An article by Evangelos Venizelos on Professor Peter Bofinger’s book
Back to D-Mark: Germany needs the euro

The publishing event of 2012 in crisis-stricken Greece was probably the publication of Professor Peter Bofinger’s book “Back to D-Mark: Germany needs the euro” ( in Greek : Polis Editions, translation  by Elise Papadakis).

Professor Bofinger, a member of the German Council of Economic Experts since 2004, becomes perhaps the best advocate of the Greek case to the German and European public. On the one hand, he is completely reversing all negative stereotypes that had been cultured for months against Greece, and on the other he presents with clarity the difficult reality of European correlations and the deeply rooted economic nationalisms that still exist in the heart of Europe.

It is important to see the simplicity and therefore the persuasiveness with which Professor Bofinger subverts the main stereotype of a Greece that does not want or can not implement the policy of fiscal and structural adjustment. Citing official IMF data (IMF, Fiscal Monitor Update, July 2012), Bofinger notes what the first report of the Irish Central Bank had said with admiration for the first time: for the 2009-2012 period, amongst the countries in adjustment programs, Greece has done the most impressive fiscal adjustment and the largest deficit reduction of up to 8.6%, when Ireland and Portugal are quite behind in second and third places, with a 5.7% reduction.

Furthermore, in terms of cyclically structured deficit, the reduction achieved by Greece reaches an impressive 14%, when Portugal comes second with 6.7%, and Spain third with 4.7%. The same happens with the striking reduction of public expenditure, excluding interest, of at least 22%. Even more impressive is the fact that the German professor adopts the OECD report of 2012, whereby, Greece, for the same period, scored the best achievements among OECD member-states in the field of structural reforms for the enhancement of competitiveness of the economy.

The second big negative stereotype is that of the "resourceful and lazy Greek, who is truant and unproductive." Bofinger informs his German readers that the Greek employee works 2119 hours a year, almost 50% more than the German who works just 1390 hours. And before the last reform in the pension and insurance systems, the average real retirement age was 61.9 years in Greece, compared with 61.8 years in Germany. Even for tax evasion, the all-favorite Greek debate, Bofinger has the sensitivity to stress that this debate is also taking place with almost the same terms in Germany.

If anything, it is a moral satisfaction to see such a German analyst toppling the theory of Greece as an "allowance-supported little crook." At the beginning of the adjustment period, Bofinger reminds that Greece had no problem of public spending, as this was relatively close to the European average (45.8% compared to 48% of GDP), but a problem of public revenues (40.2% compared to 45.1% of GDP). Although, in terms of public revenue for the period 2000-2007, Greece was above countries such as Japan, the U.S., Switzerland and Ireland.

Even more important, and multiply educative for the inconsistency, the difficulty, and the prospect of European associations is the analysis made by Bofinger on how much hurtful, not only for Greece, but for the Eurozone as a whole, has been the international debate on whether or not Greece should stay in the euro. The debate on the infamous Grexit, caused monetary insecurity not only in Greece but in all countries of the EMU periphery.

He does not even hesitate to identify the major problem of the dominant European concept, which naturally is imposed on countries with adjustment programs: pro-cyclical policies, ie policies that seek immediate fiscal adjustment under recession conditions are in effect deepening and thus feeding recession. From this viewpoint, it is highly useful to see Bofinger’s reference in the study (Batini et al, 2012) of IMF itself, which explains that it is twice as probable to open a vicious circle of deeper and prolonged recession with a consolidation program imposed in recession conditions, than it is with a consolidation program imposed during a recovery phase.

We have said all that many times during our discussions with the Troika, at all levels, in chain meetings of the Eurogroup, in countless bilateral meetings, to hundreds of foreign journalists and analysts over the last three years. But, unluckily to us, this discussion is carried out under entirely unequal and unfair conditions, based on prevailing economic and political perceptions, opportune political needs and considerations in different countries. This is simply portraying the attitude of the lender towards the borrower, when it cannot be understood that this is not a financial relationship, but an institutional, political and ultimately a historical one.

It is important that these things are said by a German to Germans, even now that the climate is undoubtedly more receptive thanks to the great sacrifices of the Greek people.

The reference to the Weimar Republic, which is so endearing in the Greek public discussions, is made by Bofinger in a much more specific manner, since he associates the pro-cyclical policies to the period of German Chancellor Brüning in 1931.

In connection with the analysis of Bofinger, it is therefore of great importance to equip ourselves with arguments for a debate in which the European progressive forces and more specifically the European Socialists & Democrats must take the lead. It is now more than obvious that the financial crisis in the Eurozone is not a crisis of the state, or a simple public debt crisis, but instead it is a crisis based on the asymmetry between the high degree of monetary integration and the very low degree of political integration.

The result is unfavorable not only for small and medium size countries, but also for the big Eurozone countries: Italy’s participation in the monetary union seems to be a heavy disadvantage, as far as the cost of public borrowing is concerned, compared with countries that are under similar or even worse fiscal conditions but have retained their monetary autonomy, such as the United Kingdom.

Of course, the book’s key argument is Germany’s benefits from a "softer" euro and therefore a euro which is much friendlier than the D-Mark when it comes to German exports and the competitiveness of the German economy. From Bofinger’s analysis, it emerges the image of a Germany that has absorbed a very large part of the cost of its unification through the establishment of EMU, and of course through the implementation of tough reforms and a very hard fiscal policy before and after the establishment of EMU. But on the other hand, this operated and is still operating as a mechanism that transports surpluses from other Eurozone countries to Germany. So, in fact we are going back to the big question of European integration that can not be one-sided and unbalanced.

Therefore, all current discussions, even the friendliest for countries with problems, are just about temporary and short-term solutions for the management of the late phase of the crisis in the euro area. This is where we have the ECB interventions in the market of sovereign bonds, the debate on various types of Eurobonds, the fiscal pact, the debate on the Banking Union and the joint supervision mechanism in conjunction of course with the need for an all-European deposit guarantee mechanism, etc.

All this dominate and will keep dominating in the European political and economic debate of the coming months. In fact, they concern the ability of the European model of development and of the European welfare state to withstand the pressure and secure at least its basic features.

However, overcoming the crisis, raising up once again and shaping an historic European perspective, may happen when the debate on European integration re-opens again. And this means, a different kind of initiatives, which thankfully can only be initiatives of a political and democratic character.

Besides, this is basically the big question: Who leads and ultimately defines the developments? The market or the democratic forum? Eurozone member-states and generally EU countries are ready to surrender large portions of their sovereignty to a political entity like the EU, which is governed by European rules and guarantees of the rule of law. But it would be historically inexcusable to turn the path towards European integration into an avenue of predominance of the markets over Democracy.

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