Germany and Greece: More in Common Than They Think

Uwe Bott

November 21, 2014

As chronic Eurozone problems have re-emerged on the radar screen of financial markets, the decibel level of political discourse has risen both within Eurozone countries as well as among them. There is an especially deep divide in sentiment between Germany and Greece. Surprisingly, this divide can be explained by some astonishing commonalities between these two countries.

First, for decades both countries have been governed by elites. In Greece, the elite has been largely one based on wealth and patronage. In Germany, the elite could be best described as the bureaucratic intelligentsia.

Second, this government by elites has led to poor governance. In Greece, many of the political class have supported macroeconomic programs that furthered their own narrow economic interests, even at the cost of doing a disservice to the Greek people.

In Germany, the bureaucratic intelligentsia has become so self-absorbed that it has thoroughly convinced itself that only it knows what is good for the German people. In fact, the major political parties have become so indistinguishable that former German Chancellor Helmut Schmidt recently remarked that it did not matter anymore who governed Germany. But this uniformity of the political landscape robs the electorate of true alternatives, a key ingredient to a functioning democratic system.

Third, government by well-entrenched elites and the resulting poor governance caused bad policy choices, which have made life more difficult for many Germans and Greeks. In Germany, low unemployment rates are the result of sustained wage depression.  Hence, 25% of the German labor force doesn't earn a living wage, 15% of Germans now live at or below the poverty line and old-age poverty is on the rise.

In Greece, bad policies kept the country from taking advantage of European integration. The large informal sector in Greece always was the sign of an underperforming formal economy due to a weak policy framework. Moreover, these misguided policies lead to an exponential growth of the country's indebtedness triggering the steep economic and social collapse since 2009.

Fourth, many Germans and Greeks are, therefore, enraged. In part they blame their own governments, in part they blame each other and in part they blame the bureaucracy of the European Union, which an increasing number of citizens consider to lack democratic legitimacy.

Most Germans and Greeks would be horrified if confronted with these apparent commonalities. And yet their inability to look into the mirror and see the other nation's face leaves them paralyzed. The cannot bring themselves to step outside of their own comfort zones in order to seek solutions to the crisis that benefit all, while  extracting a reasonable price from all.

Germans must demand from their government that it end its irresponsible, deflationary austerity policy at home and abroad. They must demand that Germany and the rest of the European Union compete at the highest possible level rather than use wage depression and devaluation in a race to the bottom; a race against low-cost producers that the EU will surely lose.

By knowingly having adopted an imperfect monetary union, Germans must accept responsibility for imprudent lending by their banks to the peripheral countries, while Greece and others must share part of the burden for the self-serving profligacy of their own governing elites. Germany received international debt forgiveness in 1953 and Poland in 1991. This helped both countries to make difficult economic transitions. The same must be done for Greece.

On the other hand, Greeks have to understand that avoiding a race for the depression-prone bottom is anything but a free lunch. Structural reforms are part of the solution. Improving the country's physical and human infrastructure is also necessary. Moneys saved from forgiven debt must be invested wisely and efficiently to strengthen these fundamentals. The Greek people must hold their elected officials to the highest standards of accountability in order to take advantage of this opportunity.

The Eurozone is currently engulfed in the economic equivalent of the American Civil War, pitting the North against the South. Analogous to President Lincoln's words in his Gettysburg Address in 1863, Germans and Greeks alike must demand a "new birth of freedom" as well as governments "of the people, by the people and for the people".  Let the Eurozone's Reconstruction Era begin!

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