Juncker Speaks

The Greek Black Hole

Juncker-AP
Jean-Claude Juncker needs Greece to get serious about reform.
  • Why it matters

    Why it matters

    The E.U. Commission, under the leadership of President Jean-Claude Juncker, is a key voice in the ongoing negotiations over what deal Greece should get on its bailout by European countries.

  • Facts

    Facts

    • Greece’s bailout was set to expire at the end of February, but the country has now been granted a four-month extension to give negotiators time to reach a permanent solution.
    • Germany’s parliament overwhelmingly approved the extension of Greece’s bailout in a test vote Thursday, although Finance Minister Wolfgang Schäuble remains critical of Greece’s behavior.
    • An poll by research firm INSA has found that only 21 percent of Germans support an extension for Greece.
  • Audio

    Audio

  • Pdf

The immediate Greek crisis may be over as four-month extension of the country’s bailout from European creditors looked set to be approved by governments in the 19-nation euro currency zone by the end of this week. But the war of words between Greece and Germany has not stopped.

The crisis could well erupt again at the end of June, by which time Athens and its European leaders will have to agree a permanent solution to the Greek dilemma.

The European Commission’s president, Jean-Claude Juncker, in an interview with WirtschaftsWoche, suggests Greece has not yet accepted its role in the European debt crisis, and its role in fixing it.

WirtschaftsWoche: Mr. Juncker, the Greek government has been snubbing its European partners for weeks now. Are Greece’s Prime Minister Alexis Tsipras and his finance minister Yanis Varoufakis inexperienced or brazen?

Jean-Claude Juncker: I have not yet seen a lot of top grade expertise. But we shouldn’t jump to conclusions – after all, nobody ever became an expert over night, not even from Greece.

You have already tried to take Mr. Tsipras by the hand in an almost fatherly way. That hasn’t seemed to help. What now?

We have to offer the new Greek government a friendly reception – even if leading Greek politicians haven’t chosen their words very carefully. If a prime minister insults Germany twice in one week in government statements, I don’t call that sophisticated statesmanship; rather it leads to resentment. German politicians never did that either. Too many flippant statements are coming out of Athens, but that will change over time.

Germany’s central bank, the Bundesbank, has cautioned Greek banks against purchasing their own country’s government bonds. Do you expect that the European Central Bank (ECB) will allow the Greeks to issue more short-term government bonds?

One of my important rules is that I don’t comment on monetary policy – at least not in public. The European Central Bank is independent, and that’s a good thing. I have every confidence that it will take the necessary measures within its mandate.

Couldn’t the markets react to that kind of messy situation in an extremely unfriendly way?

Sometimes I expect the markets to get nervous and then nothing happens. Sometimes markets are nervous and I don’t know why. Markets should have gotten nervous between 2001 and 2007, when certain countries were not adhering to budget constraints at all. When we wrote up the Maastricht Treaty [which set the outlines of the euro currency] in 1991, we thought the markets would punish a country that fell out of line. But that’s not what they did. They understood the monetary union to be an optimal currency zone and didn’t pay any attention to competitive differences.

Juncker-Tsipras-Reuters
Mr. Juncker has tried to be patient with his new negotiating partner, Greek Prime Minister Alexis Tsipras. Source: Reuters

 

Have Mr. Tsipras and his colleagues realized how serious the situation is?

I patiently explain that the euro zone is not only made up of one democracy but of 18 others as well that have to be taken into account. I also explain that it is very difficult to demand from Spain, Ireland and Portugal relief that they themselves were not granted. These countries have gone through a valley of tears. The population there doesn’t have much understanding for the idea that Greece should now get special treatment.

The Greek government argues that its minimum wage of around €550 per month has to increase to €750 because living costs in Athens are so high. How do you respond to that argument?

I am not one to say the minimum wage has to decrease, but you have to know what is really going on here. If Greece raises the minimum wage, there will be six other countries in Europe with lower minimum wages that will also have to approve any Greece aid program in their parliaments. We have to explain to Mr. Tsipras and his colleagues that this isn’t an easy process. The minimum wage in Greece would be higher than in Spain or Slovakia.

The Greek government likes to numbers around. What do the negotiating partners think of that?

A lot of things that are being said don’t reflect reality – for example, debt servicing, which is higher in some other countries than in Greece. If the new Greek government says its debt is not sustainable, that implies that countries with higher debt servicing are in an even less sustainable financial situation. It is evidently not clear to some people that you shouldn’t play with matches so close to straw.

How great is the risk of a “Grexident,” an accidental Greek exit from the euro zone?

If I said that was a real concern, it would automatically turn into one. I see Greece as a permanent member of the euro family. I do not like these simplifications based on Greece’s name. What would we call a German exit? Dexit? A Greek exit will not happen.

That is your political intention. Would the euro zone be able to deal with a possible Greek exit?

That is an entirely different debate. As we have put a rescue firewall in place for Europe since 2010, Greek misconduct doesn’t carry the same risk as it did up until 2012. But that is no reason to warm to the idea of a country potentially withdrawing from the euro zone. Even if the contagion is lower than it once was, there’s still systemic political risk.

What do you mean by that?

If a country were to withdraw, it would have a destructive effect within the euro zone. Then speculators of all shapes and sizes would take a country to task if they think they could make money off provoking its exit from the currency zone.

How important are geopolitical deliberations in the efforts to keep Greece in the euro zone?

People are talking about an exit from the monetary union as if we were discussing the sex of tsetse flies in south-east Africa – without any knowledge of the subject. If someone wants to exit the monetary union, they first have to leave the European Union. Then they could submit a new application for reentry. We should leave this kind of fantasy behind us. But Greece shouldn’t take that as an invitation to either do nothing or neglect to fulfill its obligations.

Ireland, Portugal and Spain have successfully exited from the European bailout programs they were given in the crisis, and their economies are recovering. Why is Greece an exception?

When I look at the numbers, a lot of things have changed for the better. Unemployment has decreased somewhat, even if it’s still scandalously high. There is a primary budget surplus. The Greek economy is growing again, but it is still far away from the output capacity it once had.

Why is the mood still so bad in Greece?

The Troika’s programs [a series of conditions imposed on Greece in exchange for a bailout] included measures that have robbed the average Greek of their courage to face life. A real spirit of optimism has not developed because every single Greek person feels that his or her dignity was violated, because every single Greek person feels like something unfair is happening here.

This state of affairs is not good. The people in Greece think that they have nothing to do with the causes of their country’s problems. But it was not the Germans or the Dutch that voted for Pasok and New Democracy [Greece’s ruling political parties until January’s election] for over 40 years. Greek citizens also bear some responsibility, they can’t refuse that.

One of Greece’s main weaknesses is its public administration. How big is this problem?

The Greek state does not work as well as other places. For example, Greece has no national land registry. Over the past years, I have also felt like I’ve been staring into a black hole – when you reach into it, your whole arm disappears. It is also a fact that there is corruption on many levels. Greece has a tendency to forget all of these things.

To what extent can aid from elsewhere improve a public administration?

We are trying to upgrade the Greek government in terms of administration. We have to offer many different kinds of support. The collection of taxes also continues to be a problem that is hard to understand from a northern European perspective. It is not a responsible way to handle your own government when citizens stop paying taxes during an election campaign because they expected to no longer have to pay them under Mr. Tsipras. But some things are going in the right direction. I don’t expect the brief interruption in reforms to last very long.

In negotiations, you have emphasized that it is not about the Greek government but rather the Greek people. Is that not a given?

I have the feeling that governments and institutions talk to each other but lose sight of the real worries of the people who all this affects. That bothers me. Many people in a position of authority forget who they are doing politics for.

In the negotiations, you get the feeling that the parties involved don’t know much about the mood in the country they’re talking about. How well do you understand the mood in Greece?

When I was head of the euro group, every week I started calling three people in Athens: a journalist, a doctor and a former employee. They would tell me what they were seeing and what the people in the country were saying. That gives me a picture of Greece that we don’t see in the debate elsewhere in Europe. We have to talk to the people. Just reading the newspaper is not enough.

 

This interview first appeared in the German weekly WirtschaftsWoche. Silke Wettach is a correspondent with the weekly in Brussels. To contact the author: silke.wettach@wiwo.de

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