As expected, Germany has balked at the new Greek government’s quite reasonable request for changes in its austerity plan. Paul Krugman has the main details, Insert German Curse Word Here. I think two words are necessary: verdammte arschlöcher. (Look it up; I don’t do English curse words here anymore.) Basically, Germany is trying to force Greece out of the euro. And that makes sense, because the oh so moral Germans have never had economic problems and have never started a world war and never staged a genocide. So it just makes sense that they would want to divorce themselves from a country that spent beyond its means a decade ago.
What the Germans seem to want to do to the Greeks is what the French and British did to the Germans after World War I. The mistakes are different, but Germany wants to punish the Greeks just as they were punished just short of a century ago. I’ll be honest, I’m not fond of Germany. It is the country most like the United States: absolutely convinced of its moral superiority. And it is the big dog in the European Union. And it doesn’t just use that power; it abuses that power.
What Greece absolutely must do is stand strong. They have to be willing to leave the euro. Although as Dean Baker has previously suggested, maybe it would be best if Germany left the euro. But if Greece left the euro, big deal. It would certainly cause some disruption. The next year would be marginally worse than it would otherwise be. But it would be marginally worse — not a lot worse. And then things would get better — and fast. The German prescription for Greece is Khan’s to Captain Kirk, “I’ve hurt you. And I wish to go on hurting you.” Does Greece really want to live through another five years like the last five years? Because that’s what Germany’s plan for them will provide.
So Greece needs to say, “You won’t yield? Fine. We’re gone.” I doubt seriously that Germany, much less the rest of the euro countries, are going to go for this. As many other observers have noted: if Greece exits the euro and it goes well, there will be enormous pressure on Spain and Italy to exit it as well. And at that point, how exactly is the euro a shared currency?
Although I have to wonder what good the shared currency is anyway. I understand that a shared currency makes trading easier. But it doesn’t make it that much easier. And the down side is that when there is a recession and a country like Greece needs to reduce labor costs, it can only do it with great difficulty. As it is, when the euro was first being discussed, many economists recommended against it for this very reason. And history has born this out.
It isn’t just in Greece’s interest to play hardball with the Germans. It may be what saves the European Union itself. As it is, the euro gives the large German economy far too much power. And as we know from at least a century, a Germany with too much power is not a good thing.