Thursday, February 19, 2015

What Germany Owes Greece

By Clive Crook February 19, 2015

How much does it matter, if at all, that Greece's demand for a new bailout program with softer terms is being pressed by a new government, elected for that very purpose -- a government that retains solid support even as its standoff with other European Union governments drags on? How much does democracy matter in a situation like this?

In a column for Project Syndicate earlier this month, Joseph Stiglitz, Nobel laureate and professor of economics at Columbia, said it mattered a lot:

If Europe says no to Greek voters' demand for a change of course, it is saying that democracy is of no importance, at least when it comes to economics.

The Economist disagreed. Greek voters may want debt restructuring and fiscal relaxation, it said -- but what about voters in Germany and the rest of the euro area? Their opinions count too, and there are more of them. If democracy matters, maybe  majority opinion across the EU ought to decide. Jacob Funk Kirkegaard of the Peterson Institute agreed and went further. Pooling of economic sovereignty within the euro area isn't consistent with the notion of an overriding national mandate:

It is unrealistic for Greece to claim that its voters trump voters in other countries. Indeed, inside a currency union where no member is fully sovereign, it is inherently impossible for any newly elected government to claim that their new electoral mandate trumps everything else.

One more thing: Plain facts (as opposed to political choices) don't lend themselves to adjudication by popular vote. The mathematical requirements of national solvency, for instance, can't be repealed because voters don't like them. Voting that the moon is made of cheese won't make it so.

All these objections to what Stiglitz said are correct. The rest of the euro area is within its rights to say no to Greece, and that wouldn't constitute a repudiation of democratic principles. Even so, a crucial point is being missed: A minimum requirement for a well-functioning democracy is that its leaders respect the people they represent.

Suppose for the moment that Greece's demands are unreasonable or impossible to grant, so that it does make sense for the other countries to say no. In that case, the manner of the refusal would still matter. A well-founded rejection would indeed be a repudiation of democratic principles if it expressed contempt for Greek voters. And that is what we've witnessed.

The German government has shown scant regard for Greek citizens. But isn't the other side of pooling of sovereignty that Germany's leaders should have a duty of care and respect to non-Germans? Countries that are uncomfortable with that requirement should perhaps have thought twice about building -- then vastly expanding -- the EU in the first place.

Electorates all over the EU are fed up with the union's developing system of governance. Fixing that will be difficult, and may require strengthening the lines of accountability that run from national governments to their respective national voters. Nonetheless, in a well-run EU, governments acting in concert would strive to represent the collective interests of all the members' citizens. Otherwise, what's the point?

Europe's collective response to Greece's terrible economic plight has been unsympathetic, even punitive. Dismissing the protests of Greek voters out of hand -- the prevailing sentiment of late -- undermines the solidarity that the union must have to survive and prosper.

Greece's proposals, as it happens, are mostly reasonable. Acceding to most of them would actually serve Europe's broader economic interests. But even if that weren't the case, and Germany and its supporters were right not to budge, their refusal should be cleansed of disdain for a nation that's already suffered inordinately and is being asked to suffer some more.

The Greek election did matter. Conveying the impression that it didn't was a gross misjudgement.

What Germany Owes Greece - Bloomberg View