t have to pay back the loan from your neighbour, then you may lay claim to having leveraged democracy (“the people vote”), but that does not make it right.
    I think Matt Frei got it quite wrong here and rather the opposite is true – and still a dilemma: Ms. Merkel was democratically elected (not by the Greeks but) by the Germans to represent their interests as Germans and members of the EU; and those interests overlap but are not congruent. Thankfully we’re not there yet (and I’m sure many UK citizens would agree with me) that a comparatively small number of European voters (the Greeks in this case) could impose their view on a relatively larger number of Eurpean voters (Germans in the case). That would be undemocratic, wouldn’t it?

    1. Dave Hansell says:

      Sorry to be pedantic but the scenario you paint is not what has happened. The debt in question was a private debt belonging to the German banks which the majority of the Greek population who are being asked to pay for this never saw, never mind actually borrowed.

      It was Merkal and her German Government who bailed out their own banks and changed a private debt into a public one which they are now trying to foist on those least arable to pay it. The Troika have even rejected any proposal by the Greek Government to raise and collect taxes from the richer section of Greek society who were the ones who borrowed this money. Which tells you are bell you need to know about whose interests are being protected and whose interests are being screwed.

      If you want an accurate analogy it is like the company you work for betting and losing heavily on the stock market and then coming to you personally, along with your workmates, and telling you that you all have no choice but to pay this out of your pension pot.

  6. Alan says:

    “..pitting the principle of democracy against the power of creditors.”
    This as other CH4 reports assumes the activities of the Troika are completely in the open and legitimate. That the Greek public have a responsibility to pay for what was a private debt. Connivance to turn private to public debt, undermining national sovereignty via debt and hidden hedge fund vulture involvement may not interest the media, it does however speak oceans to us of so called media impartiality. When the spotlight falls upon Italy, Portugal and Ireland will we hear the same EU/Government perspectives dressed up as journalism?

  7. Ken G says:

    The headline is misleading to the point of being dishonest. Angela Merkel is defending democracy because more Germans voted for her and her policies than Greeks voted for more free hand outs from Germans, aka ‘No’ vote.

    So using your reasoning, if Germans voted in favor of a referendum calling for the US to give them $240,000,000.00 and the US gov’t didn’t then the US gov’t would be opposing democracy.

    The root cause of this entire issue is Greece committed fraud to become a member of the Euro Zone, European banks purchased Greek debt based on the fraudulent analysis (hiding actual debt), and after becoming a Euro Zone member Greece admits the fraud (after the fact). And somehow this is twisted into the Greek Crisis is Northern Europe’s fault because they won’t give the Greeks more money. Portugal, Ireland and Spain manned up. But the Greeks refuse to play by the rules. If the Greeks get by with this the Euro is doomed, because rules mean nothing and the crooks like Greece will try to live off the efforts of other hard working Europeans.

  8. Dave Hansell says:

    The Russians and the Chinese have bigger fish to fry. Along with their other BRIC partners they are busy constructing an alternative world reserve currency to the dollar. Consequently Europe is just a side show.

    The previous two attempts to do this, by Iraq and Libya ended up in regime change instigated by the biggest loser in such a scenario, the USA, whose debt levels and industrial military complex can only be sustained by the maintenance of the dollar as the reserve currency which everyone else must buy their goods with, including oil.

    Any challenge to this monopoly will bring the whole ponzi scheme tumbling down. Unfortunately for the headbangers the BRIC block is a whole different level to small third world states like Iraq and Libya.

  9. leginge says:

    Varoufakis resigned – he was not “thrown under a bus” and he is not abrasive, you could have said combative, principled – but then you have your own agenda …..

  10. Bill says:

    She had a dilemma as to how to save the German economy from collaps, by the irresponsible lending of the German banks which she solved by turning the private debt to European sovereign debt. I wonder if the German people would be so hard on Greece if they were fully informed as to their government’s decisions that brought us here?

    1. Dave Hansell says:

      Quite.

      However, given the number of people who keep peddling this myth one has to wonder whether there is a large proportion of people in any population, not just Germany, who point blank refuse to be informed of the reality and the facts. Preferring instead the comfort blanket of bull fed them by too much of the MSM.

  11. Philip says:

    Yes, the Greeks built up a vast amount of debt. Yes, their tax system is chaotic and they have un unbalanced economy. Yes – the Germans are right not to want to ensure that the Greeks face the consequences of their actions and they should reform their economic & tax systems. But – as the IMF report leaked in last week’s “Guardian” indicates – you can’t expect a democratic state to endure a 25% cut in living standards, not least because the economic recession caused means that the debt can never be repaid. That doesn’t mean that the Greeks should be let off – either the debt or the need to introduce fairer & more effective fiscal arrangements. But it does suggest that it could be possible to give Greece some breathing space to make these reforms and get the economy growing, before demanding the banks’ pound of flesh. It’s worth the Germans remembering how loans & writing off of wartime reparations helped their economy to grow to what it is now. They also have to decide whether the Euro and the concept of closer European union is worth compromise. It’s perfectly possibly to have a successful EU without every – or even most – member states being in the Eurozone. And that may be the best we can expect…and may actually sit much more happily with the British preference. Ideally, the EU as a whole would take the opportunity to consider whether the prevailing financial orthodoxy of austerity is achieving the best for the people of the EU, as opposed to meeting the financial demands of the banks. How far does the EU differ from the UK is having economic growth which has involved now growth in living standards for many and the pauperisation of the disadvantaged and disabled? This model is only sustainable if all – or virtually all – can benefit. Perhaps we should all accept that though the Greeks are acting from selfish motives and the referendum result can be seen in that light, they have the most direct experience of the sharp end of austerity and how it can tear societies apart. I hope Merkel will be brave enough to use the IMF report as a model, rather than continue to front up for the bankers (who one might ask why they continued to lend to Greece in the way they did….why shouldn’t they pay the price for their imprudent lending as well as the Greek people?)

  12. Ken says:

    It is a shame that all the fiscal responsibility being shown by the EU now had no place in wanting Greece in the EU.Couple this by the bailing out of the Banks with tax payers money and the Germans are complicit in this tragedy.Much of the coverage on this issue has been stereotypes focusing on the Feckless Greeks and the Hardworking Germans .The reality is that Greece lied about their accounts and Europe either knew they were lying or did not do any due diligence checks.Anyone who has been to Greece in the last twenty years and has had to use the Health Care system knows how dire any social care is.The numbers without any safety net at all is massive.Austerity hasnt worked .As an economist I fully supported austerity ,but Europe has to see that it is in a hole and its time to stop digging.They cannnot be surprised if more of the same just gets the results they’ve already had.

  13. Andrew Dundas says:

    Willem Buiter and Martin Wolf propose a useful solution.
    The Eurozone should use the European Stability Mechanism to repay both the IMF and ECB. Then existing Greek Government Bonds should have the maturity dates extended well into the future with their interest liabilities capped at their current rates (short-term bonds carry lower interest rates than longer term loans). That would rescue their banks’ shortage of ready cash and collateral.
    It may also be necessary to re-capitalise the Greek banks; possibly by takeover by other EU banks or by direct EU swaps of capital for bank shares (i.e., a copy of the G. Brown solution).
    All of which postpones the accumulated debt repayments that are crushing Greece and gives them a fair chance to adopt more balanced tax and spend policies. And enable the Tsipras government to claim some kind of victory and the opportunity to re-construct the Greek economy.
    The alternative is bankrupt Greek banks and their account holders, and no more support from the ECB and IMF to enable many Greek companies to continue trading. Not a rosy prospect!

  14. David says:

    I’ve been following this and other stories on the Channel 4 News App on my iPad. Today all three videos on the Greece crisis did not play because they were “incompatible with this device”. I’m sure not what the news team wants. Has anyone else had this problem?

  15. anon says:

    the soundbite that stood out to me yesterday was from the Greeks deputy Minister for reform when he said ‘that the first duty of a soldier is to survive so that he can fight again’. absolutely. Greece will be fine, unlike the Euro group who have behaved appallingly. Despite the cowardly way the Euro group have carried on, I have been been really impressed with the quiet courage and tenacity of the Greeks in standing up to these bullies.

  16. Tim Salmon says:

    http://www.vanityfair.com/news/2010/10/greeks-bearing-bonds-201010

    Just read this piece published in Vanity Fair in 2010, all ye with a boringly uncritical Left/progressive/anti-captitalist agenda, who endlessly assert that Blameless Little Greece – the People – has been “rooked” by wicked, hard-hearted, money-grabbing international bankers. I have known Greece for 60 years. The country and its people have many charms, but the state and its ways are totally corrupt. Everyone is guilty, not just the rich. Corruption is the system. If you do not play by those rules, you cannot live.

    Democracy, my eye! And as for the Greek claim to have invented it, well, yes, they did. A few of them, anyway. The city state of Athens, to be precise, and it lasted for not much more than 30 years, to be ended in 403BC for the next all but two and a half thousand years by the militaro-fascist (as we might call it now) city state of Sparta and its pals. Even while it was a sort of democracy, the city state of Athens’ economy was dependent on a vast slave (largely made up of conquered fellow-Greeks) and second-class citizen population. No rights for women, of course. So let’s not hear any more ignorant talk about destroying democracy in the country where it was born.

    Ignorance, in fact, is the problem. None of you speak Greek and none of you realise what an effective screen a very different culture combined with a language nobody knows can be. Greeks are not going to list their faults for you, even though privately they are well aware of them.

  17. Emmanuelle PRADERE says:

    Very strange comments you did yesterday on Channel 4 news about Angela Merkel!! Basically you suggested two reasons for her to do what is only right: because she has no children or because she is the daughter of a pastor!! I think this is quite a limited view and quite a sexist view actually.

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