Germany's smear campaign against Greece

By Ambrose Evans-Pritchard Economics Last updated: February 16th, 2012

Greece is burning, and Germany is stoking the flames

Germany’s Wolfgang Schäuble is entering into ever more dangerous waters.

His apparent demand that Greece postpone elections scheduled for April, and impose a technocrat junta (a l’Italiana) for another year without PASOK and New Democracy, takes your breath away. Is this really the position of the German government? Greek democracy be damned?

I presume he has seen pictures of the blackened buildings below the Acropolis – and yes, the evidence is everywhere: a neo-classical house near my hotel at Monastiraki metro station was completely gutted, as was a building across the road. (There were four homeless sleeping in the cold alley next door, being comforted by a young volunteer.)

I presume too that Mr Schäuble has been well-briefed on the explosive political mood in Greece, so one can only view such a demarche as deliberate provocation – like the Austrian ultimatum to Serbia in 1914 (a miscalculation, as it later turned out, since "contagion" from Serbia could not be contained).

"Who is Mr Schäuble to insult Greece? Who are the Dutch? Who are the Finns?" retorted President Karolous Papoulias, himself a teenage resister against the Wehrmacht in Epirus almost seventy years ago – though he later took political asylum in Germany from the Greek junta and worked for Deutsche Welle.

"We always had the pride to defend not just our own freedom, not just our own country, but the freedom of all Europe."

It is clear that Berlin, Helsinki, and the Hague have taken the decision to eject Greece from the euro whatever the country now does. Even if Greece complies to the letter with the impossible terms of the EU-IMF Troika, it will not make any difference. A fresh pretext will be found.

"There are some who don’t want us in the eurozone any more," said Evangelos Venizelos, the Greek finance minister. "They are playing with fire."

Indeed they are. Kostas Kiltidis, a Macedonian MP from the orthodox LAOS party, could hardly contain his fury when we had coffee in the members’ hall of the Greek parliament.

"You answer war with war. We are the cradle of European civilization and nobody can take us out of our own home. There is no legal mechanism for this. If they try, others are going to die economically with us."

"We know our country will have to live in poverty if the worst happens, but at least we will be proud."

We can have an honest argument about the level of Greek compliance with Troika demands. The country is exasperating, of course – but that was the case long ago, when EU officials gave Greece a clean bill of health for EMU membership, and six years ago when Brussels was still writing glowing reports on Greek progress.

But what is compliance? Michael Theodorou, head of the Evangelismos public hospital in Athens, told me that his budget had fallen from €149m in 2009 to €112m last year, even though the number of patients had risen from 82,000 to 99,700, due to the reliance of the newly pauperised middle class on public health as they lose their private insurance.

This was achieved by slashing drug costs – switching to generics – and cutting the salary of nurses to the bone. "We have re-engineered the hospital," he said.

The aggregate salary cut in Greece since the crisis began is 30pc (including all the quirky bonuses and extras). And no, it is not true that pensions are 97pc of previous income, the highest in Europe. That is a Wagnerian myth, much propagated by Bild Zeitung. The pensions are calculated off the "base salary", which is only half actual earnings.

The single greatest cause of the missed budget targets is the collapse of the Greek economy. GDP contracted 6.8pc last year, accelerating to a 7pc rate in the last quarter. That is the main reason why tax revenues have fallen off a cliff.

The Greek Labour Institute – uncannily accurate until now – expects to the economy to contract by another 7pc this year. This will take the combined slump to 22pc. Debt is compounding exponentially on a shrinking base.

I notice that failure to meet the privatisation schedule of €5bn by the end of 2011 and €50bn by 2015 is widely cited as an egregious case of Greek foot-dragging. But how on earth is Costas Mitropoulos from the Hellenic Republic Assets Development Fund supposed to attract buyers until the threat of Greek default and euro exit – or "Grexit", in the jargon – is taken off the table?

"The criticisms are totally unfair," he told me, in his tiny office overlooking at the statue of Kolokotroni – the Kleftis leader and hero of Greek independence against the Ottomans. "Investors are not prepared to commit funds until uncertainty is down to manageable and hedgeable levels."

Half the assets are Greek property. They cannot be dumped simultaneously on the market without causing a further crash in prices. Mr Mitroupoulis said the Troika had agreed to stretch out the process. The target is now €19bn by 2015.

All the money is paid into a special account for foreign debt repayment. Not one penny goes to the Greek budget.

In my view, the original Troika demand was off the wall. There is no precedent anywhere in the world for the privatisation blitz imposed on Greece. The German Treuhand disposal of DDR assets after reunification is the closest parallel, but even that took twelve years.

The Treuhand money at least stayed inside Germany. It was not seized by foreigners. But that did not prevent the assassination of manager Detlev Rohwedder by radicals, probably the Red Army Faction.

"The Treuhand manager was shot dead," said Mr Mitropoulos wistfully, gazing out at Kolokotroni.

Difficult times. Do not make it harder, Herr Schäuble.

Germany's smear campaign against Greece – Telegraph Blogs