Greek-German relations: Perception versus reality

Agora Contributor: Jens Bastian

There is currently much talk about what kind of conclusions one should draw from the recent European elections. Across the continent the debate rages about lessons learned from low voter turnout and the unprecedented growth of fringe parties, not all of which deserve to be labelled eurosceptic or anti-European.

But this narrative is mostly taking place through the prism of the election result, as if the need to act urgently did not already exist beforehand. One key indicator of this discussion is the attempt by policy makers and analysts to identify new strategic pillars for the European political economy. Put otherwise, can economies across the euro area identify fiscal space in exchange for the implementation of structural reforms?

Judging by visits of German representatives to Greece this week the amount of bilateral exchange would suggest that both countries are trying to put some flesh to the bone of this formidable policy challenge.

Facilitated by two German foundations active in Greece for the last two years and cooperating with their Greek counterparts, the renowned German economist Peter Bofinger and a host of parliamentarians from Bavaria and were in Athens to listen and understand the reform process underway as well as to identify areas of joint cooperation. These visitors come in good faith, knowing full well that they will face challenging questions due to their country of origin.

A major line of argument they hear from their Greek hosts is that Germany in general and Chancellor Angela Merkel specifically continue to strictly define the austerity agenda that Greece has to adopt through the troika compliance requirements.

The lingering impression that the German visitor can thus form is that the transformation efforts are not the genuine result of the Greek authorities and the majority of society taking ownership of the reform agenda. Rather, these visitors continue to hear critical assessments of what needs to be done in Athens because the international creditors demand it and Berlin formulates it.

What is often forgotten through the fog of political controversies between Athens and Berlin in the course of the past four years is the sheer amount of bilateral cooperation that has been established alongside unnecessary finger pointing.

Leaving aside the unprecedented volumes of credit guarantees that Germany has provided for the financing of the two rescue programmes for Greece since 2010, Berlin has pro-actively sought to support Greece’s structural reform efforts through a host of technical assistance projects.

These German cooperation efforts are embedded in different structures, e.g. concerning the work of the European Commission’s Task Force for Greece or the Greek-German Assembly that focuses on a wide range of regional and municipal know-how partnerships.

The most prominent example for such successful joint initiatives is the establishment of the Greek Institution for Growth (IfG). The IfG has received extensive technical assistance input from the German Kreditanstalt für Wiederaufbau (KfW), a reconstruction credit institute founded in 1948.

But the KfW has also gone a step further and backed up such technical assistance with solid funding support, thus providing the IfG with a credit guarantee of 100 million euros. To date, no other EU member state has committed anything near such levels of resources for the Greek IfG.

What the visitors from Germany, irrespective of their political affiliation, share is the articulated commitment to continue supporting Greece at all levels of the country’s reform efforts. These are important statements of solidarity that are further supported by specific project initiatives, such as the proposition to establish a Greek-German Youth Institute (Deutsch-Griechisches Jugendwerk). It would be the third of its kind for Germany, after the bilateral institutes already existing with France and Poland.

But the German visitor to Athens cannot avoid being confronted with a major challenge that continues to occupy the hearts and minds of Greek citizens and its political representatives (in government and opposition).

More specifically, the question concerns the asymmetry evident between these impressive levels of tangible cooperation and technical support on the one side and the disconnect between this proof of solidarity and the ongoing austerity priorities to which Berlin expects Athens to adhere.

The German visitors from Bavaria and Berlin have repeatedly been challenged with the following intriguing points: How can Greece pursue its reform efforts if the fiscal straightjacket continues to constrain public investment capacity? The deflationary pressure evident in the Greek real economy adversely impacts on the country’s nominal debt dynamics. How can an economic recovery in the country take root on the back of creditless growth and an increasing segmentation of the credit transmission mechanism in the euro area?

These are vexing challenges that are searching for feasible solutions. It will take more than useful visits, joint project cooperation and tangible examples of solidarity to formulate answers to these challenges. But it is a discussion between Greece and Germany worth having now. By all accounts, it is in Berlin that most of the practical answers for Greece and beyond must be found.

*Jens Bastian is an independent economic consultant and investment analyst for southeast Europe. From 2011 to 2013 he was a member of the European Commission Task Force for Greece in Athens. He is a regular contributor to The Agora section of Macropolis. Follow Jens on Twitter: @Jens_Bastian

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