The economics minister Philip Roesler gave a weekend interview in which he opined that he was sceptical that Greece could meet its reform requirements, that no further money should flow if it didnt, and that Greek exit no longer threatened collateral damage. Bad enough already, the Spiegel captioned its report on the interview: “Roesler expects Athens to leave the euro soon”.
The troika will visit Greece from tomorrow and is set to report at the end of August. The timescale is due both to the technical complexity of drawing up such a report and – probably more importantly – because of the time it will take for the European Stability Mechanism to be up and running. (This not least because the German Constitutional Court has decided that it needs several months to decide whether it thinks the ESM is kosher or not. But that is of course thoroughness, not sluggishness.) But concerns that it might be a good idea to have the insurance system in place before starting fires doesn’t stop Rainer Bruederle, Roesler’s predecessor, from calling for the troika report to be issued much earlier.
This of course is pure political cant. The reform program is a medium and longer-term issue, as is fiscal consolidation (at least if it is pursued sensibly). It is not a question of a few weeks. And to force the issue before the ESM is in place is mind-boggingly stupid. Unless of course you just want Greece out for political reasons and don’t care who gets hit by the fall-out.
Unfortunately it is not just the FDP. Peer Steinbrueck, former finance minister, and possibly the SPD’s Kanzlerkandidat at the next election, has been musing in public along similar lines: it won’t be possible to keep everyone in, but the euro will survive. As I and others have repeatedly argued, it is a dangerous phantasy to believe, in the case of the euro, that a small tumour can be surgically removed leaving behind a otherwise healthy body. That arguably the most important voice within the SPD on economic policy matters is taking this line is worrying in the extreme.
Perhaps the worse recent example of the pernicious influence of the media is, however, where the Handelsblatt claims that the Bundesbank, too, is putting into question the size of the euro area. What the Bundesbank actually says (auf deutsch hier; an English version will probably be available but not for some time) is that all the current members are, in principle, structurally suited to being in the euro, or at least there are no structural arguments that suggest that any member would be better off with a different exchange rate regime. It then – rightly – says that such structural suitability on the part of each member state is not enough to ensure that the monetary union functions. This is true, but the Handelsblatt twists the Buba’s words to make it sound like it is recommending Greek exit. Perhaps one can criticise the Bundesbank excessive naivety in publishing this essay at this time, but Handelsblatt is guilty of throwing oil on a fire of already worrying proportions.
Decent journalists would, rather, have picked on the Buba piece to make a very different point or at least ask a different question. What exactly are the conditions that are needed to ensure the correct functioning of monetary union? Shouldn’t a country have to be institutionally in a position to control destabilising capital flows? And what about wage policy? Like other central banks the Bundesbank tends to believe in decentralised wage setting. But the crisis has shown that coordinated wage bargaining, if appropriately used in both surplus and deficit countries, would have been an important, and arguably indispensable tool to ensure the stability of monetary union.