Greece – A special case

It is one of life?s bitter lessons that when we read other people?s letters we are not only being rude but we also run the risk of reading something that will upset us. A cable from the US Consulate in Frankfurt to Washington, from December 23, 2009, and which was made public by WikiLeaks, is no exception. It reveals that from that early date, American officials and senior European bankers saw Greece as isolated and probably incapable of adopting the reforms that would help lead it out of the crisis.

In a report on the European economy, in a section titled ?Greece — A special case,? the author notes that senior officials at the European Central Bank saw Greece as a ?peripheral? case in the eurozone. ECB board member Juergen Stark, said that Greece?s economic and fiscal position ?is and has been a disaster for years.? The country, he added, ?lacks the strong institutions and political leadership necessary for maintaining fiscal control.? He pointed to the doubling of public sector wages, unreliable statistics, and the ?explosion? of the country?s deficit from 4 to 12 percent of GDP in just a few months. Whereas Ireland?s response to the crisis had been exemplary and helped restore the confidence of the markets, Greece ?has done nothing so far,? the report quoted him saying. It noted that the Greek government had no choice but to implement reforms but that this would be ?politically difficult? because of the ?fragile political situation.?

Sympathy, however, was in short supply. ?They had fun, but now is the end of the party,? the cable quoted Stark saying. Jens Dallmeyer, an economist at Deutsche Bank Research, commented: ?I cannot remember a country ever as isolated in its peer group as Greece is now in the Eurosystem.?

In Athens, Prime Minister George Papandreou was defending his budget in Parliament, still trying to introduce reforms while sticking to his campaign promises of handouts, after being elected two months earlier with the slogan ?there?s money to spend.? At that time, we believed that our partners would support us out of fear that Greece?s collapse would drag down with it other economies, or because they felt the obligation to express solidarity. We did not know then — five months before Greece signed the bailout deal with its European partners and the IMF — that in Frankfurt they had no illusions about the situation in Greece.