Just a quick note on Greece. Although I’ve periodically written at considerable length on the Greek crisis, in shorter posts I often sound as if I blame the whole thing on Germany. That’s shorthand, though, and fairly sloppy shorthand.
Here’s the thing: Greece bears plenty of blame in this whole debacle. They borrowed way too much when their economy was booming; they refused to modernize their infamously porous tax collection, especially toward the rich; they lied through their teeth about their finances for years; and governments of both right and left have doggedly supported an insanely bloated public sector that would make even a Russian blush.
On the German (i.e., Northern European) side of things, the story of blame is a little more….technocratic. Banks made bets on interest rate convergences between north and south when the euro was introduced. This paid off, and for years they happily shoveled money into Greece at great profit. Greece’s economy overheated, but the ECB kept monetary policy loose because that benefited Germany twice over: first by providing Germans with a good place to invest their money and second by providing Greeks with enough money to import German goods. Eventually, this hot money flow produced inflation, but monetary policy stayed loose anyway because the German economy was kind of sluggish at the time and needed the boost. Inevitably, this produced a capital account surplus in Greece and therefore a current account deficit. When the Great Recession hit, everything went to hell. Due to the hot money flows, Greek banks had become dependent on wholesale funding, and when that suddenly dried up a banking crisis got added to the rest of the mix. It’s been downhill ever since.
Now: read those two paragraphs carefully. It’s plain there’s fault on both sides. But the fault of the Greek side is easy to understand and easy to put in moralistic terms. They lived high, they lied about their finances, and they coddled their government workers. It’s easy to paint the Greeks as irresponsible wastrels who are just getting what they deserve.
The German side is quite different. Be honest: did you even understand it? It’s all very technocratic, almost hydraulic in nature. Investors made bets on some derivatives; centralized monetary policy was not ideal for Greece; hot money flows inevitably produced current account deficits; and when the Great Recession cratered the economy it all turned into a full-blown banking and debt crisis. This is all very recondite. Sure, maybe it was Germany’s fault, but in an abstract, bureaucratic way. It’s a lot harder to see bad personal behavior here.
I’m not alone in thinking that once you dig into things, German behavior has been quite a bit worse than Greek behavior. But it’s hard to make this case in a way that makes much sense emotionally. What most people see is a highly intricate and technocratic system on one side and a bunch of reckless, happy-go-lucky Greeks on the other side. So who are you going to blame?
We humans are attracted to human stories, so the answer is the Greeks, of course. They hired the money, didn’t they? The fact that they were stuck in a monetary web designed by Germans that was almost guaranteed to produce disaster—well, maybe that’s true and maybe it’s not, but it all sounds like a bunch of blah blah blah. What did you say an ECB refi rate was again?
So: reckless people vs. a complex financial system that a few eggheads say was rigged. Which story do you think is going to win?