By George Friedman
A desperate battle was fought last week. It pitted Germany and Greece
against each other. Each country had everything at stake. Based on the
deal that was agreed to, Germany forced a Greek capitulation. But it is
far from clear that Greece can allow the agreement reached to be
implemented, or that it has the national political will to do so. It is
also not clear what its options are, especially given that the Greek
people had backed Germany into a corner, where its only choice was to
risk everything. It was not a good place for Greece to put the Germans.
They struck back with vengeance.
The key event was the Greek referendum on the European Union's demand
for further austerity in exchange for infusions of cash to save the
Greek banking system. The Syriza party had called the vote to strengthen
its hand in dealing with the European demands. The Greek government's
view was that the European terms would save Greece from immediate
disaster but at the cost of impoverishing the country in the long term.
The austerity measures demanded would, in their view, make any sort of
recovery impossible. Facing a choice between a short-term catastrophe in
the banking system and long-term misery, the Greeks saw themselves in
an impossible position.
In chess,
when your position is hopeless,
one solution is to knock over the chessboard. That is what the Greeks
tried to do with the referendum. If the vote was lost, then the
government could capitulate to German demands and claim it was the will
of the people. But if the vote went the way it did, the Greek leaders
could go to the European Union and argue that broad relaxation of
austerity was not merely the position of the government, but also the
sovereign will of the Greek people.
The European Union is founded on the dual principles of an
irrevocable community of nations that have joined together but have
retained their national sovereignty. The Greeks were demonstrating the
national will, which the government thought would create a new chess
game. Instead, the Germans chose to directly demand a cession of a
significant portion of Greece's sovereignty by creating a cadre of
European bureaucrats who would oversee the implementation of the
agreement and take control of Greek national assets for sale to raise
money. The specifics are less important than the fact that Greece
invoked its sovereign right, and Germany responded by enforcing an
agreement that compelled the Greeks to cede those rights.
Germany's Motivations
I've discussed the German fear extensively. Germany is a massive exporting power that depends on the
European free trade zone to
purchase a substantial part of its output. The Germans had a record
positive balance of trade last month, of which its trade both in the
eurozone as well as in the rest of the European Union was an
indispensible part. For Germany, the unraveling of the European Union
would directly threaten its national interest. The Greek position —
particularly in the face of the Greek vote — could, in the not too
distant future, result in that unraveling.
There were two sides of the Greek position that frightened the
Germans. The first was that Athens was trying to use its national
sovereignty to compel the European Union to allow Greece to avoid the
pain of austerity. This would, in effect, shift the burden of the Greek
debt from the Greeks to the European Union, which meant Germany. For the
Germans, the bloc was an instrument of economic growth. If Germany
accepted the principle that it had to assume responsibility for national
financial problems, the European Union — which has more than a few
countries with national financial problems — could drain German
resources and undermine a core reason for the bloc, at least from the
German point of view. If Greece demonstrated it could compel Germany to
assume responsibility for the debt in the long term, it is not clear
where it would have ended — and that is precisely what the Greek vote
intended.
On the other hand, if the Greeks left the European Union, it would
have created a precedent that would in the end shatter the bloc. If the
European Union was an elective affinity, in Goethe's words, something
you could enter and then leave, then the long-term viability of the bloc
was in serious doubt. And there was no reason those doubts couldn't be
extended to the free trade zone. If nations could withdraw from the
European Union and create trade barriers, then Germany would be living
in a world of tariffs, European and other. And that was the nightmare
scenario for Germany.
The vote backed the Germans into a corner, as I said last week.
Germany could not accept the Greek demand. It could not risk a Greek
exit from the European Union. It could not appear to be frightened by an
exit, and it could not be flexible. During the week, the Germans
floated the idea of a temporary Greek exit from the euro. Greece owes a
huge debt and needs to build its economy. What all this has to do with
being in the euro or using the drachma is not clear. It is certainly not
clear how it would have helped Europe or solved the immediate banking
problem. The Greeks are broke, and don't have the euros to pay back
loans or liquefy the banking system. The same would have been true if
they left the European Union. Suggesting a temporary Grexit was a fairly
meaningless act — a bravura performance by the Germans. When you
desperately fear something in a negotiation, there is no better strategy
than to demand that it happen.
The Resurrection of German Primacy
I have deliberately used Germany rather than the European Union as
the negotiating partner with the Greeks. The Germans have long been
visible as the controlling entity of the European Union. This time, they
made no bones about it. Nor did they make any bones about their
ferocity. In effect they raised the banner of German primacy, German
national interest, and German willingness to crush the opposition. The
French and the Italians, among others, questioned the German position
publicly. In the end, it didn't matter. The Germans consulted with these
other governments, but Berlin decided the negotiating position, because
in the end it was Germany that would be most exposed by French or
Italian moderation. This negotiation was in the context of the European
Union, but it was a German negotiation.
And with this, the Germans did something they never wanted to do:
resurrect fairly unambiguously the idea that Germany is the sovereign
and dominant nation-state in Europe, and that it has the power and the
will to unilaterally impose its will on another nation. Certainly the
niceties of votes by finance ministers and prime ministers were adhered
to, but it was the Germans who conducted the real negotiations and who
imposed their will on Greece.
Germany's historical position was that it was
one nation among many
in the European Union. One of the prime purposes of European
integration was to embed Germany in a multinational European entity so
that it could develop economically but not play the role in Europe that
it did between 1871 and 1945. The key to this was making certain that
Germany and France were completely aligned. The fear was that German
economic growth would create a unilateral German political power, and
the assumption was that a multilateral organization in which France and
Germany were intimately bound together would enable German growth
without risking German unilateral power.
No one wanted this solution to work more than the Germans, and many
of Germany's maneuvers were to save the multilateral entity. But in
making these moves, Germany crossed two lines. The lesser line was that
France and Germany were not linked on dealing with Greece, though they
were not so far apart as to be even close to a breach. The second, and
more serious, line was that the final negotiation was an exercise of
unilateral German power. Several nations supported the German position
from the beginning — particularly the Eastern European nations that, in
addition to
opposing Greece
soaking up European money, do not trust Greece's relationship with
Russia. Germany had allies. But it also had major powers as opponents,
and these were brushed aside.
These powerful opponents were brushed aside particularly on two
issues. One was any temporary infusion of cash into Greek banks. The
other was the German demand, in a more extreme way than ever before,
that the Greeks cede fundamental sovereignty over their national economy
and, in effect, over Greece itself. Germany demanded that Greece place
itself under the supervision of a foreign EU monitoring force that, as
Germany demonstrated in these negotiations, ultimately would be under
German control.
The Germans did not want to do this, but what a nation wants to do
and what it will do are two different things. What Germany wanted was
Greek submission to greater austerity in return for support for its
banking system. It was not the government's position that troubled
Germany the most, but the Greek referendum. If Germany forced the Greek
government to capitulate, it was a conventional international
negotiation. If it forced the government to capitulate in the face of
the electoral mandate of the Greek public, it was in many ways an attack
on national sovereignty, forcing a settlement not in opposition to the
government but a direct confrontation with the electorate. The Germans
could not accommodate the vote. They had to respond by demanding
concessions on Greek sovereignty.
This is not over, of course. It is now up to the Greek government to
implement its agreements, and it does so in the face of the Greek
referendum. The situation in Greece is desperate because of the
condition of the banking system. It was the pressure point that the
Germans used to force Greek capitulation. But Greece is now facing not
only austerity, but also foreign governance. The Germans' position is
they do not trust the Greeks. They do not mean the government now, but
the Greek electorate. Therefore, they want monitoring and controls. This
is reasonable from the German point of view, but it will be explosive
to the Greeks.
The Potential for Continental Unease
In World War II, the Germans occupied Greece. As in much of the rest
of Europe, the memory of that occupation is now in the country's DNA.
This will be seen as the return of German occupation, and opponents of
the deal will certainly use that argument. The manner in which the deal
was made and extended by the Germans to provide outside control will
resurrect historical memories of German occupation. It has already
started. The aggressive inflexibility of the Germans can be understood
as an attitude motivated by German fears, but then Germany has always
been a frightened country responding with bravado and self-confidence.
The point of the matter is not going away, and not only because the
Greek response is unpredictable; poverty versus sovereignty is a heady
issue, especially when the Greeks will both remain poor and
lose some sovereignty.
The Germans made an example of Cyprus and now Greece. The leading power
of Europe will not underwrite defaulting debtors. It will demand
political submission for what help is given. This is not a message that
will be lost in Europe, whatever the anti-Greek feeling is now.
This is as far from what Germany wanted as can be imagined. But
Greece could not live with German demands, and Germany could not live
with Greek demands. In the end, the banking crisis gave Germany an
irresistible tool. Now the circumstances demand that the Greeks accept
austerity and transfer key elements of sovereignty to institutions under
the control or heavy influence of the Germans.
What else could Germany do? What else could Greece do? The tragedy of
geopolitical reality is that what will happen has little to do with
what statesmen wanted when they started out.
