Realpolitik and the European Union. Chapter 8. Germany learns to say Nein.

Germany learns to say Nein.

The salient feature of the events of the first decade of the new millenium was Germany’s assertion of  its position as the pivotal power in Europe. The novelty lies not in the fact of German primacy, but in the assertion. At the time of its re-unification in 1990, Germany held to its post-1949 European federalist style, and adopted a modest tone in order to disguise its leadership position in the heart of Europe. As Chancellor Helmut Kohl reminisced, his predecessor, the first postwar German Chancellor, Konrad Adenauer, counseled that in dealing with France, he should always bow once to the German and twice to the French flag.[1] By 2010 Chancellor Merkel had few such inhibitions in her insistence on the German way forward for Europe. When French Presidents argued for a European growth policy, Chancellor Merkel said: Nein, no bailouts.

The habit of saying Nein did not start in 2010. In a book published in 2014, Kohl gave vent to his concerns about the direction of policy taken by his successors, Gerhard Schroeder, and, more circumspectly, Angela Merkel. [2]

What went wrong? Kohl blames the Red Green coalition headed by Chancellor Gerhard Schroeder for allowing Greece into the single currency;  for his stance on the 2003 Iraq war; and for his policy towards Ukraine and Russia. In addition, on his watch, Schroeder, as we have seen, pushed through crucial reforms to enhance German competitiveness, thereby accelerating the globalization of German business. This trend was already underway during Kohl’s years as Chancellor, so nothing to which he could object. What did worry him was and is the crisis in western Europe, related to the Euro-the kernel of his strategic deal with Mitterrand at Maastricht. The crisis in the Eurozone became manifest in its weakest member, Greece.

The revival of intra-European alliances.

The realist paradigm of international relations holds that when a power is expected to become predominant, the lesser powers seek coalitions to counter-balance. This is not what has happened with the rise of Germany to primacy in Europe. The end result, though, has not been mini-coalitions in the EU to influence German policy, so much as the lesser powers eventually aligning on German preferences for wont of alternatives. The lesser powers included France in their number.

“German unity and European unity, Kohl repeatedly stated, are two sides of the same coin”. Once unity was achieved, German ardour for European integration faded. Since 1990, the central fact of post cold war Europe was and is that France and Germany are no longer equal. This was already evident as Germany moved to unity in the course of 1990. In the Yugoslav crisis, Germany backing Slovenia and Croatia, against France which initially backed Serbia-a Balkan split dating back to before 1914.  But Mitterrand decided to give priority to the relationship with Germany, and ditched Serbia. France also looked to its Mediterranean neighbours-Italy, Spain, Portugal and Greece-as allies in EU politicking for a coalition in favour of “growth”.

France was Greece’ champion in Europe. Former French Giscard d’Estaing  had  backed Constantine Karamanlis, the Greek prime minister who returned from exile in Paris in July 1974 after the fall of the colonels that summer. France also championed Greek entry to the EEC in 1981, and in 2001, backed its entry to the Euro.

Greece, of course, was not fit for Maastricht purpose. The Maastricht Treaty required all eurozone member states to show improvement in their public finances. These had been the terms insisted on by the German government. So why was Greece allowed to join the Euro?

The answer is that the accounts were fiddled, and both Berlin and Paris looked the other way. Goldman Sachs was the instrument. The bank arranged a secret loan of 2.8 billion euros for Greece, disguised as an off-the-books “cross-currency swap”—a complicated transaction in which Greece’s foreign-currency debt was converted into a domestic-currency obligation using a fictitious market exchange rate. As a result, about 2 percent of Greece’s debt magically disappeared from its national accounts.

Then the deal turned sour. After the 9/11 attacks, bond yields plunged, resulting in a big loss for Greece because of the formula Goldman had used to compute the country’s debt repayments under the swap. By 2005, Greece owed almost double what it had put into the deal, pushing its off-the-books debt from 2.8 billion euros to 5.1 billion. Mario Draghi, later Governor of the European Central Bank , was then managing director of Goldman’s international division.

Greece was not alone. Until 2008, European Union accounting rules allowed member nations to manage their debt with so-called off-market rates in swaps, pushed by Goldman and other Wall Street banks. This had been the means used by JP Morgan in  the late 1990s, that  enabled Italy to hide its debt by swapping currency at a favorable exchange rate, thereby committing Italy to future payments that didn’t appear on its national accounts as future liabilities. Despite apparent improvements, the average Italian deficit for the early years of the Euro’s existence ran at over 4% gdp, with interest payments on public debt running at an annual 7.7% gdp. France’s had last seen a government surplus in 1974.

In addition, Club Med countries, with the exception of Italy, were running significant current account deficits. The typical pattern of Club Med countries and France from the late 1960s until the introduction of the Euro in 1999, had been to run government deficits, stimulate domestic demand and watch the exchange rate take the burden. The result had been flourishing export sectors, particularly in Spain and in Italy. Once in the Euro, this option was not available.

More importantly, the Club Med Countries just did not have the infrastructure of training, the density of small and medium businesses, the expanding technology hubs and the close ties between corporates, research institutes, governments and banks that exist in northern Europe. There was no escape for the Club Med countries through devaluation as the single currency and a single monetary policy joined them at the hip with the high productivity northern countries, including Germany.

The formal reason Giscard d’Estaing gave for having Greece in the Euro was that  the European project could not be complete until the seat of European democracy took its place among the modern democracies of Europe. The Greek parliament showed its gratitude by granting its highest award in 2009 to Giscard. But it is reasonable to suggest that there were two reasons why Paris and Berlin turned blind eyes when Greece and Italy had their fiscal books cooked for them to qualify for membership: France wanted as many allies in Euroland when the showdown came with Germany to move to the next stage, as adumbrated by Presidents Mitterrand and Chirac, of a Transferunion; both Paris and Berlin were happier to have Italy inside the Euro tent, that outside it, and stealing marches on their domestic producers by regular devaluations. The Realpolitik of EU politics is always that tad more materialistic than the rhetoric allows for.

Schroeder, Bush and the Iraq war.

A crucial moment on the road to German dominance in Europe came in August 2002.  For the first time since 1945, Berlin challenged US leadership of the western alliance. Chancellor Schroeder, behind the opposition in the polls, declared that under no circumstances would Germany back the US over Iraq.[3] As Kohl points out in his book, all that the US was asking for was German support in the United Nations Security Council against international terrorism, and “the criminal regime in Iraq”. Paris, London and the German Christian Democrats were pushing for a combined European position on the conflict-the only possible chance that the pro war lobby in Washington could have been gainsaid. That meant not saying Non to the US because it gave Europe’s inveterate anti-Americans a psychic boost, but because co-operating in a united European alliance with the United States was the only way for the Europeans to get widespread support in the US Congress for a more careful approach to Iraq, along the lines of George Bush Sr in the Iraq-Kuwait conflict of 1990-1991.

The Red-Green coalition had taken office in Berlin in 1998, and despite differences with the Clinton administration over the Kyoto protocol, and the future of arms control, relations had been warm. President Clinton, Chancellor Schroeder and Prime Minister Blair had declared their common support for a “Third Way”, between red-in-tooth-and-claw capitalism, and a social market economy. But George Bush II’s election to the White House in the autumn of 2000 cast a chill over Berlin’s relations with Washington D.C. The leadership of the Red-Green coalition had been prominent 1968ers; Bush was a born-again Christian. The Bush domestic agenda proposed tax cuts, and championed shareholder capitalism. But the dot-com bubble burst in March, harming German investors, and in September, the terror attacks struck New York and Washington DC. In his speech to a Joint Session of Congress, Bush declared to the rest of the world, “you are either with us, or you are with the terrorists”.

Initially, Schroeder committed German troops to Afghanistan in November, but as general elections came into sight for September  2002, Schroeder began to express his concern at the direction policy seemed to be taking in Washington.  Many senior people in Washington-notably Brent Scowcroft, Bush Sr’s national security adviser- were expressing similar preoccupations that the consequences of military action against Iraq had not been properly thought through.

The time-line for the show-down between Bush and Schroeder runs as follows:

  • September 20, 2001. Bush speech to Joint Session Of Congress.
  • November 16, 2001. Bundestag debate. German troops to Afghanistan.
  • January 29, 2002.   Bush State of Union address. Axis of evil speech.
  • May 2002. Bush addresses Bundestag. “No war plans on my desk.
  • July 30, 2002. Chirac-Schroeder meeting at Schwerin.
  • August 2002. Der Spîegel poll. 51% polled oppose Iraq invasion.
  • August 5, 2002. Schroeder opens election campaign.
  • August 2002. Edmond Schoibler, German opposition leader, visits Chirac.
  • August 27,2002. Vice-President Cheney says “risk of inaction”  too high.
  • September 2002. German Minister of Justice compares Bush to Hitler.
  • September 22, 2002. Schroeder re-elected to the Chancellery.
  • September -November 2002. Deep freeze in German-US relations.

The key event, in this succession of events,  was the meeting at Schwerin between Chirac and Schroeder, when Schroeder informed the French President that he would oppose an invasion of Iraq. As Dieter Dettke, the historian of Schroeder’s decision on Iraq, writes, “…from now on, France knew that the German government would be committed to a “no” in the war on Iraq.” [4] On August 5, at his speech launching the election, Schroeder linked his opposition to Bush’s foreign policy to his opposition to Bush’s domestic policy. “The plundering of little people in the US who now have to worry about their pensions, whereas a few top managers take home millions ..even after bankruptcy…is not the German way”. The Secretary-General of the SPD stated, “there must be a German way independent of any UN decision.”  Once the German Justice Minister had compared Bush in public to Hitler, and despite Schroeder’s apology to the White House, relations between Germany and the US went into deep freeze.

Seeing which way the wind was blowing in Germany, President Chirac’s instinctive reaction as a Gaullist was to add a French Non to a German Nein. After all, since de Gaulle, France had come to see saying Non to the US as a French monopoly in Europe. Now Germany was stealing the privilege. The lesson was not lost on Paris. By January 2002, Chirac opted for alignment on Berlin, not on Washington. His hope was that by adopting the German position on Iraq, France had a better chance to take over the leadership of the Iraq issue from Germany in  France’s capacity as a permanent member of the UN Security Council.

The result, as Dettke argues,  was that France and Germany lost the case as far as the objective of preventing war was concerned. That would only have been feasible by preventing a European common front, and lobbying hard in Washington with US opponents of the Bush II policy on Iraq. But they won in the sense that the UN did not legitimise the war. That in turn did lasting damage to the US reputation in the court of world opinion.

Blair and the UK, plus Spain and the eastern European member states, were left alone in support of the US, while France and Germany bathed in the acclaim of European anti-Americanism. Schroeder won a narrow election victory, helped by voters in eastern Germany,[5]-attuned to anti-American propaganda from the old communist regime.

There could be no doubt now that Germany was striking out with a more independent foreign policy, and that France was no longer Europe’s leader. This became evident in the coming years when Schroeder proceeded to put through domestic labour market reforms, holding down wages, promoting productivity, and encouraging savings. In subsequent years Germany’s current account surplus surged to the present level of 9% gdp. Trapped in the Euro, and unable to devalue, France and the southern member states had no option but to fall in line. Germany was now not only the economic leader, but the diplomatic leader in Europe. The Ukraine gave Germany the opportunity to assert is leadership in multilateral negotiations.

Germany, the EU and the Ukraine.

A further mistake, Kohl laments, has been western treatment of Russia. In the 1990s, on Kohl’s watch, he had bent over backwards to have Russia attached to NATO, helped to  bring it into membership of the Council of Europe, and included it as a partner in peacekeeping operations in ex-Jugoslavia. At the same time, Kohl reminds readers that he was firm in telling President Yeltsin that Russia had no veto over the eastern enlargements of NATO, and then of the EU. NATO and EU enlargements went ahead, encouraging Yeltsin to explore relations with China. For a moment, the prospect of a Paris, Berlin, Moscow axis against the war in Iraq, seemed to retain some prospect of a European-Russian rapprochement.

But in 2004, Brussels enthused about Ukraine’s “Orange revolution”, challenging the Russian position there. Warnings from Moscow that Ukraine was definitely within its sphere of influence were ignored. Ukraine had been part of Russia until 1954, when Nikita Khruschev, then seeking to confirm his leadership after Stalin’s death, transferred administration of the peninsula from the Russian to the Ukraine Soviet Socialist republic. After the fall of the USSR, Crimea had the status of an autonomous special administrative region within Ukraine. Moscow had retained leases on major naval bases there: Crimea was the home to Russia’s Black Sea fleet. Even more importantly, Kiev, the capital of Ukraine, is the home of the Rus’, the mythical founders of Russian civilization, to which, for instance Rimsky Korsakov refers in his opera, Sadko (the song of the Varangian).

None of this discouraged the EU from closer relations with Kiev. In 2013, EU flags were flown by pro-EU Ukrainians in the Maidan. Ignoring Moscow’s warnings, Brussels offered Ukraine a trade pact. In 2014, Ukraine’s President Yanukovitch’s was toppled in what was reported as a US backed uprising, and replaced by pro-western leaders. Anticipating ejection of its Black Sea fleet from the Crimea, and its replacement by US naval bases, Putin ordered Russian annexation of Ukrainian territory. The Crimea’s reunification with Russia was sanctioned by a hastily organized referendum, and enjoyed mass popular support there. Russia also backed armed rebels in Ukraine’s eastern border regions, which are predominantly ethnic Russian. The takeover of Crimea, an evident flouting of the 1975 Helsinki accords, is immensely popular in Russia. In response, the western powers excluded Russia from the June G-7 meetings, which it had attended in the past as the G-8; and sanctions were imposed. The lead role in these negotiations was played by Berlin, demonstrating thereby its multilateral, diplomatic and economic clout. But Russia remains in the Crimea.

As former Chancellor Helmut Schmidt noted, the situation seemed increasingly like the eve of war in 1914. “Europe, the Americans and also the Russians are acting the way author Christopher Clark describes the start of World War I in his very readable book, like ‘sleepwalkers’.”[6]

Clarke’s thesis posits error rather than intent in the run-up to August 1914. war. Throughout the Ukraine crisis, one thesis holds, Germany remained firmly anchored on the western alliance.[7] Chancellor Merkel took a leading role in orchestrating a co-ordinated western response. Both German public opinion and business interests wanted to avoid confrontation with Moscow. But opinion changed abruptly in July 2014 after the downing of Malaysian Airlines Flight 17 over Ukraine, killing all 283 passengers and 15 crew on board. The Chancellor insisted on tightening sanctions, while continuing to negotiate directly with the Kremlin to defuse the situation in eastern Ukraine. German business was negatively affected; Western investment into Russia collapsed; the rouble fell by 50% and capital flight accelerated.

An alternative thesis holds that 25 years after the end of the cold war, German foreign policy is loosening its ties to its western partners. Foreign policy is driven much more by business interests and by public opinion and much less by what Hans Kundnani calls the “Westbindung”-the prior orientation westwards.[8] This has been visible in the Germany’s  habit of saying Nein: to participation in the 2003 Iraq war; to Polish or Baltic concerns about backing Nord Stream 1 and 2 pipelines bringing natural gas from western Siberia; Merkel said Nein to bailouts in the Eurozone and Nein to the Obama administration’s advocacy of Eurozone growth;  the Chancellor did not consult Paris when in May 2011 she decided to ditch nuclear energy in response to the Fukushima disaster in Japan; [9] contemporaneously,  Merkel aligned Germany’s vote, not with France and the UK, but with China, Russia, India and Brazil over the invasion of Libya in 2011. [10] In the UN Security Council, Germany has been reluctant to criticize Iran, China or Russia. Nor for that matter in 2015 did she consult Germany’s EU partners on open doors to immigration.

The Greek crisis

The first signs of things going wrong in global  capital markets came with the peak of the housing market in the U.S. in 2007 and a series of bank losses on both sides of the Atlantic. Governments across the world, and in the EU, responded to the crisis with policy made on the hoof. As the report, penned by the senior French civil servant, Jacques de Larosière later concluded, national bank supervisors failed to share their information with others, “leading to an erosion of mutual trust”.[11] Germany led the way in a national  bailout of IKB-the Deutsche Industrie Bank. The U.K. government nationalized Northern Rock; the German government came to the rescue of a series of Landesbanken; the Irish government announced  it would guarantee the deposits of Irish savers for its 6 big banks, prompting Chancellor Merkel to state that she would not bail out Irish banks. By the time that the G7 heads of government met in September 22, 2008 in London a week after the Lehman collapse , the bank crisis was turning into a government debt crisis, as government balance sheets deteriorated and risk spreads rose on the markets.

In the scramble, treaties were flouted, much as de Gaulle had once declared: “treaties are like roses and young girls; hélas, they last as long as they last”.  The bailouts arguably infringed the terms of the EU’s internal market, while the provision of market liquidity by the ECB arguably violated its own charter to give sole priority to price stability. With inflation on the rise, the ECB jacked up  interest rates in September, and then  lowered them again in October. The ECB went further in its generous reading of its charter by a gentleman’s agreement in early 2009 that banks would not use the liquidity to buy government bonds, and then re-sell them.  The Dutch proposed the creation of a European Monetary Fund to get around the problem of ECB provision of liquidity to help government finances as they became burdened by the fallout from the crash.

German Finance Minister Steinbruch said Nein.[12] Germany then said Nein to demands that the government boost domestic demand; when President Sarkozy proposed the EU develop its “economic government”, shorthand for an EU fiscal union and the issue of eurobonds, it was greeted by icy silence in Berlin. For the German government, the proposal marked the beginning of a conflict over which model would dominate the European economy in the future: Germany’s own social market economy, or French dirigisme.

The Greek drama then exploded on the EU in October 2009, when the newly elected PASOK government revealed that the Greek deficit was not 3.7% gdp as previously reported, but 6%, and finally near 16% gdp. The news soon leaked that Goldman Sachs had helped the Greek government cook its books in order to enter the Euro in 2001,[13] using derivatives to window dress public accounts, a service also provided for Italy.[14] Furthermore, France then announced that it would not be reducing its debt below the 3% limit until 2012. In January 2010, Jürgen Stark, a member of the ECB executive committee, made public his view that the problems of Greece were created in house. [15] The implication was that if Greece should be unable to meet its soaring debts, it should default.

Exploring possibilities on the hoof.

In the process of firefighting, the EU élites forfeited their credibility. [16] Net trust in EU institutions-the ECB , the Commission and Parliament-fell off drastically between 2008-2011. The same pattern held for the major Euro member states of Germany, France and Italy. A more conservative orientation in German domestic politics, particularly regarding fiscal consolidation and labour market reforms, was heralded by the formation of a centre-right government, following the general elections of September 2009. By the time of the first Greek bailout in May 2010, German skepticism about the Euro and its institutions was on the rise.[17] Two thirds of French people considered the Euro was damaging the average French family’s standards of living and purchasing power. “The benefits of Eurozone exit”, wrote three influential French intellectuals, “would be immense”.[18] The Euro should be dismantled, declared the French former head of the London based International Institute for International Security Studies,  François Heisbourg.[19] By September 2012, two thirds of Germans considered they would be better off with the DM.[20] A former head of the BDA, Germany’s formidable employers organization, Hans-Olaf Henkel, accused the EU leadership of lying their way through the mess they had made.[21]

The European depression has lasted since the outbreak of the Greek crisis. But it is worth pointing out that Greece is only 2% of a huge European economy. A pragmatic policy approach to shenanigans in the Greek budget could have been simply dealt with through a combination of a tough austerity policy on Greece, combined with an EU Marshall Plan for the country. But this was not to be. As the UK Conservative party leader, William Hague, had presciently diagnosed in a 1998 speech in Fontainebleau, near Paris, the Euro  was “a burning building with no exits”. [22]

There were no lack of proposals about what to do. In broad terms there were four:

  1. The first was that Greece exit the Euro (Grexit).[23] But ECB President Jean-Claude Trichet-referring to the idea of the EU as a “community of destiny”- pointed out that exit was “legally impossible”.[24] Grexit might have sparked contagion as doubts multiplied over other Mediterranean countries’ ability to finance their deficits. [25] But the main concern, it may be reasonably surmised, is that Trichet represented French concern that Grexit” would set a precedent for German exit (Gerxit), an option which had already been publicly aired.[26] The idea was binned.
  2. A second option would have been a Greek default. Such a line of action would definitely have been compatible with the no bailout commitment in the Maastricht Treaty. On the other hand, Berlin was concerned at the exposure of German banks to the Mediterranean countries and Ireland. Berlin had created a stabilization fund to bailout German banks at home in 2008.[27] But bailing out German banks for their exposure to the Mediterranean countries would have been a step too far. Berlin found Paris, whose banks were also exposed, not keen on Greek default. The option was discarded.
  3. A third option was for the ECB to buy the bonds of Mediterranean governments. It had been agreed in 2009 that the ECB could extend loans to banks so they could buy government paper, on the understanding that they would not then sell the paper back on to the market. This itself  went against the spirit of the no bailout clause in the Treaty. Nevertheless, the EU agreed in May 2010 to have the ECB administer a Securities Market Programme(SMP). In 2012, this was replaced by the Outright Monetary Transactions(OMT) programme. The programme has been challenged by Bundesbank members, and in the German Constitutional Court as a simple bond purchase arrangement that would take the Euro area down the path to “ transfer union”. But in a crucial decision, the Constitutional Court deferred to the ECJ, which adjudged the OMT programme to be legal.[28] Following the announcement of the ECB in the second half of 2012, markets breathed a sigh of relief that the ECB might step in and  government bond spreads within the Eurozone went down considerably.[29] The sigh of relief was clearly more important than strict adherence to the text of the Maastricht agreement.
  4. Option four was an economic government for Europe, replete with its own fiscal resources, and with powers to issue European bonds, which would be backed by the combined credit of the Eurozone members. For France, with its highly inflexible labour market regulations, a Keynesian policy framework for Eurozone economies was entirely appropriate. [30] A Keynesian expansionary policy for the Euro area economy would require an active ECB, buying and selling bonds on the market and acting as a lender of last resort, as the Federal Reserve and the Bank of England were doing. Early on, France abandoned the fight for Eurobonds, when President Sarkozy fell in with German preferences with the reported statement “It would be a funny idea to mutualise the debt so that France and Germany would have to pay for the debt of others without having control over it.”[31] Design for “economic government” in Europe would be made in Germany.

So for wont of alternatives, France and Germany agreed to squeeze the Greeks.[32] Eight austerity programmes and four bailouts later, Greek debt to gdp had grown from 113% in 2007 to 180 or so by 2016. German taxpayers funded the largest share of the successive EU bailouts  of Greece, but shared the bailout with the EU, the IMF, and other member states, notably France-whose banks also lent heavily to Greece. As a Bloomberg editorial put it, “Hey, Germany, you got a bailout, too”.[33]

Over the period, Greek household disposable income fell 24%; German household income rose 15%. The EU combined gdp edged up above 2008 levels only in early 2016. Unemployment levels remained officially at around 10% for the Eurozone. But with demand stagnant, banks across the area remained reluctant to lend. With divergence in interest rates across the zone make  clear that the Euro is a composite product, much like the composite financial products which financial engineers had sliced and diced to sell on to gullible buyers in North America and in Europe during the boom years of 2002-2007. Its relative values were a function of the relative capabilities of each country’s business system, the output of which was recorded in market data. And as the data revealed these had not converged, but diverged to reveal the fundamental structural fault lines of the Euro area. The Euro had indeed eliminated foreign exchange risk, but it had thereby accentuated country risk.

[1] In Jeffrey Gedmin, « Helmut Kohl, Giant : His Cold War, His Germany, His Europe.” Hoover Institution, Stanford University, Policy Review, No.96. August 1, 1999.

[2] Helmut Kohl,  Aus Sorge um Europa: Ein Appell, Droemer Verlag, 2014.

[3]German leader says no to Iraq war”, The Guardian, August 6, 2002.

[4] Dieter Dettke, Germany Says No: The Iraq War and the Future of German Foreign and Security Policy, Baltimore, The Johns Hopkins Press, 2009.p.164.

[5] Peter Pulzer, “The devil they know: The German federal election of 2002” West European Politics, 26:2, 153-164.

[6] “Ex-Chancellor Schmidt slams EU over Ukraine”, The Local.de. May 16, 2014. The reference is to Christopher Clarke’s The Sleepwalkers: How Europe went to War in 1914, London, Penguin Books, 2012.

[7]  Elizabeth Pond, Germany’s role in the Ukrainian crisi: caught between East and West”, Foreign Affairs, March/ April 2015.

[8] Hans Kundnani, The paradox of German Power, Oxford University press, 2015.

[9] Mycle Schneider,  Fukushima crisis: Can Japan be at the forefront of an authentic paradigm shift? Bulletin of the Atomic Scientists. 9 September 2011

[10] “ The Lopsided U.N. Security Council Vote on Libya,” The Daily Beast, March 19, 2011

[11] Report of the High-Level Group on Financial Supervision in the EU . Chaired by Jacques de Larosière, Report, 25 February 2009. p.41. Para.159.

[12] “Ich fühlte mich getäuscht”, Extracts from Das Krisen-Tagebuch des Peer Steinbrück, Der Spiegel, 37/2010.

[13] “Wall Street  helped to mask debt fuelling Europe’s crisis » , New York Times, February 13, 2010.

[14] Tyler Durden, “Step Aside Greece: How Gustavo Piga Exposed Europe’s Enron In 2001 – Focusing On Italy’s Libor MINUS 16.77% Swap; Was “Counterpart N” A Threat To Piga’s Life? HIFX, 2/28/2010.

[15] “La Bce: tassi fermi e nessun aiuto ai conti della Grecia”, Il Sole 24 Ore, 6 January, 2010.

[176 Felix Roth, Lars Jonung, Felicitas Nowak-Lehmann D. “The Enduring Popularity of the Euro throughout the Crisis.” CEPS Working Document No.358/December 2011. This headline is not supported by the evidence provided.

[17] Allensbach-Analyse : « Vertrauenverlust für den Euro », Frankfurter Allgemeine Zeitung, April 28, 2010.

[18] Gérard Lafay, Jacques Sapir, Philippe Villina, « Abandonner l’euro pour sauver les Européens”, Le Figaro, June 22, 2011.

[19] François Heisbourg, La Fin du Reve Européen, Editions Stock, 2013. The Euro dream has become a nightmare.

[20] Emnid-Umfrage, Mehrheit der Deutschen sieht Euro kritisch, Frankfurter Allgemeine Zeitung, September 17, 2012.

[21] Hans-Olaf Henkel, in Die Euro-Lügner: UnSinnige Rettungspakete, Vertuschte Risiken. So Werden wir getäuscht, München, Wilhelm Heyne Verlag, 2013.

[22]Euro Is ‘Burning Building,’ EU Has Too Much Power, Hague Tells Spectator”, Bloomberg, September 28, 2011.

[23] Wilhelm Hankel, Wilhelm Nölling, Karl Albrecht Schachtschneider and Joachim Starbaty , « A Euro exit is the only way out for Greece « , Financial Times, March 25, 2010.

[24] Committee on Economic and Monetary Affairs, « Monetary Dialogue with Jean-Claude Trichet, President of the ECB », March 22, 2010(www.europarl.europa.eu/document/activities/cont/201004/20100408ATT72328/20100408ATT72328EN.pdf)

[25] Jan Schiedbach, Government debt better at home than abroad ? Talking point, DB Research, August 23, 2012. See also, Daniel Gross, External versus domestic debt in the Euro crisis, Vox, 24 May, 2012. Up to 50% of Italian and Spanish debt by 2010 was held by foreign creditors.

[26] Holger Steltzner, « Die Griechische Tragödie : Der Letzte Anker darf nicht reissen », Frankfurter Allgemeine Zeitung, February 10, 2010.

[27] FMSA, Federal Agency for Financial Market Stability, Financial-Market Stabilisation Fund Act of 17 October 2008 (Federal Law Gazette I, p. 1982), as amended by Article 1 of the Act of 17 July 2009 (Federal Law Gazette I, p. 1980). By 2010, the FSMA had granted a total of €63.73 billion worth of guarantees, extended €29.28 billion worth of capital measures and, by establishing two resolution agencies, claimed a successful contribution to stabilizing the German financial market.

[28] Court of Justice of the European Union PRESS RELEASE No 2/15 Luxembourg, 14 January 2015 Advocate General’s Opinion in Case C-62/14 Peter Gauweiler and Others v Deutscher Bundestag According to Advocate General Cruz Villalón, the ECB’s Outright Monetary Transactions programme is compatible, in principle, with the TFEU

[29] Anna-Maria Fuentes, Elena Kalotychoiu, Orkun Saka“How did the ECB save the Eurozone without spending a single Euro?” Vox EU, Paper on voxeu, March 26, 2015.

[30] World Bank, Ease of Doing Business 2010 in rankings on labour market flexibility, out of 183 economies, Ireland was 27 ; Italy  99 ; Greece 147 ; Spain 157 ; Germany, 158 ; France 165 ; Portugal 171. The least market friendly country was the Central African Republic. As President Sarkozy suggested to Chancellor Merkel, the member states should put money on the table, and worry about the details later.

[31] Quoted in Charlemagne, Germany, France and the euro: Behind the smiles”, The Economist, December 5, 2011.

[32] This did not prevent France from insisting on Greece buying 6 frigates about which negotiations had started. Berlin was displeased on the reasonable grounds that sale of weapons to a highly indebted Greece was not a good idea. The fears were that German taxpayers would  end up paying for part of the deal. “Germans Question Contract: France to Sell Frigates to Greece in Controversial Deal”, Spiegel Online 10/19/2011.

[33]Hey, Germany: You got a bailout, too”, Bloomberg, May 24, 2012.

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About Jonathan Story, Professor Emeritus, INSEAD

Jonathan Story is Emeritus Professor of International Political Economy at INSEAD. Prior to joining INSEAD in 1974, he worked in Brussels and Washington, where he obtained his PhD from Johns Hopkins School of Advanced International Studies. He has held the Marusi Chair of Global Business at Rensselaer Polytechnic Institute, and is currently Distinguished Visiting Professor at the Graduate Schoold of Business, Fordham University, New York. He is preparing a monograph on China’s impact on the world political economy, and another on a proposal for a contextual approach to business studies. He has a chapter forthcoming on the Euro crisis. His latest book is China UnCovered: What you need to know to do business in China, (FT/ Pearson’s, 2010) (www.chinauncovered.net) His previous books include “China: The Race to Market” (FT/Pearsons, 2003), The Frontiers of Fortune, (Pitman’s, 1999); and The Political Economy of Financial Integration in Europe : The Battle of the Systems,(MIT Press, 1998) on monetary union and financial markets in the EU, and co-authored with Ingo Walter of NYU. His books have been translated into French, Italian, German, Spanish, Chinese, Korean and Arabic. He is also a co-author in the Oxford Handbook on Business and Government(2010), and has contributed numerous chapters in books and articles in professional journals. He is a regular contributor to newspapers, and has been four times winner of the European Case Clearing House “Best Case of the Year” award. His latest cases detail hotel investments in Egypt and Argentina, as well as a women’s garment manufacturer in Sri Lanka and a Chinese auto parts producer. He teaches courses on international business and the global political economy. At the INSEAD campus, in Fontainebleau and Singapore, he has taught European and world politics, markets, and business in the MBA, and PhD programs. He has taught on INSEAD’s flagship Advanced Management Programme for the last three decades, as well as on other Executive Development and Company Specific courses. Jonathan Story works with governments, international organisations and multinational corporations. He is married with four children, and, now, thirteen grandchildren. Besides English, he is fluent in French, German, Spanish, Italian, reads Portuguese and is learning Russian. He has a bass voice, and gives concerts, including Afro-American spirituals, Russian folk, classical opera and oratorio.
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