Wolfgang Schauble, the hero of the Greek austerity crisis?

What do Drachma lovers have in common with Schaeuble? Perhaps a lot more than you think…

Real-World Economics Review Blog

from Dean Baker

Like many people following the negotiations between Greece and its creditors, I was inclined to see Wolfgang Schauble, Germany’s finance minister, as the villain of the story. After all, Mr. Schauble insisted on severely punitive measures for Greece as a condition for continuing support from the European Central Bank (ECB). He appeared to be the bad cop relative to others in the negotiations, such as German Chancellor Angela Merkel, who was willing to make at least some concessions to keep Greece in the euro. But a more careful analysis arguably leads to the opposite conclusion.

Schauble did not argue for throwing Greece out of the euro simply as a punitive measure, although he quite obviously disapproved of the way Greece had run its budget and its economy. He argued, quite possibly sincerely, that at least a temporary departure from the euro zone would be the best path

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4 thoughts on “Wolfgang Schauble, the hero of the Greek austerity crisis?

  1. The article, I think, sums up quite well what Dr. Schäuble has in mind.

    Actually I don’t understand why anybody would consider him as the “villain” or the “bad cop”. He acts, within his mandate as Finance Minister, as a rational and prudent custodian of the monetary interests of his electorate (the German people), exactly like every Finance Minister should do. There’s nothing dishonorable to that.

    He nor anybody else enforces “punitive measures” on the Greeks either, he simply outlines the alternatives within the euro or (temporarily) outside the euro, while leaving the choice to the democratically elected representatives of the Greek people. But of course, one can’t at the same time be part of the club for the benefits and not be part of the club to escape from the obligations… the in-or-out choice has to be made and has to be taken with all consequences.

    Since it has been obvious the past few months that today’s Greek gov’t isn’t an easy partner to deal with (in terms of endless attempts to renegotiate earlier commitments), it should surprise nobody that the terms of the new agreement are pretty tough, in hopes of rebuilding solid ground for trust.

    In any case, Greece needs to “devaluate” somehow by something in the order of 30% in order to reach a sustainable level of international competitivity, whether inside the euro (by austerity) or outside (by devaluation of the currency), – many economists agree on that, see e.g. the very insightful discussion by Prof. George Alogoskoufis (former Finance Minister of Greece) and Prof. Hans-Werner Sinn (president of IFO institute in München) on Nov 17, 2014 i.e. shortly before Tsipras came to power: https://www.youtube.com/watch?v=V_aN9_IAl1I

    Essentially what is being observed the last few years is a correction to the “overshoot” of the Greek economy to its (unsustainable) peak in 2008 due to very rapid growth during 2000-2007, fueled by very low interest rates as compared to the pre-euro era. Also interesting to note is that Greek GDP per capita (at purchasing power parity) almost doubled between 1991 and 2004, and in 2013 it was again at the 2004 level. See e.g. http://mecometer.com/whats/greece/gdp-per-capita-ppp/

    Every bubble has to burst, there’s no way to escape. Now it remains to be seen how much damage has been done to Greece’s economy the last few weeks (contracts lost, customers confidence shaken, businesses closed etc), damage that most likely will lead to another drop in GDP and will take time to heal.

    So in fact there’s nothing magic nor malicious in Schäuble’s suggestions and lines of thought. He and Merkel are also familiar from first-hand experience (with ex-DDR) with the difficult process of elevating retarded economies (excuse me for the term) to a modern West-European level. It’s better to see them as friends or at least as well-meaning partners, not as enemies representing supposedly horrendous doctrines. And ultimately it’s all about people, of course, but surely one can’t ignore the numbers.


    • “Actually I don’t understand why anybody would consider him as the “villain” or the “bad cop”. He acts, within his mandate as Finance Minister, as a rational and prudent custodian of the monetary interests of his electorate (the German people), exactly like every Finance Minister should do. There’s nothing dishonorable to that.”

      I think you do not understand. He is proposing to throw money down the drain, lose money for his taxpayers. That, if it is not treason, should at least be a sackable offense. the man is a disaster for Germany!

      He proposes a Grexit for Greece, followed by a devaluation: Unlikely Greece will pay more than 100bn back of the currently 440bn outstanding (320bn Greek gov debt, 120bn Target2 liabilities of Greek banks) after a Grexit/devaluation.

      So total loss to tax-payer after Grexit = 340bn

      At the same time he says no debt relief can be granted while Greece is part of the Euro. 120bn would give Greece a chance, reducing its debt to about 110% debt/GDP ratio. That is about the debt level of Italy and Ireland.

      So total loss granting tax relief while Greece remains in Euro = 120bn

      So he is proposing a solution to this problem, which would make his, and other European taxpayers 220bn Euro worse off.

      He is the worst Finance minister in the history of Germany – the sooner they get rid of this XXZXZXC the better.


  2. The Schaeuble proposal is nonsense.

    He says that only after exiting the eurozone can debt be restructured. That is frankly BS.
    If all creditors agreed that Greece should have 120bn of debt relief tomorrow, that could be granted. In the Eurozone, as well as out of the Eurozone.

    Schaeuble’s idea is frankly stupid. Instead of granting, say, 120bn debt relief, he suggests Greece exits the Eurozone,. devalues, and then gets granted even more debt relief. Greece will need debt relief of at least 250bn after exiting, as it will have a much smaller GDP (in euro terms)

    A finance minister in the biggest economy in Europe, who wants to double the losses for his taxpayers by refusing debt relief, and Dean Baker thinks it is a good idea!

    In my blog I have a lot of alternative proposals for Greece:



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