‘Germany’s reputation has been damaged’
Deutsche Welle - Germany

‘Germany’s reputation has been damaged’

The acrimonious debate over Greece’s financial plight has tarnished Germany’s reputation for years to come, says British economist Dennis Novy. Wolfgang Schäuble’s stance is “like stone age, climate change denial.”

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Deutsche Welle: What do you think are the chances of success of the current talks between Greece and the rest of the eurozone?

Dennis Novy: We can’t see what’s happening behind the scenes, but on the surface it does look quite bad I have to say.

We’ve seen lots of posturing on both sides ever since the new Greek government has come in. They clearly have strong mandate – but they want something from the rest of Europe. They want to make a point – they want to make clear that the old ways of doing business are no longer acceptable.

The downside of course is that they alienate everyone else in the European Union. On the other side, you also have a lot of horrendous posturing – people plainly ignoring that there has been an election in Greece and the people there really want a change.

In terms of substance, the picture is a lot clearer. The economic proposals the new Greek government is putting forward are quite middle-of-the-road sensible policies. The facts are, from an economic point of view, Greece will never pay back that kind of money, the current economic situation in Greece is not sustainable, and there needs to be a change, and the policies of the last five years – the troika-imposed austerity program – is a complete failure.

When it comes to policy, it’s quite difficult to get something to fail even more – the evidence is just piling in. So on the substance, the Greek government is actually very sensible.

DW: Has austerity failed?

DN: We’ve had austerity in many countries – not only in Europe but in other countries as well. A lot of people argue that if you make cuts then the economy is going to recover. Our textbooks say that if you cut in times of adversity, when everybody is down, you’re just going to further the slump, it’s just going to get even worse. And it turned out exactly that way. The further you cut, the bigger the slump – this is no surprise.

There’s been quantitative easing by lots of monetary authorities, definitely in the US, but also in England, and now the ECB is starting it, and there are lots of other programs along those lines. People have said if you print money it’s going to lead to massive inflation, and what we’ve seen of course is that inflation has been sliding down. Even if you strip out the recent drop in the oil price, core inflation has also been sliding down.

The evidence that austerity has failed is just overwhelming, and anyone who says the oppposite now is a bit like a climate change denier – it’s that kind of debate that we’re having. In the face of the obvious, can you still deny what’s going on. But the politics is invested in it, and now Germany is essentially arguing like a climate change denier.

DW: Should Germans be more worried about Greece’s exit from the eurozone?

DN: I think it would be hugely damaging to Germany if Greece left the eurozone. Even if you take a really narrow-minded view and just say, ‘I don’t really care about Greece, I don’t really care what happens down there, I just care about Germany,’ the austerity policies happening in Greece are hugely damaging to Germany.

You can’t see that so clearly, because the German economy is doing well, but they would be doing much better if the rest of the eurozone was doing better. The eurozone is their biggest export market by a mile.

The reputation of Germany has been so damaged, this will not recover in a couple of years, this will take a generation. The integration of Europe was very much a German project – this is decades and decades of hard work, putting Germany in the center of European politics, a lot of that has gone down the drain when it comes to these countries affected by these failed policies.

There’s a huge damage in that as well, but you don’t really hear that in the German media. What you hear are these morality plays – ‘oh yeah, Greek people are lazy and they don’t pay taxes,’ which is so wrong on so many levels.

It’s a really appalling act of failure of leadership – there is very little leadership in Germany, where politicians say, “Listen, this is what’s going on, the stories you’ve been hearing in the media are not quite correct, and we have to bite the bullet here a little bit. It’s in our national interests.” That kind of argument is completely lacking in Germany.

Wolfgang Schäuble – some of the things he says in the media is like stone age, climate change denial type of thing – it’s really horrendous and the costs are gigantic, even for Germany.

Dennis Novy is an associate professor of economics at the University of Warwick in the United Kingdom.

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