The Reckoning

The Germans Need a Word for Chutzpah

Greek protests

They’ve had it, too, Mrs. Merkel.


It’s rather rich at this point for the Germans to be complaining about the conduct of Greeks in the Eurozone debacle.

Two years ago, yes, they had every right to complain: Greece had repeatedly lied about its economic performance, even to EU auditors, hiding defense and social spending that violated the terms of its entry into the Eurozone.

But today, the idea that Germany can be shocked that Greeks are finally saying “no” to the abject failure of the radical austerity that has been forced on them primarily by Chancellor Angela Merkel is absurd.

(While we’re at it, it is also ridiculous that two business writers for the New York Times could write a lead so completely out of touch with reality as this: “Just weeks ago, the idea that Greece would leave the euro zone was almost unthinkable.”

As business writers, it should be a requirement that they do more than read press releases from the European Central Bank and Germany’s foreign ministry. A vigorous debate has raged for years among macro economists, led by my old pal Nouriel Roubini, about the wisdom of a carefully controlled Greek exit. It’s pay walled, but here’s a great example: “Greece Should Default and Abandon the Euro” by Nouriel Roubini Sept. 16, 2011).

As Roubini and others, including myself, have said for two years now, the austerity prescription risks repeating FDR’s 1937 mistake by removing the fuel that can stoke economic growth—and growth is the only hope for a recovery in countries like Greece, Spain, Ireland and Portugal.

This is particularly true when the country in question is locked in a currency straightjacket of its own making. In 1937 for the U.S., the jacket was the gold standard (though FDR had already started taking steps to unbuttoning it). Today, for the Europeans, the straightjacket is the euro.

Exiting the Eurozone, critics will say, is going to be impossible and possibly will trigger a cascade of bad economic consequences. Absolutely right, but only because it will be done in an uncontrolled manner. Had anyone listened two years ago, when Roubini and others suggested that the EU needed quickly to implement a constitutional way for countries to opt-out of the Eurozone if they needed, the damage would be limited. As Roubini wrote in November 2010,orderly but coercive restructurings of sovereign debt—including that of EU or Eurozone members—can be achieved with existing market instruments that have been successfully applied for over a decade to the restructuring of the bonded debt of many sovereigns in emerging market economies.”

To put that in plain English, the Germans needed, years ago, to admit there was no way for Greece to cut its way to fiscal health and force holders of Greek bonds to take the hit. Now, it’s too late.

The bottom line, though, is this: The Greeks reaped what they sowed, but the Germans did too. It may anger bondholders and upset Europeans who pour billions into Greece in a wrong-headed effort to stave off this day, but the euro exit ramp is really the only way out now if Greece is to remain a country where the opinion of its citizens actually has impact on government policy. Otherwise, the idea that the cradle of democracy remains a democracy is a fallacy. Greek voters have spoken, and now Berlin should relent and let them have their drachma back.