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Analysis
France shifts the blame to Berlin

France shifts the blame to Berlin

Authors of Greek tragedy are French, not German

by Shumpei Takemori in Tokyo

Thu 16 Jul 2015

At the high point of the weekend wrangling over Greek debt, Wolfgang Schäuble, the German finance minister, made public a memorandum suggesting a minimum five year ‘time out’ for Greek membership of economic and monetary union. Germany has also made clear its responsibility for the proposed trust fund for to-be-privatised Greek assets – the harshest condition in the New Greek deal that was reluctantly approved by the Athens parliament in the early hours of this morning.

After Schäuble’s proposals were circulated, I was shocked at the escalation of tension between Germany and France. The Paris government came to Athens’ rescue at the last moment by suggesting, along with the International Monetary Fund, that Greece should benefit from creditors agreeing a debt write-down.

I have from time to time entertained the idea of EMU breaking up, but I never had a clear idea of how it could happen. Now, thanks to the weekend developments, I get the picture.
But this is not all. Paul Krugman, the US economist and habitual critic of Germany, exceeded his normal standard of violent language by attacking Germany for ‘breaking down the European Union’. At the same time, on the blogsite ‘this is a coup’, which is well-known in Japan, there are now calls to boycott German products.

To be fair, I think that the authors of the Greek tragedy are French rather than German. We have to remember that the idea of the euro was promoted above all by President François Mitterrand, and that France gave a warmer welcome than Germany to Greek membership of EMU. French banks had by far the largest exposure to Greek government bonds in 2009.

We must recognise, too, that the sensible suggestion of writing down privately-held Greek government debt was made at the outset of the Greek rescue operation in 2010. The IMF proposed this, and Chancellor Angela Merkel basically accepted it. But it did not come about because on the French side, in particular, two key players vehemently opposed it. One was Christine Lagarde, now IMF managing director, then French finance minister. The other was Jean-Claude Trichet, then European Central Bank president.

France made a misjudgement. Yet if Greece ever left EMU, France would lose face totally. Quite probably, as a result of these episodes, we won’t see another French managing director of the IMF for another 50 years. We anyway must doubt the wisdom of a European leading the Fund, as has been the case since it started 70 years ago. In particular, the Japanese government should push for a Japanese MD; we have an excellent candidate in the shape of Prof. Takatoshi Ito of Columbia University.

There have been some fascinating shifts in the Paris-Berlin relationship. In the past, German chancellors have wisely stood behind French presidents to avoid the image of German dominance. Merkel may revert back to this tradition in future. In the case of Greece, President François Hollande, with typical French astuteness, gave backing to Greece at a crucial moment. He simultaneously shifted the blame for the Greek tragedy from France to Germany, and mounted a bid to reclaim European leadership.

A final note: Greece has missed its debt repayments to the IMF, but has just paid back in full the smaller amounts owed from its Japanese Samurai bonds. Perhaps this is a sign that the Greeks, fed up with perennial European conflicts, now long to become Japanese.

Prof. Shumpei Takemori, Professor of Economics at Keio University, is a member of the OMFIF Advisory Board.

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