It was always clear that the EU/Eurozone would help Greece. The stability of the Euro and the Monetary Union as a politico-economic project is far too important to be let dragged down by “the markets”. From the start, the task had been how to maintain disciplinary pressure on Greece while sending signals to the markets that the Eurozone would take care of itself and one of theirs. Only journalists and naive observers had been in doubt – or had to write stories in order to maintain suspense (and sales). But it must be admitted that as a communications projects it was a minor disaster. Several phases need to be distinguished in this drama: 1. When Greece was permitted to join the Eurozone at preferential conditions, its entry exchange rate was kept high as a disciplinary mechanism. Honorable intention, but did not work, as Greece consumed the advantages of low interest rates in the Eurozone, without restructuring its economy.
2. During the past ten years, Greece several times had “problems” with Eurostat about the off-balance-sheet recordings of various budget items. Eurostat had never been given the power to really investigate Greece’s accounts, let alone sanction “too-generous” interpretation of its rules. And Greece’s shenanigans were given the benefit of benign neglect by the Commission and the Eurozone countries.
3. Like other countries, e.g. Austria, Greek banks which had little room to expand within Greece, expanded into the Balkan countries, accumulating significant amounts of assets in several countries. Indirectly, some of these banks have very strong connections with other Eurozone banks, thus increasing the interest of large Eurozone countries in helping Greece in crisis. The frivolous talk of Greece being forced out of the Eurozone, or leaving by itself, was always illusory. A run on a non-Euro Greek currency would have bankrupted the country and hurt the bondholders of Greek banks’ and government’s debts. Its potential spill-over into other high-debt countries was very likely.
4. The overshooting of Greek CDS spreads vis-a-vis German benchmarks during the last few weeks was significantly co-caused by speculators attempting to force down the value of Greek bonds on which they themselves were betting. The fact that many of these “investors” did not hold such bonds against which they were buying “insurance” is one of the many remaining mysteries of the insufficient attempts to re-regulate the financial sector. Eurozone president Juncker’s threat of unleashing the zone’s “instruments of torture” against these investors/speculators needs backing up.
5. To observers of the Greek economy it cannot have come as a surprise that Greece now has racked up the largest budget deficit (relative to GDP) in the Eurozone. Election gifts, accommodation of vested interests plus a structural reluctance to deal with the weaknesses of the Greek economy have been documented by the OECD, the IMF and the EU Commission over the past years. It is not only an over-generous public sector workforce, one of the lowest retirement ages in Europe, the demands of a large Nato army and too high wage increases which have exposed the low competitiveness of the Greek economy. In addition to all these, it is most of all the heavy reliance on tourism and shipping, the lack of a varied production base, the lack of innovation and an outdated education system which have rendered the Greek economy to be the “weak man of Europe”. A disastrous macro-economic performance is mirrored by inadequate investment into the future of the Greek population and economy. (This structural weakness is a problem for several other countries in the EU and should find inclusion into assessments of fitness for the Eurozone).
6. While the draconian budgetary measures, especially on the expenditure side, which the Greek government has introduced, certainly will not help the short-term growth of the Greek economy, they are appropriate as long as we give “the markets” supreme judgement power in assessing economies. Financially, this is not the end of the beanpole, since even the proposed measures will still leave Greek demands for finance at extraordinary heights. While the most recent placement of Greek bonds has been “successful” and “oversubscribed”, its future budgetary costs are not sustainable and will place a very heavy burden on many Greek generations to come. The task for the Eurozone members (unless they relent and let Greece address the IMF) is to get the costs of servicing this Greek debt down.
What are the lessons for the Eurozone?
There are lessons of substance (the policy paradigm of the Eurozone), of finances and of institutions to be learned.
Lesson 1: A monetary union with a common monetary policy which leaves other economic policy areas (fiscal and structural policies) in national hands is not viable. We need an “economic government” which makes sure that Eurozone fiscal and monetary policies are aligned (and do not work against each other) and that structural policies take some of the competitiveness burden off unit labor costs. EU Structural funds need a much stronger innovation and ecological component.
Lesson 2: The Eurozone also needs a mechanism to help countries in trouble. The existing non-bail-out clause of the Maastricht treaty puts all adjustment burden on the 16 national economies themselves, but (see lesson 1) does not allow them to run their individual monetary policies. The actual search for “bi-lateral” solutions to overcome the non-bail-out-clause is embarrassing, time-consuming, inviting more “deals” and posturing.
Lesson 3: The Eurozone’s fascination with “competitiveness”, as measured by unit labor costs, extols a neo-mercantilist fetishism with export surpluses – and ideology which already Adam Smith and David Ricardo, the classics, fought against. This policy prescription does not take into consideration that for the Eurozone as whole, not all 16 countries can generate export surpluses, like Germany. For the Eurozone as a whole, Germany’s (and other countries’) export surplus requires an import surplus by other countries –given that the Eurozone’s external balance with the rest of the world is in balance. This should be even clearer to the German policymakers as 2/3 of their exports go into the Eurozone, and ¾ into the EU. The present Eurozone policy prescription (“keep labor costs down”) leads to generally declining wages, thus insufficient domestic demand – in favour of export production to the world. The Eurozone’s GDP would be large enough to rely on its own consumer and investment demand as a strong supporter of the business cycle, complemented by a high-value-added export sector, produced by a highly skilled workforce. The Eurozone (and the EU) cannot compete with low-wage productions in Asia and Latin America, but need to strengthen their production base via innovation and their own effective demand.
Lesson 4: The recent talk about a “European Monetary Fund” makes only sense, if it is an emergency fund as set out in lesson 2. To emulate the International Monetary Fund as a lender of last resort would be a duplication. The fear expressed by several policy-makers that by letting Greece approach the IMF “the US would gain influence in Europe” is only remarkable insofar as it shows EU and Eurozone resignation vis-a-vis exerting their influence in the IMF. In the IMF the EU has twice the “quota” (voting power) as the USA, the Eurozone’s quote is still more than 50% larger than that of the USA. European weakness in the IMF is the result of EU chairs’ fragmentation in the board of the IMF into 7 to 8 jealously guarded single chairs – without effective coordination and thus counterweight to the US. Given their voting power, if EU and Eurozone countries could finally decide to pool their votes into 1 or 2 chairs – with concomitant joint positions – they could wield all the influence they wanted. The present occupation of the post of Managing Director (=President) by the reformist Frenchman Dominique Strauss-Kahn would be the optimal opportunity for the EU/Eurozone to finally solve this long-standing open issue of coordination and power in this important institution. To generate a European replica (EMF) would only once more show to the world that the EU is more concerned with internal jealousies and power games than global economic policy influence.
Lesson 5: While it was clear from the beginning that the Eurozone was never a textbook “optimal currency union”, it was unwise to accept countries into this construct which manifestly were not ready for it. While the European policymakers hoped that the disciplining force of the common monetary policy of the European Central Bank, and the Bundesbank-enforced twin “Stability and Growth Pact” would force the laggard countries into discipline, the last ten years have shown that in a number of cases this hope was wrong. Enforcement of the SGP was stricter for small countries than for large ones, differed from period to period and – as the actual crisis has shown where nearly all countries violate the thresholds – are not suited to crisis conditions. An overhaul as proposed in the above lessons is necessary, but also caution in the future: political considerations about admitting new members must not override economic ones. In the global economy – and especially as long as non-accountable bond and currency traders wield henchmen power over national economies – ex-ovo weaknesses need to be avoided. Their ex-post repair may be extremely costly, or even impossible.
Lektionen aus der Griechenland-Krise
Das Griechenland-Drama, dem die Eurozone nunmehr begegnet, nimmt seinen Anfang mit dem politisch motivierten Beitritt Griechenlands zur Eurozone. Als Preis für den Eintritt wurde der Umrechnungskurs sehr hoch festgelegt, um einen Disziplinierungsfaktor einzubauen. Dies hat nicht funktioniert. Griechenland hatte mehrfach Probleme mit seinen Budgetverbuchungen, EUROSTAT jedoch keine Handhabe dagegen. Die Expansion griechischer Banken in den Balkan, mitfinanziert von anderen westlichen Banken hat das Interesse großer Euro-Länder an einer Griechenland-Rettung mit-motiviert. Spekulation der „Märkte“ gegen Griechenland hat dessen Finanzierungsprobleme verschärft. Griechenlands Wettbewerbsfähigkeit ist weniger auf überproportionale Lohnsteigerungen denn auf die Schwäche seiner Wirtschaftsstruktur und Innovationsschwäche zurückzuführen. Zwar werden die ergriffenen drakonischen Budgetmaßnahmen die Rezession in Griechenland verschärfen, doch sind sie als Signal an die „Märkte“, denen die herrschende Praxis ja alles überragende Kompetenz zur Bewertung der Wirtschaftsleistung übertragen hat (trotz deren desaströser Herbeiführung der Krise) notwendig. Sinkende Finanzierungskosten werden der griechischen Wirtschaft – und dem Euroraum – helfen.
Lektion 1: Eine Währungsunion kann nur mit koordinierter Wirtschaftspolitik funktionieren. Die Eurozone braucht neben der gemeinsamen Geldpolitik auch eine gemeinsame Fiskal- und Strukturpolitik.
Lektion 2: Die Eurozone benötigt für Krisenfälle einen Hilfsmechanismus. Die jetzt diskutierten bilateralen Hilfen sind kein adäquater Ersatz.
Lektion 3: Die Ausrichtung der Eurozone (und EU) auf Wettbewerbsfähigkeit zur Erreichung möglichst hoher Exportüberschüsse (a la Deutschland) für alle Länder ist nicht möglich: die Exporte der einen sind die Importe der anderen. Die Wirtschaftspolitik muß stattdessen auf Wachstum ausgerichtet werden, die heimische Nachfrage gestärkt statt durch geforderte Lohnverzichte geschwächt werden. Eine wachsende EU-Wirtschaft in der globalisierten Wirtschaft nur durch innovative hoch qualitative Produktion bestehen, nicht durch niedrige Löhne.
Lektion 4: Die Duplizierung der Funktionen des Internationalen Währungsfonds (IMF) durch einen EMF macht keinen Sinn, ein Fonds a la Lektion 2 jedoch schon. Die EU könnte im IMF viel mehr Einfluß geltend machen, wenn sie ihre internen Abstimmungsprozesse in einem einzigen (oder zwei) Sitzen im Board bündeln würde, statt der derzeitigen Fragmentierung auf 7 Sitze.
Lektion 5: Die Eurozone war von Anfang an kein „optimaler Währungsraum“ im Sinne der Theorie. Länder aufzunehmen aus politischen Gründen, die wirtschaftliche dazu nicht in der Lage waren, hat sich als schwerer Fehler herausgestellt. Dies gilt auch für künftige Erweiterungen.