Greek tragedy

Dionyssis G. Dimitrakopoulos is Senior Lecturer in Politics in the School of Politics and Sociology at Birkbeck College, University of London.

It is true that hindsight is a wonderful thing and this crisis is, in some respects, extremely complicated. It is also true that with power comes responsibility. Goethe's heimat has both. In other words, Germany is not just another ordinary country.

It is extraordinary in historical, economic and geographic terms. Having enormously benefited from and contributed to European integration and - in particular - economic and monetary union, Germany must play its full role in the current crisis in a way that reflects what Adenauer, Brandt, Schmidt and Kohl knew very well: German interests cannot be defined in opposition to but as part of the EU's collective interests.

The crisis has three facets. The common thread that links them is that they require political management. However, none of them has been handled in a satisfactory manner by the Merkel-led coalition government because it chose an inward-looking short-term strategy, instead of leading Europe.

First, this crisis is largely but not exclusively a problem of Greece's making. Secondly, it is a problem directly linked to the banking sector, where the problems were not confined to the Anglo-Saxon world. Thirdly, it is a problem that highlights the major weaknesses of the original design of economic and monetary union. Note, however, that as Helmut Schmidt rightly pointed out recently, "Die Währung ist gut" (The currency is fine). In other words, this is emphatically not a currency crisis. The euro itself is a success story and its demise would be catastrophic for many countries, including Germany.

Helmut Schmidt and other German politicians who have criticized the current German government for its initial reaction are absolutely right. In particular the uncertainty generated by (a) the initial reluctance to make the kind of robust statement that could reduce speculation and (b) some vague statements reluctantly made by Merkel in the autumn of 2009 and early 2010 have contributed significantly to dramatic increases in Greece's cost of borrowing from the international money markets, thus exacerbating the problem.

The tragedy unfolds

This crisis is not new. Senior German officeholders were well aware of Greece's debt problem way before the Greek elections of October 2009 that brought it to the fore, but they failed to utilize the tools of the - far from perfect - EMU (European Monetary Union - the ed.) edifice. Incidentally, the same applies to the European Commission, the ministers of finance of several member states as well as the current Greek Prime Minister, George Papandreou. They all knew about it, yet, they chose to turn a blind eye.

The Greek government could have been called to account within the Eurogroup and the European Council before October 2009 - they were not. Given that Germany's is by far the largest and most significant economy in the EU, the German voice carries particular weight in these fora. The German government and its allies within the eurozone should have made much better use of the surveillance mechanism of the Stability and Growth Pact to call the Greek government to account.

Once Jean-Claude Juncker (head of the Eurogroup of eurozone finance ministers - the ed.) had told the Greeks - rightly - that "the game is over" in the autumn of 2009, the German government could have been much more honest with the German public about both the extent and the real nature of the problem.

In other words, they should have said openly that - in addition to years of missed opportunities and financial mismanagement by the Greeks themselves - the problem is directly linked to the stability of German and other European banks and other financial institutions that are directly or indirectly exposed to Greek debt (which is one reason why the German government is absolutely right to insist on involving the private sector in resolving the current crisis).

Acknowledging - early on - the banking element of the crisis would also have helped avoid the onset of the anti-Greek sentiment in segments of German public opinion which did not make the domestic management of the crisis any easier for Merkel and her government.

Grappling Greeks

Anti-Greek rhetoric in Germany is as counter-productive as anti-German rhetoric is in Greece. Both effectively undermine the perceived legitimacy of efforts to resolve the problem and do not offer a credible alternative. Ordinary Greeks know this and that is why, as recent opinion polls indicate, they overwhelmingly support the euro and accept that a change of government in Greece would not lead to a different policy mix.

Many also acknowledge that the country could not go on doing what it did before the crisis. In other words, when one moves beyond the tabloid press and the most vocal segments of the protesting public, it becomes clear that Greeks are much more realistic than one would otherwise think.

The German government should also have realized that in addition to balancing the books which is absolutely essential, Greece was (and still is) in need of a credible growth story and the role of the European Commission and the European Investment Bank would be central in that respect.

The EU's central institutions - the European Commission in particular - should play a leading role in that respect but how can this be expected when docile politicians are appointed in senior posts in Brussels? It took the European Commission almost 20 months to propose a flexible way for Greece to use EU structural funds and reduce the Greek contribution to co-funded projects.

In addition, a great deal of this crisis is directly linked to the weaknesses of the original design of economic and monetary union. So, the current German government should listen to the vast array of politicians, officeholders, market participants and experts who argue - rightly - that further integration in economic and fiscal policy is the real answer to the European element of the crisis.

The eurozone needs to move toward a centralized economic and fiscal policy, the creation of eurobonds (in short: political union), much more effective regulation of financial services and a financial transaction tax. When carefully designed, they can help maintain stability and promote growth whilst avoiding the problem of moral hazard. Germany's role therein will remain crucial.

Editor: Rob Mudge