“Alptraum” – German for nightmare

Recent events in Europe have seen many of Germany’s worst fears come true.

  • January 22 saw the ECB finally agree to initiate a policy of Quantitative Easing despite the objections of the German members on the Council. The ECB, supposedly created in the image of the Bundesbank, is now committed to a policy of money creation whose deliberate target is to increase in the inflation rate. Both the policy and its objective are in violent opposition to all that German monetary policy has sought to achieve over the last 70 years.
  • January 25 saw the Greek election result in Syriza polling far higher and thus gaining many more seats than had been expected. Instead of choosing to go into coalition with a more moderate centre-left party, Syriza formed a coalition with the far-right Independent Greeks, with whom they disagree completely on most issues but are agreed on one key policy – the tearing-up of the bailout agreements. The Independent Greeks are strongly anti-Germany and wish to reclaim war reparations they claim Germany owes to Greece. Today Greece now has what is arguably the most anti-German and authentically communist government in the European Union. The coalition are committed to tearing up the bail-out agreements signed by previous Greek governments and are demanding that much of the debt they owe be written off. Germany was a necessary, but very reluctant, party to these agreements as they appeared to compromise the key “no bailout” clause of the Maastricht Treaty.
  • January 26 witnessed Tsipras’ – the newly sworn-in Greek prime minister – first act paying a visit to the Kesariani rifle range, the site of a memorial to 600 Greek resistance fighters who were executed in a single day in 1944 by German occupying troops. The symbolism of Greek resistance to German subjugation today through opposition to the hated bailout agreements was clear and very deliberate.
  • Following this visit, the first ambassador that he decided to meet with was the Russian ambassador, who re-affirmed Russia’s readiness to provide financial support to Greece should they require it. The EU’s policy of sanctions on Russia, of which Merkel was a key influence and driver last year, has to be extended in the summer and requires unanimity from EU members.
  • The first domestic policies that the new government intends to enact are an end to planned privatisations, a large increase in the minimum wage, the re-establishment of thousands of public sector jobs that have been cut in recent years and increases in pensions. All of these will make meeting the targets for the Greek budget deficit impossible to achieve in the short term – they will also hit the competitiveness of the Greek economy and threaten to undo the gains that have been made in this area in recent years.

Though both the German and Greek governments are saying they do not want Greece to leave the euro, the possibility of this occurring is now very real as the halving of the prices in Greek bank shares since Syriza’s victory is indicating (Greek banks would be immediately bankrupt should they lose the liquidity support of the ECB). Many Germans are now quite prepared to take the risk of another eurozone crisis should Greece leave the single currency, and in domestic political terms, Merkel has little in the way of compromises that she can offer. Until quite recently Syriza was calling for Greece to leave the single currency, but in recent months softened their rhetoric as polls show that three-quarters of Greeks wish to remain in the euro. Being effectively thrown out of the euro by the EU for standing up for Greek interests may well be seen by many in Syriza as a good outcome.

The last week has seen each side harden their positions. Whilst the history of the EU tends to be one of finding the minimum necessary compromise at the last possible minute, the philosophical differences between the German and Greek governments are ultimately not reconcilable and one or both of them will have to give way on key points of principle for Greece to remain in the single currency.