Merkel's folly

Survival

Volumn 52, Issue 3, 2010, Pages 21-38

  Jones, Erik ^a  

^a JOHNS HOPKINS UNIVERSITY   (United States)

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EID: 77953438430     PISSN: 00396338     EISSN: 14682699     Source Type: Journal    
DOI: 10.1080/00396338.2010.494873     Document Type: Article

References (39)

1. The crisis in Greek fiscal accounting emerged in October, when the government submi*ed its fiscal projections to the European Commission as required under the Stability and Growth Pact. The outgoing New Democracy government sent a report on October indicating that the ratio of the government deficit to gross domestic product (GDP) was 0.% in $ and was expected to decline to #./% in. The incoming Pan Hellenic Socialist Movement (Pasok) government sent a revised report on! October claiming that the actual deficit for $ was /./% of GDP and the expected deficit for was likely to come out at!.0%. This was hardly the first time that a Greek government had revised its data to discredit its predecessor and to make the situation look worse than expected. New Democracy did the same to Pasok when it came to office in +. The difference this time was that Greece's European partners refused to accept that the problems were specific to the government rather than being a reflection of the chronic weakness in Greek data-collection procedures, particularly as regards fiscal policy. Meeting in November, the Council of Economics and Finance Ministers rejected incoming Prime Minister George Papandreou's a*empts to lay all the blame on his predecessor. This was followed in early January by a European Commission report condemning the poor state of Greek fiscal statistics. See Tony Barber, 'Greece Condemned for Falsifying Fiscal Data', Financial Times, 12 January 2010.
2. 'Pressekonferenz der Bundeskanzlerin nach dem Europäischen Rat', 11 December, http://www.bundeskanzlerin.de/nn_683698/Content/DE/Mitschrift/Pressekonferenzen//2009/12/2009-12pk-bk-bruessel.html.
3. 'Statements von Merkel und Sarkozy', 11 February 2010, http://www.bundeskanzlerin.de/ nn_683698/Content/DE/Mitschrift/ Pressekonferenzen/2010/02/2010-02-11-pk-europaeischer-rat.html.
4. 'Pressekonferenz der Bundeskanzlerin nach dem Europäischen Rat', 26 March 2010, http://www.bundeskanzlerin.de/nn_683698/Content/DE/Mitschrift/Pressekonferenzen/2010/03/2010-03-26-pk-bk-bruessel.html.
5. 'Pressestatement von Bundeskanzlerin Angela Merkel zum Antrag Griechenlands auf Finanzhilfe', 23 April 2010, http://www.bundeskanzlerin.de/nn_683698/Content/DE/Mitschrift/Pressekonferenzen/2010/04/2010-04-26-statement-griechenland.html.
6. 'Pressestatements von Bundeskanzlerin Merkel und Bundesaußenminister Westerwelle', 3 May 2010, http://www.bundeskanzlerin.de/nn_683698/Content/DE/Mitschrift/Pressekonferenzen/2010/05/2010-05-03-statement-griechenland.html.
7. Charles Wyplosz mentions the risk of borrowing to default but then suggests that it has not materialised as a significant threat, although he cautions that 'time will tell'. See Charles Wyplosz, 'European Monetary Union: The Dark Side of a Major Success', Economic Policy, vol. 21, no. 46, April 2006 pp. 225, 238.
8. See for example Martin Feldstein, 'The Political Economy of the European Economic and Monetary Union', Journal of Economic Perspectives, vol. 11, no. 4, Autumn 1997, pp. 23-42
9. Martin Feldstein, 'EMU and International Conflict', Foreign Affairs, vol. 76, no. 6, November-December 1997, pp. 60-73.
10. Erik Jones, 'Liberalized Capital Markets, State Autonomy, and European Monetary Union', European Journal of Political Research, vol. 42, no. 2 March 2003, pp. 111-36.
11. This was proposed by Wolfgang Schäuble and Karl Lamers in 1994.
12. See Erik Jones, 'European Macroeconomic Governance', in Jeremy Richards (ed.), European Union Power and Policymaking, 3rd ed. (London: Routledge, 2006), pp. 329-49.
13. See Dermot Hodson, 'The Euro Area in: The Financial Crisis Gets Real', JCMS Annual Review, forthcoming. Many thanks to Dermot Hodson for sharing this manuscript.
14. Bertrant Benoit and Tony Barber, 'Germany Ready to Help Eurozone Members', Financial Times, 2009 February
15. Greece's accounting difficulties stretch far back to its pre-euro membership days. See James D. Savage, Making the EMU: The Politics of Budgetary Surveillance and the Enforcement of Maastricht (Oxford: Oxford University Press, 2005), p. 137.
16. Sam Jones, 'S&P Downgrades Greece', Alphaville (FT blog), 14 January, 2009 http://talphaville.ft.com/blog/2009/01/14/51146/sp-downgrades-greece/.
17. Staff Report for the 2009 Article IV Consultation (Washington DC: IMF, 30 June 2009), http://www.imf.org/external/pubs/ft/scr/2009/cr09244.pdf.
18. Ibid., pp. 20-21.
19. This point about debt-to-GDP ratios is important to remember as Greece's problems spill across its borders and begin to threaten Spain and Portugal. Just because the Iberian countries have much lower stocks of debt, does not mean they will find it any easier to maintain the necessary flows.
20. This story was carried on the AP wire. See, for example, 'Greek Bond Issue Oversubscribed', Straits Times, 26 January 2010, http://www.straitstimes.com/BreakingNews/Money/Story/ STIStory_482136.html.
21. Michael Wilson and Costas Paris, 'Greece's Bond Offer Gets Good Response', Wall Street Journal, 4 March 2010 http://online.wsj.com/article/SB10001424052748704187204575100922786384954.html.
22. 'Greece Treasury Bill Oversubscribed', France 24, 13 April 2010, http://www.france24.com/en/ 20100413-greece-treasury-bill-issue-oversubscribed.
23. See, for example, Paul Krugman, 'A Money Too Far', New York Times, 7 May 2010.
24. This kind of argument was all over the media. For a recent sample, see Harry de Quetteville and Paul Anast, 'Revolution from Greece's Ruins as Crisis Deepens', Telegraph, 1 May 2010, http://www.telegraph.co.uk/news/ worldnews/europe/greece/7664764/Revolution-from-Greeces-ruins-as-crisis-deepens.html.
25. Edmund Conway, 'Most Germans Want Greece Thrown Out of Euro', Telegraph, 14 February 2010, http://www.telegraph.co.uk/finance/currency/7238035/Most-Germans-want-Greece-thrown-out-of-euro. html
26. see also 'Germans say Eurozone May Have to Expel Greece: Poll', Reuters.com 14 February 2010, http://www.reuters.com/article/idUSTRE61D0ZC20100214.
27. See OECD Employment Outlook 2009 (Paris: Organisation for Economic Cooperation and Development) pp. 267, 269. The OECD cautions against making the comparison between total hours worked across countries both because of the differences in how these data are collected and because of treatment of part-time workers.
28. Society at a Glance 2009: OECD Social Indicators (Paris: Organisation for Economic Cooperation and Development, 2009), Table SS6.1. Note that Greek and German women retire at relatively comparable ages: 60.9. and 61 respectively. Once again, however, the Greek women are retiring beyond eligibility for a state pension while the German women are retiring early.
29. OECD Employment Outlook 2009, p. 275.
30. The borrowing data come from the European Central Bank; the net disposable household income data come from the AMECO dataset of the European Commission.
31. The relative real unit labour costs data come from the AMECO dataset of the European Commission. When economists talk about competitiveness, they mean relative prices. Hence a competitiveness problem for economists is an adverse movement in relative prices. By this definition, Greece definitely has a competitiveness problem because prices went up more quickly in Greece than elsewhere. Many thanks to Waltraud Schelkle for driving this point home for me. What is at issue is whether this is really the most meaningful understanding of the term 'competitiveness'. See Paul Krugman, 'Competitiveness: A Dangerous Obsession', Foreign Affairs, vol. 73, no. 2 March-April 1994, pp. 28-44.
32. These real export growth data are calculated using level data from the AMECO dataset of the European Commission.
33. As indicated in the text, these data come from the Direction of Trade Statistics of the IMF.
34. See 'Greek Socialists Win Snap Poll', BBC News, 0 October, http://news.bbc.co.uk/1/hi/8289674.stm.
35. This was the focus for my concern in 'Liberalized Capital Markets, State Autonomy, and European Monetary Union'. For an update on that argument, see Erik Jones, 'Shifting the Focus: The New Political Economy of Global Macroeconomic Imbalances', SAIS Review, vol. 29 no. 2 Summer-Fall 2009 pp.61-73.
36. 'Weinger Stammtisch, mehr Helmut Kohl', Der Spiegel, 1 May 2010, http://www.spiegel.de/politik/deutschland/0,1518,692458,00.html.
37. John Springford, 'Strengthening the Stability and Growth Pact with a Common Eurozone Bond', CentreForum, September, 2009 http://www.centreforum.org/assets/pubs/stability-and-growth.pdf
38. Erik Jones, 'A Eurobond Proposal to Promote Stability and Liquidity while Preventing Moral Hazard', ISPI Policy Brief, No. 180, March 2010, http://www.ispionline.it/it/documents/ PB_180_2010.pdf
39. Jacques Delpla and Jakob von Weizsäcker, 'The Blue Bond Proposal', Bruegel policy brief, May 2010 http://www.bruegel.org/publications/show/publication/theblue-bond-proposal.html.