Greece, Germany, and The Cost of European Integration

January 18, 2013 • Blogs, Online Content, The World at Yale • Views: 643

by Zoe Rubin

“We’re supporting our neighbors because there is no zero sum game; their success is our success,” argued Peter Ammon, Germany’s Ambassador to the United States, to a packed crowd on Wednesday. Ambassador Ammon began his talk on “Strategies in Time of Crisis: New Opportunities for German-American Cooperation” by urging those present not to forget the longstanding transatlantic partnership. In a world where the failure of Lehman Brothers can quickly devastate dealings in Frankfurt, he explained, “no one can solve these crises alone.” Instead, we must “look to those who are allies, who share the same values—Europeans and Americans.”

Ambassador Ammon. (Germany Info)

Ambassador Amman spoke both of the combined strength afforded to the U.S. by viewing their economies as one vast transatlantic economy, as well as the considerable investments Germany has made in the U.S.’s own economy.

Ambassador Ammon emphasized the importance of viewing Europe and the US as part of a vast transatlantic economy. America’s largest car exporter, he pointedly remarked, is not Ford or GM but BMW, a German company. German investments have already had a considerable effect on the U.S. economy. Only through further economic partnership under the aegis of a shared transatlantic market can both states prosper. Quickly, however, Ambassador Amman shifted from calling for increased European-American economic interdependence to defending Germany’s record on what some see as a ramification of such the Eurozone’s current interdependence—the Greek debt crisis

In very pointed terms, Ambassador Ammon was quick to argue that Germany’s actions during the height of the crisis and in its aftermath were necessary and honorable. Germany was instrumental in the creation of a “grand bargain,” through which they and other IMF nations pledged to finance Greece’s debt reduction efforts. In exchange, Greece agreed to take severe austerity measures to cut its debt altogether. Greece must now reduce domestic spending and implement key budget reforms. Inefficient tax collection particularly crippled the Greek government in the years leading to the debt crisis.  Ambassador Ammon laughed at the “amusing stories” of how recent tax analysis showed that 50,000 Greeks drew pensions even after they had passed away .

Now that such a proposal has been straightened out, “we have to keep the bargain intact, and the pressure has to be kept up.” Yet, many have charged Germany with adopting a hypocritical economic policy designed to shore up its own interests, even if it does so at the expense of its European neighbors like Greece. Germany cannot risk the severe costs to its banking system and GDP if Greece were to leave the Eurozone.

Ambassador Amman devoted the bulk of his talk to debunking four related critiques of German’s fiscal leadership in the Eurozone. First, he responded to those critics of austerity policy by shrewdly asking what else they would suggest. Ambassador Ammon discredited the concept of deficit spending as “printing money.” Doing so would be a political appeal to the voters, not sound economic policy, “equivalent to a permanent free lunch at the expense of those who lived within their means.”

Ambassador Amman then addressed the concern that austerity policies lead to greater unemployment and so lower tax revenues, which only further leads to rising unemployment. The Spanish unemployment rate, currently at 25%, may be alarming, yet it has always been high due to the “rigidity of the Spanish labor market.” While critics fear that austerity measures will reverse past economic growth, their fears fail to reflect the unnatural levels of such growth. With a wry smile, Ambassador Ammon compared the Greek economy before the debt to crisis to “an economy on speed, on dope.” Cutting artificial highs, such as unchecked spending, will invariably force growth stabilize. Austerity is the only rational solution to Europe’s economic woes, he stressed, as “the structure of the Greek economy cannot be solved by spending changes alone.”

In recent months, many prominent economists and newspaper editorials have suggested that Germany’s actions in the Greek debt crisis are less than sincere, motivated only by German trade interests or a desire for great political and economic dominance over Europe. Greece accounts for less than 0.4% of German exports, Ambassador Ammon countered, surely not cause for Germany to mortgage ten percent of its GDP? Those who have a stake in preventing economic modernization, he argued, such as trade unions, will invariably fight integration and reform, even by stoking absurd fears of a “German plot”. Yet ridicule aside, the historic irony in Ambassador Ammon’s appeal could not be overlooked. “We’ve never dreamt of creating a dominant power in Germany,” he concluded.

Germany appears to be convinced that only through greater economic and political integration can Europe prosper and stabilize. Yet ceding political will and economic sovereignty to the European Union has already provoked alarming changes in its own political decisions. Ambassador Ammon defended Germany’s controversial abstention in the recent UN General Assembly vote to accord Palestine “non-observer member state” on the basis of pan-European solidarity. In past UN votes, Germany staunchly supported Israel and blocked the advancement of Palestinian statehood through the United Nations. After many European states began to consider voting yes, including the United Kingdom, however, Ammon argued that “the only unified solution was for all of Europe to vote abstain.” Perhaps Germany’s backroom negotiations have altered the dynamics of the voting process and prevented further votes in favor of the resolution. Yet, Germany couldn’t stop France, Italy, Spain, Austria, Denmark, Switzerland, and numerous other European countries from supporting the resolution. Ambassador Ammon contends that only by creating “more Europe” can European states continue to play a leading role in global debates. But if Germany can no longer champion the causes that it supports, will it truly continue to lead?

Zoe Rubin is a freshman in Timothy Dwight College. Contact her at zoe.rubin@yale.edu.

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