A game of chicken: Greece and Germany?

Greek Finance Minister, Yanis Varoufakis, met with his German counterpart, Wolfgang Schäuble, in Berlin on Thursday February 5th 2014 to continue talks on Greece’s debt. In the subsequent press conference, the two men did not hide their frustrations with each other. Finance Minister Schäuble maintained that, “We agreed to disagree.” To which Minister Varoufakis added, “We didn’t even agree to disagree.”

If Varoufakis had come to open a serious dialogue with the German government about a new strategy towards the Greek debt question, he not only misjudged the mood in Germany but also his strategy. Offering the German government a “sound, macroeconomic analysis” must have sounded more like a threat than a promise to Schäuble’s ears. And the analogy of Greece today with Germany during the 1930s while “maintaining that Germany can understand this better than anyone else” does not touch a raw nerve within Germany. Among the German establishment, there is no recognition that the fate of Greece shows parallels to Germany in the 1930s.

The German analysis is not that Greece is a country that is insolvent and suffocated by an unsustainable burden of debt. There are rather two basic assessments of the Greek crisis:

The first is labelled ‘moral hazard’ and used with anyone who questions the austerity cure for a country in depression. Rules have to be applied universally, and punishment has to be exercised to those who fiddled the accounts and did not have their budget under control. Otherwise all hell will break loose in such a diverse political construction as the European Union.

The second runs under the heading of ‘clientelism’. Each and every German politician and civil servant has a story to tell about public sector waste, tax avoidance and corruption in Greece. Clientelism is also not confined to Greece but applied to Spain, Italy, Cyprus and Ireland too. All crisis countries have, for European standards, relatively high scores on the Corruption Perception Index of Transparency International.

From the perspective of clientelism, the election of Syriza as the governing party presents a real opportunity. Old political linkages of patronage seem to have finally been broken in Greek politics. The promise by Varoufakis to end the business-as-usual mentality in Greece, and to turn a page on the topic of Greece and Europe, is opening doors in political Berlin. Schäuble immediately took him up on the issue and offered 500 German tax inspectors to help out with tax collection. In that sense, the shakeup of the Greek party system is the biggest success of five years of austerity policy by the Troika. That Syriza came to power on a slightly similarly clientelist platform (public sector employment and wage increases) makes only a slight dent in the overall positive assessment.

On the other hand, as Schäuble pointed out in the press conference, not only Syriza has a political mandate. Other countries have it too. And the German government is particularly boxed in with regard to the Eurozone.

Ever since the ill-fated party congress in Leipzig in 2003, when Merkel promised more liberalization, and subsequently lost popular support, she has led her party towards the centre and crowded out policy initiatives of the centre-left. Her previous family and labour minister, Ursula von der Leyen, initiated a whole range of social projects, from early childhood education to parental leave. The CDU is now squarely positioned in the centre ground of the German political spectrum.

This has, however, opened a space on the right of the CDU/CSU, which is growing and has become more apparent. The business wing within the CDU has become more activist and critical of government policy. Right-wing citizen groups organize rallies against migration from muslim countries and the far right has more political support, both in elections as well as on the streets.

But the main political development has been the set up and rise of the Alternative für Deutschland (AfD), a Eurosceptic, conservative and nationalist party which has entered three regional parliaments and the European Parliament. Its origins are based on a fundamental critique of the EU’s crisis policies, which it sees as being both to the detriment of the German taxpayer and non-sustainable in the long run. The AfD welcomes a haircut for Greece and its subsequent exit from the Eurozone. Merkel, so far, has resisted the temptation to give in to the pressure of the right wing of her party to cover the political space on the right. But she is watching these developments very carefully and will not feed any more criticism of the EU by giving in to debt mutualization or to a haircut.

The German left has not been able to develop a more European narrative to solve the Greek problem. Any move by the Social Democrats away from austerity towards a European activist, macroeconomic position is immediately attacked as a sellout of German interests. The timid suggestions of Eurobonds have been dropped from the SPD’s agenda. As a junior minister in the SPD-led Foreign Office once told me: “The moment small businesses in Germany started to realize that debt mutualization might affect their access to credit, the plan was dead in the water.” The centre-left now competes with its traditional constituency, the lower middle classes, not only with the CDU, but also the far left, die Linke and the AfD, and its share is shrinking.

After ten years of austerity policy within Germany, including stagnating wages, low spending on education and infrastructure and deep cuts in pensions, there is very little sympathy among the lower middle class for the troubles of other European countries. Rather than having an understanding of how much austerity hurts and how to avoid it, lower middle class voters want others to experience what they went through. If the German electorate actually benefitted from the economic situation, as foreign commentators assume, it might be more benevolent towards others. In fact, it does not benefit, but in its own opinion has earned full employment and a moderately beneficial situation through a series of painful policy choices which it wants to see implemented in the crisis countries too. For the German electorate, which now has a retirement age of 67 for most employed people, it is not comprehensible to

give aid or any other form of serious help to countries where the majority of the population, until recently, retired at 60 if not earlier.

For the centre-left, therefore, there is no narrative or policy space available, which combines European solidarity, an end of austerity policies and sounds promising to German ears. Add to this the positioning by the Green party towards a conservative-green coalition in 2017 and the still confrontational relations with the far left, there is nowhere for the SPD to go. Certainly not towards a more active macroeconomic policy. For these reasons, the constant criticism of the German position in the English financial press does not help the centre-left to build up a case of an alternative European strategy. Rather the opposite: the more Angela Merkel is attacked in Davos by Paul Krugman for Germany’s economic policy, the more the centre-left rallies around its government.

Finally, the game of chicken assumes that both partners in the confrontation are of equal weight. If they crash head on, both will end up dead. The German interpretation does not share this view. It sees itself as a truck heading towards a confrontation with someone on a bicycle, the worst scenario being that Germany will have a dent on its bumper. Greece will be dead.

This text was first published in the Political Quarterly.