Maastricht Treaty Anniversary: Demise of Greece, anti German feeling & Crisis Solution

Maastricht Treaty Anniversary: Demise of Greece, anti German feeling & Crisis Solution

Vojin Joksimovich, PhD

Modern Tokyo Times

February the 7th marked the 20th anniversary of the landmark Maastricht Treaty on the European Union (EU) or the TEU. TEU was signed on February 7, 1992 by the European Economic Community (EEC) members at Maastricht, the Netherlands, which is a city tucked away near the borders with Germany and Belgium. The EC was established in 1957 by six nations (France, West Germany, Italy, Belgium, the Netherlands, and Luxembourg), which sought economic cooperation as a way to prevent wars. On December 9-10, 1991 the same city hosted the European Council which drafted the Treaty. It entered into force November 1, 1993 with the population larger than the US and an economy roughly equal. Today the EU has 27 members (Croatia will become the 28th member on July 1, 2013) with the population of about 500 million.

The TEU established the goal of creating economic and monetary union (EMU) by 1999, but not the fiscal union. In 1998 11 EU members had met the convergence criteria, so the eurozone came into existence on January 1, 1999. On that day all bonds and other forms of government debt by eurozone members were denominated in euros. On the first day of trading the euro climbed to 1.19 USD. Monetary responsibility is the responsibility of the European Central Bank (ECB) in Frankfurt. The TEU enabled Germany to become the export power house. 40% of German exports have been flowing into the eurozone and 20% into the non-euro EU countries. Greece was admitted in 2001 after “faking” its deficit figures. Between 2007 and 2011, five states acceded making the eurozone a 17 member strong group with a population of 329 million people.

The TEU led to the death of my native Yugoslavia and creation of a defective EU. The anniversary passed largely unremarked in view of preoccupation of EU governments as well as the markets with the two-year old eurozone crisis. The exception was Chancellor Angela Merkel’s speech to the students at the reconstructed Neues Museum in Berlin appropriately surrounded by Greek antiquities. She spelt out her vision on how to solve the eurozone crisis long-term. While Merkel was lecturing the streets of Athens were full of trade-union organized demonstrators protesting the austerity packages the lenders have imposed on the Greek government, which amounted to humiliation, loss of dignity and sovereignty. One of the slogans in the protests was: “Down with the dictatorship of the monopolies: European Union.”

I have written a five blogs series on the eurozone crisis published by the Modern Tokyo Times. These blogs have addressed both the cases of Greece and Germany as well as other salient events through the December 9, 2011 EU summit. The two which are particularly relevant are Greece and Europe: Greeks Should Behave as the Swabian House-Wife and Chancellor Merkel and arrogance: is she really committed to save the Euro.

Maastricht Treaty: Dismemberment of Yugoslavia and Creation of Defective European Union

Dismemberment of Yugoslavia

The French President Francois Mitterand and the British Prime Minister John Major had vehemently opposed German pressure to recognize the former Yugoslav republics of Slovenia and Croatia, who unilaterally declared independence from the Yugoslav Federation in June, 1991, with the full encouragement of Germany, Austria and the Vatican. They were successful, despite regular German threats to proceed on their own, but only until December 15-16, 1991 when they were arm-twisted by the German foreign minister Genscher at the EEC foreign minister meeting in Brussels.

Here is how the retired American diplomat Walter Roberts described the meeting: “The vote in this gathering was 8 to 4 against recognition, but the German foreign minister insisted that he would not leave the table until the EEC ministers would unanimously support him. It was 10 pm. By 4 am he had his way. Would it not have been wiser if the British and the French foreign ministers had declared that they would not leave the table until Germany and its three allies agreed with majority not to accord the recognition?” The negotiators: Lord Carrington, chairman of the International Conference for Peace in Yugoslavia, and Cyrus Vance, UN Secretary General’s personal envoy to Yugoslavia, strongly opposed the German position. Vance said: “My friend Genscher is out of control on this. What he is doing is madness.” The German allies were Denmark, Holland and Belgium. Italy saw the writing on the wall and did an-about face. On the other hand, to France, Britain, Spain and Greece division had an appearance of geopolitical alignments affecting the Balkans in the preceding century. Indeed this was the case. Reunited Germany, after a period of political and economic reconstruction after the WWII, was flexing muscles again. Germany stopped being an economic giant and a political dwarf. Only five years before Margaret Thatcher begged Gorbachev not to allow the reunification of Germany.

Great Britain in particular became more concerned about the ongoing Maastricht Treaty negotiations and internal EEC relations than about the peace in Yugoslavia. Failure to confront German diplomatic assertiveness not only doomed Yugoslavia but failed to constrain the rise of Germany as by far the dominant economic power in Europe. Germany made concessions on the EEC monetary union that Britain had been seeking including its demand to opt out of the Treaty’s social charter. The second concession was that all Yugoslav republics were eligible for recognition. Thus the EU came into being as a marriage of convenience but it has gradually turned into a marriage of inconvenience.

Diana Johnstone pointed out; the EEC had an option to offer a feasible program for integration of all of Yugoslavia into the EU. Such an offer would have prevented the civil wars and “justified the European Union’s claim to be the core of a new era of peace and democracy for the continent.” Despite the economic crisis Yugoslavia was then in, it was economically way ahead of the Eastern and Central European former USSR satellites. However, the New World Order (NOW) driven by corporatocracy was already in place. Yugoslavia and subsequently Serbia were the first victims as acknowledged recently by Pat Buchanan. Capitulation of France and GB led to Munich II. In 1938, Czechoslovakia was dismembered as an act of appeasement to Nazi Germany. In 1992, Yugoslavia was dismembered as an act of appeasement to a resurgent unified Germany. Both Czechoslovakia and Yugoslavia were creations of the Versailles Treaty which ended WWI and were engineered by the US, GB and France.

Defective TEU

The TEU created a so called EU pillar structure. The first pillar created the EU’s supra-national institutions: the European Commission (EC), the European Parliament and the European Court of Justice. The other two pillars were the Common Foreign and Security Policy and the Justice Home Affairs.

Maastricht has been amended by Amsterdam (1997-99), Nice (2001-03) and Lisbon (2007-09) treaties. The Lisbon Treaty was the blueprint of a highly competitive social market economy experimented in Germany in the 1950s. The eurozone members currently are: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. Out of the remaining 10 EU countries, seven are obliged to join once they satisfy the entrance requirements. Three are exceptions: Sweden, Denmark and the UK with an opt-out provision.

The euro idea was to provide a number of countries with a single currency that would prove as stable as the German Deutschmark. Most EEC countries were keen to have an anchor of stability on which to base economic growth. It was yet another triumph of German thinking as it relied on fiscal policy rules instead on fiscal or political union. Until the reunification, the Franco-German partnership contained a balance. The French took a lead on political matters, while the Germans had an upper hand in economic and monetary affairs. That began to change with dismemberment of Yugoslavia, but over much of the euro’s first 10 years the balance remained by and large intact, partly because the French economy was growing strongly. Beyond this, Germany not only re-asserted its economic pre-eminence, but became comfortable with using a louder and more distinctively German voice on political issues. In the eurozone crisis, the notion of co-equal partnership is nothing more than a polite fiction. The Franco-German imbalance means that a resolution of the eurozone crisis will be on German terms much more so than on French terms.

The assumption was made, largely theoretical, that there would be no crisis, a pseudo-religious belief. In fact, the bloc has faced difficulties on a scale its architects couldn’t imagine including the existing systemic crisis, which is well beyond the design basis. Sir Martin Wolf wrote in the Financial Times: “The eurozone was launched on a wing and a prayer. The wing has fallen off and the deities are not listening to prayers. Everyone is focusing on averting a crash…How, then, did the eurozone fall into its plight? A part of the answer is that it lacked mechanisms for handling crises, that its members have diverged hugely and that it was blighted by its early successes. The easy credit conditions and low interest rates of the first decade delivered property bubbles and explosions of private borrowing in Ireland and Spain, incontinent public borrowing in Greece, decline in external competitiveness in Greece, Italy and Spain, and huge external deficits in Greece, Portugal and Spain.”

The EU’s greatest success has been the war avoidance. The borders have been loosened with nationalist sentiments calmed after centuries of bloodshed including WWI and WWII. On the other hand the EU has become a bureaucratic oddity that prattles on in a maze of buildings in Brussels. This writer compares it with the Kremlin during the USSR era. 20% of Europeans believed that bureaucracy was the EU’s defining characteristic; 44% said life had become worse since their nation joined the EU. The members have been bickering about the constitution and there’s none. The EU is often powerless to force members to follow mandates, such as getting the Germans to establish speed limits on autobahns. Willingness of the western countries to share their wealth with the new members has all but disappeared. Hence, I vehemently oppose that the capital of Serbia should be Brussels rather than Belgrade.

The Second Greek Bail-out Drama

Painful austerity measures (22% cut in the minimum wage to help boost competitiveness, 300m Euros falls in 2012 pension spending, 2012 15,000 public sector employee layoffs and 150,000 over three years, 1bn reduction in 2012 spending, savings of 14bn euros by 2015) have been demanded by the EU, IMF and ECB—the so called troika—-as a condition for unlocking the second bailout package worth 130bn euros ($171bn), which would in turn allow a further 100bn euros write-off of the country’s debt to private banks from Greece’s 350bn debt load.  So the Greek government was offered two things: a loan and a debt write-off. The aim is to cut the Greek government debt from 160% GDP to 120% by 2020. I never understood the figure of 120%, apart from the fact that it equals the current Italian debt/GDP ratio. This figure should be more like 60% for Greece to stand a chance of recovery from the present misery of five consecutive year of recession. Athens faces loan repayments to private lenders of 14.4bn euros as of March 20, which it cannot afford to pay.

After weeks of protracted negotiations, which included new austerity demands by the troika, the PM Lucas Papademos, after declaring that bankruptcy is not an option, managed to get his fractious cabinet approval for the second bail-out package. The debt default would be catastrophic for Greece as it would cut-off their one source of cash—rescue loans from the EU and IMF to the Greek government, and from the ECB to the Greek banks. Six ministers and under-secretaries resigned in protest. The LAOS right wing party leader, George Karatzaferis stated: “We were robbed of our dignity, we were humiliated, I can’t take this, I won’t allow it.” He blamed Germany for trampling on the countries of the southern Mediterranean. He added that Greece “could do without the German boot.” His party (16 deputies out of 300) left the parliament. Greece’s largest police union threatened to issue arrest warrants for top officials from the troika team. The Greek Parliament, under emergency procedures, was the last decision maker.

Despite big demonstrations in Athens with the participation of some 100,000 people, the Greek Parliament endorsed the austerity package opening the way for the eurozone finance ministers to sign-off on the 130bn euros second bailout loan. Out of 278 deputies present, 199 voted in favor, 74 voted against, 5 abstained. 43 deputies were later expelled from the two remaining partners in the national unity government: the New Democracy Party and the Pan-Hellenic Socialist Movement. Riot police fired teargas as demonstrators threw Molotov cocktails at the parliament building. 17 buildings in Athens, including five banks, were set ablaze while 54 people were injured.

Earlier in the week there was a tense meeting of the eurozone finance ministers. The Greek finance minister, Evangelos Venizelos was chided, after a revelation that a supposed 3.3bn euro package of budget cuts delivered less than initially advertised. The Greek lenders were pressing the country to come up with 325m in additional cuts to prevent a deficit overrun in the 2012 budget. Also, Greek lenders are requiring political leaders to pledge in writing that they will uphold the reform program even after the upcoming elections in April in which the New Democracy is expected to win. If these conditions are met the ministers would allegedly approve the loan. Jean-Claude Juncker, the Luxemburg PM who serves as chairman of the ministers meeting, said “in short there is no disbursement without implementation.”

The lenders are losing confidence that Athens may not live up to its commitments as best illustrated with the controversial German proposal circulated to the eurozone finance ministers, which called for a “budget commissioner” with veto authority over Greek spending decisions. The German proposal would suspend Greek sovereignty and the democratic process for the price of the loan. After the angry response from Greece it was substituted with a French proposal of an escrow account to accept a new bail-out funding instead of paying it all directly to Athens. This would ensure that bondholders are paid-off, while additional cash to run the Greek government could be withheld if Athens did not live up to tough new reform demands. The German finance minister Wolfgang Schauble said that Greece was a bottomless pit that must be closed.

At this writing it appears that the Junker’s group still had a list of at least half a dozen items that Greece must accept before the deal would be blessed by the finance ministers. Hence, the Greek torture continues.

Enough to Save the Eurozone?

Not according to a number of gurus. Mohamed El-Erian, chief executive of Pimco, says that “the process that has led to this juncture is worrying. There is an uncomfortably high chance that this agreement will have the same fate as previous ones—unraveling within a few months, and for good reasons.” In support of his argument he listed numerous facts including the Greek government record over the last two years. Yet still every meaningful indicator of Greece’s economic and financial state has worsened. He points out to domestic opposition in triple-rated eurozone countries, including Germany and concludes brilliantly: “Only a pure genius or enormous luck could produce a perfectly designed Greek program” In the last quarter of 2011, the Greek economy contracted 7%.

Wolfgang Munchau, writing in the Financial Times, after blasting European policymakers for lack of experience managing financial crises, advocates that it would be best to recognize “the desolate state in both countries (Greece and Portugal), to let both default inside the monetary union, and then use a sufficiently increased rescue fund to help them to rebuild themselves, and to ring-fence the rest at the same time.” He recognizes that his proposal would be very expensive. ”But to ignore reality for another two years will be ruinous.” The famous financier and philanthropist, George Soros, doesn’t believe that the deal will be enough to save the eurozone. He blames the EU policy-makers for mishandling Greece and Merkel for relegating Greece to a third-world country.

Ricardo Hausmann, professor at Harvard University, says: “The generosity of the world is again being wasted on Greece.” He says that Greece “produces no machines, no electronics and no chemicals. It does not have what it takes to be rich as it is.” He recognizes that Greece’s biggest asset is tourism but argues that alone would require tripling in size for the country to be economically viable. Instead he recommends that Greece should follow the Irish model. Greece needs to identify “the missing knowledge and infrastructural inputs required by new industries and assure their provision, the way the Irish Industrial Development Agency does.” Munchau’s proposal for use of the rescue fund to help Greece could be used for this very purpose. The Irish model would reduce unemployment. Currently, for the young (under 25) the official jobless rate is 48%. Many jobless have had to move back home, sharing their retired parents’ meager pensions, which will be now reduced. Paradoxically, the elderly have taken the role of breadwinners in Athens.

The World Bank’s “Doing Business 2012” rankings of the ease of doing business in 183 countries puts Greece at 100, behind Yemen and Vietnam and just ahead of Papua New Guinea. This compares with Italy at 87, Spain at 44, Portugal at 30, and Ireland at 10.

Merkel’s Vision Causing Germanophobia

In her Berlin lecture Merkel repeated that the eurozone countries needed both budget austerity to reduce debts as well as structural reforms to boost competitiveness and employment. “Without doubt, we need more and not less Europe….That’s why it’s necessary to create a political union, something that wasn’t done when the euro was launched.” It should be noted that Germany was in the forefront pushing for the euro creation. This federalist Europe would be governed by the European Commission (EC) with competences transferred to it by nation states. The EC would be reporting to a strong European Parliament. The European Council of nation heads of state and government would operate as a second legislative chamber, while the European Court of Justice would be the highest authority.

This vision is causing alarm in many European capitals including Paris. President Sarkozy doesn’t want the EC to become the EU government. He wants the job to remain with the Council, where the nation states rule. Such perceptions have begun to stir Germanophobia. Arnaud Montebourg, a defeated candidate for the Socialist party nomination in the French presidential elections, compared Merkel’s policies to those of Bismarck, who he said also sought “to dominate other European countries, particularly France.” Jean-Marie Le Guen, another Socialist, compared Sarkozy with Edouard Daladier, the French PM who signed the Munich agreement in 1938 that allowed Nazi Germany to annex the Sudetenland. In France, the share of secondary-school pupils picking German as a first foreign language has fallen to 6%, less than half the level 20 years ago.

Needless to say Germanophobia is more pronounced in Greece. Twenty-eight MPs tabled a proposal requesting a debate on the occupation loan paid to Germany by the Greek government during the WWII as well as the issues of reparations for victims of Nazi atrocities and looted treasures. The MPs stressed that now reunified German state owes Greece, a WWII victim, roughly 54bn euros before interest. Greece is apparently the only country to which Germany has not paid reparations. The petitions circulated include the following quote from Friedrich Nietzsche: “There never has been a nation in the world that contributed more substantially to the human race the Hellenism and one that has been persecuted so vigorously by other nations, which have never had any contributions whatsoever.”

The Italian newspaper Il Giornale, owned by Silvio Berlusconi, had a piece linking the eurozone crisis to the dark days of World War Two, warning about German arrogance and saying that Germany has taken the single currency into a weapon.

Should Germany Leave the Eurozone?

It is apparent that reunified Germany has become too big as a European state. Germany has fully exploited the single currency to maximize its exports. Its obsession with competitiveness has left other eurozone members behind, the Mediterranean countries in particular, thus constituting one of the deep causes of the eurozone crisis. When the Mediterranean countries started faltering Merkel prescribed to them the Swabian house-wife model of austerity. This has led to deep recessions and relegating them to the third-world countries in the long run. Hence, it can be argued that Germany has abdicated the EU leadership although some countries like Poland have requested more rather than less German leadership.

China will soon replace France as Germany’s largest trading partner. This might suggest that in future BRIC (Brazil, Russia, India, China) countries might be more attractive as trading partners than the eurozone members. Also, Germany heavily depends on Russia for its energy supplies as illustrated with the Baltic North Stream gas pipeline. This dependency will grow in particular after Merkel’s irrational closure of the nuclear power plants in Germany. Wolfgang Munchau, writing in the Financial Times, has illustrated the young Berliners perspectives. They look towards Moscow as the “coolest” city in Europe by far—apart from their own, ahead of London, Paris and New York. “Old Berlin was split between west and east. Young Berlin looks east. German business looks even further east.”

Hence, proposing that Germany should consider leaving the eurozone is not out of whack and may provide a solution to the existing systemic crisis. Of course, initially there would be lot of pain.

Vojin Joksimovich is the author of three books and over 100 articles

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