Germany, Greece Must Change The Equation

Germany, Greece Must Change The Equation

Germany’s biggest-selling newspaper, Bild, printed its front page in Greek as well as German today, with the headline, “Welcome to Germany, Mr Tsipras!” The Greek prime minister's first official visit offers hope that Germany and Greece will move past politics, finance, and even historical grudges to the kind of understanding European countries need to show one another.   



Germany, Greece Must Change The Equation
Germany, Greece Must Change The Equation

First, they have some hurdles to clear. The material concerns are the easiest to list and they come down to three cash flow problems. Let's put aside the reasons why they exist, avoid "isms," and just follow the money: 

First, Greece isn't collecting as much in taxes as they used to and failed to meet the EU and IMF primary surplus targets for 2014. This means they'll need money to pay for basic services. EU officials have suggested that Greece may need another bailout of about 30 billion to 50 billion euros by summer.

Second, Greece owes money and has debt repayments due to the IMF between March and July 2015, and to the European Central Bank between July and December 2015. So far, Athens has been repaying the IMF, but to do so it has taken money from social security, government ministries, and state-owned companies. That's the nation-state equivalent of selling blood plasma.

Third, people are pulling money out of Greek banks. Some 20 billion euros have left since December 2014. The February bailout extension slowed the drain, but last week on March 18, Greek banks saw deposit outflows of between 300 million and 400 million euros — the highest in a single day since the February agreement. That was the day the head of the Eurogroup, Jeroen Dijsselbloem, suggested that Greece could be forced to implement capital controls. Such a lockdown is still unlikely unless there's an all-out run on the banks, but it shows how nervous depositors are. 

The first, most obvious goal of Greece's dealmaking with Germany and the EU is to refinance its debt so it can stabilize its banks and gradually start the economy producing more revenue. 

However, a lack of empathy along with understandable frustration on both sides have combined to bring up old grievances and exacerbate recent ones. It's hard to talk about German history without talking about the time before 1945, especially if you're Greece.

But if you're Greece, you also want to include 11 billion euros in unpaid war reparations in the final debt agreement. However, how to bring up that delicate issue? 

Not the way Yanis Varoufakis, before he became Greece’s finance minister, did in an infamous YouTube video from 2013 which shows him giving the finger to Germany. When Mr. Varoufakis was asked about it on a German talk show, he claimed it was phony. When the media proved it was real, it added dishonesty to a growing negative perception of Greece that PM Tsipras addressed head on today. He said to his German hosts, "The Greek people are not lazy." 

There have been other slights from the German side. Wolfgang Schäuble, Germany’s finance minister, called his counterpart “foolishly naive” and Greece’s ambassador in Berlin filed a protest. But the German attitude is not just a rich country looking down on a broke one that owes it money. 

When Angela Merkel first took office and went to address the parliament, she walked past a wall in Berlin’s Reichstag building covered in graffiti. It is in Russian, scribbled by Red Army soldiers in 1945. The walls still have bullet marks and are part of a large German ethos of atonement. The atonement has been moral and financial and in both respects, substantial. Rita Süssmuth, the president of the parliament when it voted to preserve the Russian graffiti, said to those who wanted to relegate the past to the history books, “this makes us stronger, not weaker. It makes humanity stronger.” Many Germans view their atonement as setting an example for the world.

Nevertheless, Greece's counterdemands are testing German limits. Germany paid reparations to the governments of countries that were its victims. Many feel that those payments are settled by the 1990 reunification agreement that was presumed to put the matter to rest. Greece was not a signatory to the reunification, but they also didn't demand reparations while the US, Britain, France and others were forgiving theirs.

The Economist explained, "As Greeks sometimes put it, they were told before 1990 that it was too early to deal with the issue of reparations. Then they were told it was too late." This month Mr. Tsipras declared in parliament that Germany had used “tricks” to get out of reparations. Germany responded that the case was “closed, legally and politically.”

There is one debt that Greece has a different right to claim. In 1942, Occupied Greece was forced to loan Germany about €11 billion in today's euros, to finance the war in Africa. That is about 17% of Greece's €65 billion debt. Many Germans are open to repaying the forced loan or deducting it.  

As time passes, using the war as a justification becomes different in its tone and effectiveness. As the past becomes the stuff of books and films, Germans recall not only Auschwitz but also the firebombing of Dresden and the long years of Soviet occupation. As happens in any reparations debate, younger generations wonder how much they must pay for the sins of their elders. For young Germans, it's the horrors of the Nazis. For young Greeks, it's the irresponsibility of two generations of corrupt politicians and businessmen.

Greece suffered horribly under Nazi rule, which was almost as brutal as their treatment of the Slavic nations. The question is whether one can put any price on such suffering. The answer is no. There is simply no fair rate of exchange between moral forgiveness and debt forgiveness and not much use trying to find one. That's why the clean slate approach Merkel and Tsipras appear to be taking today is so promising. It is the only way forward for a Europe that simply cannot be disunited.


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