Greece should reform as East Germany did, says Schäuble

Mon, Feb 13, 2012, 00:00

IN BERLIN last month, Michael Noonan summed up his meeting with his German counterpart simply: “Wolfgang talks a lot of sense.” It’s a feeling many European finance ministers share, even as the austerity or stimulus argument rages over the fevered Greek patient.

Criticism of Germany’s austerity doctrine doesn’t stick to Schäuble for one important reason. Unlike many younger German politicians, he doesn’t hold Germany up as a European reform model for others.

As an old Bonn operator, the 69-year-old’s political DNA forbids any such displays of immodesty or populism.

Instead, through the crisis, he has maintained a pro-European, anti-nationalist tone in all public remarks and urged his fellow Germans to show patience and empathy with bailout countries.

Yesterday, however, after another week of false starts and signals from Athens, Schäuble’s patience and goodwill towards Greece ran out, finally and completely.

“The promises of Greece are no longer enough for us. Instead Greece has to make savings by implementing at least part of their programme,” he told the Welt am Sonntag newspaper.

While many German politicians and economists compare Greece’s long reform path to Germany’s own reform programme a decade ago, Schäuble suggests a better comparison lies in German unification another decade back.

Economic and structural change could only take place in eastern Germany, he said, after a collective, national mentality shift took place.

“In Greece the realisation that something has to change, and dramatically, still has to take place among many,” said Schäuble yesterday.

“German unification only came because the people in East Germany didn’t want to go on living as they had done, rather [like] in the west. Our biggest problem was that it wasn’t possible to transform things immediately to west [standard].”

Schäuble knows what he’s talking about: as one of the negotiators of Germany’s unification treaty, he was held to blame when Helmut Kohl’s “blossoming landscapes” failed to materialise overnight.

In a hail of criticism, Schäuble held firm to the belief that the massive investment and stimulus programme planned for eastern states would only work if encrusted East German structures were dismantled first.

This harsh treatment left a drastic mark on many eastern regions but, Schäuble insists, also kick-started booming eastern cities like Dresden, Leipzig and Erfurt.

“I know how difficult it is the make the necessary decisions,” he said yesterday of Greece. “To do that in a limited time is unbelievably difficult.”

Germany’s euro zone crisis strategy has been shaped in a large part by Schäuble’s instincts, tuned by three decades of front-bench politics. Aided by finance ministry officials who follow the European debate closely, they dismiss Germany’s current strategy as austerity fetishism.

In interviews, Schäuble has never ruled out further euro zone stimulus measures or even extending further Germany’s liabilities in the euro zone. Nor has he ever ruled out eurobonds, belonging instead to the “not yet” school. It’s an important distinction, particularly for someone who, like no other, has the ear of chancellor Merkel.

In the influential Schäuble doctrine, austerity and stimulus are equally important, but in that order.

The German strategy is not the product of fear of German voter – or tabloid newspaper – revolt against further financial support for Athens.

“If one is allowed to believe the surveys, the majority [of Germans] are still in favour of helping,” said Schäuble. “But I say this: it cannot be a bottomless pit. For that reason the Greeks have to finally build a bottom to their pit; then we can add something.”