What has emerged in the public consciousness as a standoff between Greece and Germany is perhaps a sad testament to the good intentions of both parties. Both are sincere, both have right on their side, yet two positions could hardly be different. A Canadian prime minister once said that if his country’s greatest problem was that it had too much geography to hold together without great challenges, Europe’s was that it had too much history. You’re reminded of this whenever you travel through the German countryside, into its villages and across its different regions,and see profound cultural and linguistic differences across short distances. A century-and-a-half after unification, through two World Wars, the collapse of a dynasty and the rise and fall of tyranny, Germans have still been able to find as much to unite as divide them (which perhaps isn’t so surprising when one recalls that Germany was initially cobbled together by over 400 states united by little more than a common written language). Regional accents remains strong, as do some of the stereotypes that Germans from different regions hold of one another. The news differs from one region to the next, as the state broadcaster fragments into the many outlets peculiar to each Land. Still guilt-ridden by their Nazi past, Germans attach themselves to few of the symbols which once drew them together. There is no military tradition to speak of, Germany’s once proud history as a fighting-force being submerged by the shame of the ends to which it was turned under Hitler. The 2014 victory at the World Cup marked an unusual break in that Germans cheered delightedly as their spectacular young talent sliced its way through the opposition and humiliated the host nation Brazil. But normally, this sort of joyous abandon at German triumph is seen by the country’s citizens as a little unseemly.
However, if there is one thing which appears to unite Germans, it’s a belief that they abide by their agreements. Germans looked bemusedly at their southern partners in the European Union, like the Italians and Greeks, who seem to them to take a — shall we say — indulgent view of promises. At heart there may be a cultural difference here: North European attach a great deal of importance to words, whereas southerners attach a good deal of importance to deeds.
This may, in part, stem from different religious histories. The Catholicism of the south believed you entered into contact with God physically, through communion, whereas the Protestantism that swept much of the north in the Reformation held that you did it mentally, in reading the Bible and building your faith. So an Italian, particularly one from the south, underscores what he says by what he does. Amid arguments, even within families, people can exclaim angry rebukes and even threats to life and limb, which are promptly buried beneath a tide of reconciliatory embraces. Harsh words are quickly forgotten, whereas in the north, they can be retained for decades or more. So Italians often treat pledges among one another with a grain of salt, whereas for a German, a word is a bond. Equally, an Italian, especially one from the south, is considerably more likely than a German to regard the law as a friendly suggestion by the state, and to act with discretion as he or she adheres more to the law’s spirit than to its letter.
But that can only be part of it. After all, the Catholics of south Germany are no more tolerant than their northern compatriots of the promises they say the Greeks and Italians have broken. Germans are a people who believe you should do what you say, and always pay your debts. Whether or not they were always like this, their twentieth-century experiences have given them an unusual horror of debt. The destruction of wealth in the 1920s episode with hyper-inflation have given them an almost obsessive preoccupation with macroeconomic stability. Their neighbours and trading partners, few of whom went through the trauma Germany did in the decade after its defeat in World War I, can never quite understand what strikes them as an irrational fixation. When British or American commentators write of the European recession, they most often wonder why on earth the Germans don’t support a policy of massive fiscal stimulus, especially since interest rates are currently so low. Even the Jonny-come-lately decision by the European Central Bank in January of this year to pump money into the economy via quantitative easing was condemned by the German Bundesbank, which until the Euro was created was the institution which set German monetary policy. Now it can only stand by and splutter helplessly. Even though, from the point of view of monetary economics, it makes eminent sense to use monetary policy to keep prices from falling, few Germans can comprehend why anyone in their right mind would want to actually raise inflation.
The Germans favour a different response to Europe’s recession. Early in this century, the country found itself in something of an economic crisis, with unproductive industries whose high costs were rendering them uncompetitive. So Germany bit the bullet. In 2003, Germany started a programme of economic adjustment that it called Agenda 2010. The government cut taxes, slashed pension and unemployment benefits and loosened rules on employment, making it easier to lay off workers or hire them only into part-time jobs. Real wages fell sharply, and today still lie below their 2001 peak. In response, employers were less reluctant to take on workers, employment rose, and the cheaper costs of German firms allowed them to capture new shares in foreign markets. Germany would go on to be one of the world’s leading exporters, with a concentration on manufactured goods — unusual in the developed world, which economists had long been describing as ‘post-industrial.’ Neo-liberalism may have come late to Germany. But when it did, it came hard, and its proponents, no to mention many ordinary Germans, think that their trading partners should take the lessons of their experiences. One can understand their lack of patience when faced with Greeks who, despite having few industries able to export at all, still insist on protecting the wages and benefits of their employees.
Yes, but: there is more to it than that. First off, it’s one thing to restructure during a period when your trading partners are growing healthily. As firms restructure, you can export into swelling markets, and use the added revenue to provide social protection for all the workers who lose their jobs. Germany timed its restructuring well. Being forced to do it when your trading partners are barely buying allows no insurance for the government to look after and retrain unemployed workers. Moreover — and this is something Germans are loth to admit — Germany’s rebound from its earlier stagnation owes something to the profligacy of Greeks, and other Europeans.
The Euro came into being in 2002, shortly before Germany began its restructuring. The timing was extremely fortuitous for German industry. Because the new currency was underwritten by the new European Central Bank, with reserves filled by the coffers of the large companies and especially Germany, it meant that all of the continent would now have a common monetary policy. Previously, Greek bond yields reflected Greek market conditions: spendthrift governments thus had to pay higher rates of interest, since investors didn’t have full confidence they wouldn’t one day default on their debts. Now, since investors received a wink and nod from the new Frankfurt-based central bank, telling them that the Eurozone would pool its resources to defend its currency if need be, Greek bonds were regarded as little more risky than German ones. It was assumed — recent experience suggests correctly — that if the Greek government ran into any difficulty, other European governments and the central bank would run to its rescue, then look after the clean-up, leaving investors with all their money.
Given Greece’s recent history, that was like offering free beer to an alcoholic. Needless to say, the government went on a spending spree, selling bonds at German rates of interest, but spending like, well, like Greeks. Of course, that is what incenses Germans: Greeks partied hard, now they have a hangover, so it’s their problem. But of course, when they were partying, they were snapping up lots of German goods. As a friend of mine in Athens says, Greeks may not like Germans, but they sure do like their cars. In no small measure, the rebound of Germany was due to the fact that southern Europeans didn’t do as the Germans did. When Germany needed them to hit the malls, they complied, choosing not to behave like the proverbial Swabian housewife — the model of frugality which Germans now hold up as an example to their partners.
Yes, there’s a lot we can all learn from the Germans. But if Germans really want others to do as they did, they should also try reversing roles themselves. If they insist on holding Greek feet to the fire, let them at least offer to go on a spending spree, snapping up as many Greek and Italian and French exports as they can get their hands on. Unfortunately, though, it seems that Germany is too wedded to its beloved image of the Swabian housewife to give up the model they have come to cherish.