Angela Merkel’s successor in the leadership of the Christian Democratic Party and potential chancellor of Germany, Armin Laschet, seemed to be channeling Wolfgang Schaeuble as he spoke to the Financial Times in an interview published on June 21: “Yes” to more European integration but only under the Maastricht conditions (what country, I wonder, fulfills those criteria today?) and, most importantly, “no” to debt consolidation. This happened once, urgently, because of the pandemic, but must never be repeated, he added. The following Tuesday, the president of Italy and former president of the European Central Bank, Mario Draghi, provided Laschet with a response: “I am sure,” he said, “that a successful implementation of the European recovery fund will result in some elements becoming permanent features of debt consolidation.”
How is this discussion relevant to us? Two observations will highlight the extent.
(a) Our economy has weaknesses that other European countries don’t. Firstly, Greece is massively overindebted. Secondly, it’s credit rating is poor – Greece is currently borrowing only because of Frankfurt, as anyone who buys Greek bonds does so knowing that they can resell them to the ECB. Thirdly, we don’t really have the same euro as the rest of Europe. Both companies and citizens pay 5-7% more for it when in other European countries it is very cheap. Fourthly, the Greek banks are loaded with 10 times the amount of nonperforming loans and far more virtual capital compared to other European banks.
(b) The pandemic added a few more problems. The richer European countries, by suspending state aid restrictions, managed to keep companies strong, giving them a comparative advantage over their counterparts in poorer countries. After the pandemic, the companies in richer countries will not just be strong, but stronger than companies in poorer countries compared to the power balance before the pandemic. This applies to Greece. Beyond our fiscal problems, problems are slowly and silently growing in the real economy.
So, the discussion referred to above is very much our concern: Its outcome will affect, for better or worse, our own attempts to rebuild a more sustainable economic model. A relaxation of EU fiscal policy will not solve our problems, but it will help us solve them: to build a competitive economy capable of claiming a share of the global workforce. To the extent that we perform this task successfully, we may begin to take part, on decent terms, in the European discussion – to open our mouths without having everyone shut their ears. Again, debt consolidation will not solve our problems, but it will help us begin to solve them, should we decide to.