I have arrived about three minutes late, but the German deputy minister of finance runs a full five minutes later, which, I will learn, is viewed by Germans almost as a felony. He apologizes a great deal more than he needs to for the delay. He wears the slender framed spectacles of a German film director, and is extremely fit and bald, but by choice rather than circumstance. Extremely fit white men who shave their heads are making a statement, in my experience of them. “I don’t need body fat and I don’t need hair,” they seem to be saying, while also implying that anyone who does is a wuss. The deputy finance minister even laughs just as all extremely fit men with shaved heads should laugh, if they want to remain in character. Instead of opening his mouth to allow the air to pass, he purses his lips and snorts the sound out through his nose. He may need laughter as much as other men, but he needs less air to laugh with. His desk is a template of self-discipline. Alive with implied activity—legal pads, Post-it notes, manila folders—every single object on it is perfectly aligned with all the others and with the edges of the desk. Every angle is precisely ninety degrees. But the most striking optional décor is a big white sign on the wall beside the desk. It’s in German but translates easily back into the original English:
THE SECRET OF SUCCESS IS TO UNDERSTAND THE POINT OF VIEW OF OTHERS.
This surprises me. It’s not at all what an extremely fit bald man should have as his mantra. It’s soft. The deputy German finance minister further disturbs my wild assumptions about him by speaking clearly, even recklessly, about subjects most finance ministers assume it is their job to obscure. He offers up, without much prompting, that he has just finished reading the latest unpublished report by IMF investigators on the progress made by the Greek government in reforming itself. “They have not implemented the measures they have promised to implement,” he says simply. “They are not making the agreed-upon reforms.”
“The people at the IMF put it that clearly?” I ask.
He turns to page seven of the IMF report, where it recommends not giving the Greeks the next tranche of the money the government needs to avoid defaulting on its bonds. “They have a massive problem still with revenue collection. Not the tax law itself. It’s the collection which needs to be overhauled.”
The Greeks are still refusing to pay their taxes, in other words. But it is only one of many Greek sins. “Their labor market isn’t changing as it needs to.” I ask him for an example. “They had very clearly as a tradition a thirteenth or fourteenth monthly salary,” he says instantly. “Due to developments in the last ten years, a similar [civil service] job in Germany pays fifty-five thousand euros. In Greece is it seventy thousand.” To get around pay restraints in the calendar year, the Greek government simply paid employees for months that didn’t exist. “They need to change the relationship of the people to the government,” he continues. “It is not a task that can be done in three months.” Changing the relationship between any people and its government, he added, was not a trivial matter. The Greeks needed to change their culture. He couldn’t have put this more bluntly: if the Greeks and the Germans were to coexist in a currency union, the Greeks needed to change who they are.
This is unlikely to happen soon enough to matter. The Greeks not only have massive debts but are still running big deficits. Trapped by an artificially strong currency, they cannot turn these deficits into surpluses, even if they do everything outsiders want them to do. Their exports, priced in euros, remain expensive. The German government wants the Greeks to slash the size of their government, but that will also slow economic growth and reduce tax revenues. And so one of two things must happen. Either the Germans must agree to integrate Europe fiscally, so that Germany and Greece bear the same relationship to each other as, say, Indiana and Mississippi—the tax dollars of ordinary Germans would go into a common coffer and be used to pay for the lifestyle of ordinary Greeks—or the Greeks (and probably, eventually, every non-German) must introduce “structural reform,” a euphemism for magically and radically transforming themselves into a people as efficient and productive as the Germans. The first solution is pleasant for Greeks but painful for Germans. The second solution is pleasant for Germans but painful, possibly even suicidal, for Greeks.
The only economically plausible scenario is that the Germans, with a bit of help from a rapidly shrinking population of solvent European countries, suck it up, work harder, and pay for everyone else. But what is economically plausible appears to be politically unacceptable. The German people all know at least one fact about the euro: that before they agreed to trade in their deutsche marks their leaders promised them, explicitly, they would never be required to bail out other countries. The rule was created with the founding of the European Central Bank and was violated in 2010. Public opinion turns more against the violation every day—so much so that Chancellor Angela Merkel, who has a reputation for reading the public mood, hasn’t even bothered to try to go before the German people to persuade them that it might be in their interest to help the Greeks.
That is why Europe’s money problems feel not just problematic but intractable. It’s why Greeks are now mailing bombs to Merkel, and thugs in Berlin are hurling stones through the windows of the Greek consulate. And it’s why European leaders have done nothing but delay the inevitable reckoning, by scrambling every few months to find cash to plug the ever growing holes in Greece, Ireland, and Portugal, and praying that bigger and more alarming holes in Spain, Italy, and even France do not reveal themselves.
Until now the European Central Bank, in Frankfurt, has been the main source of this cash. The ECB was designed to behave with the same discipline as the Bundesbank but has been redesigned by the financial crisis into something else. Already, it has bought, outright, something like $80 billion in Greek and Irish and Portuguese government bonds, and lent another $450 billion or so to various European governments and European banks, accepting virtually any collateral, including Greek government bonds. But the ECB has a rule—and the Germans think the rule very important—that they cannot accept as collateral bonds classified by the U.S. rating agencies as in default. Given that the ECB once had a rule against buying bonds outright in the open market, and another rule against government bailouts, it’s a little odd that they have gotten so hung up on this technicality. But they have. If Greece defaults on its debt, the ECB not only will lose a pile on its holdings of Greek bonds but must return the bonds to the European banks, and the European banks must fork over $450 billion in cash. The ECB itself might face insolvency, which would mean turning for funds to its solvent member governments, led by Germany. (The senior official at the Bundesbank told me they have already thought about how to deal with the request. “We have thirty-four hundred tons of gold,” he said. “We are the only country that has not sold its original allotment [from the late 1940s]. So we are covered to some extent.”)
The bigger problem with a Greek default is that it might well force other European countries and their banks themselves into default. At the very least it would create panic and confusion in the market for both sovereign and bank debt, at a time when a lot of banks and at least two big European debt-ridden countries, Italy and Spain, cannot afford panic and confusion.
At the bottom of this unholy mess, from the point of view of the German Finance Ministry, is the unwillingness, or inability, of the Greeks to change their behavior. That was what the currency union always implied: entire peoples had to change their way of life. Conceived as a tool for integrating Germany with Europe, and preventing the Germans from dominating others, the euro had become the opposite. For better or worse, the Germans now control the financial fate of Europe. If the rest of Europe was to continue to enjoy the benefits of what was essentially a German currency they’d need to become more German. And so, once again, all sorts of people who would rather not think about what it means to be “German” are compelled to do so.