It is never easy to wake up to the news that your country’s business model is busted. Greeks know this feeling. We experienced it in our bones in early 2010. Today, it is the Germans who are facing a wall of antipathy.
Ironic as it may seem, no Europeans are better placed than the Greeks to understand that the Germans deserve better; that their current predicament is the result of our collective, European failure; and that no one — least of all the long-suffering Greeks, southern Italians, Spaniards, and Portuguese — benefits from Schadenfreude.
The tables have been turned on Germany because its economic model relied on repressed wages, cheap Russian gas, and excellence in mid-tech mechanical engineering — particularly manufacturing cars with internal combustion engines.
This resulted in massive trade surpluses during four distinct post-World War II phases: under the US-led Bretton Woods system, which provided fixed exchange rates and market access to Europe, Asia, and the Americas; then, after the collapse of Bretton Woods, when the single European market proved highly lucrative for German exports; again following the introduction of the euro, when vendor financing opened the floodgates for both goods and capital flowing from Germany to Europe’s periphery; and, finally, when China’s appetite for intermediate and final manufacturing products took up the slack after the euro crisis dampened demand for German goods in southern Europe.
Ultra-low interest rates
Germans are now slowly coming to terms with the demise of their economic model: Fiscal surpluses were not prudence in action, but rather a monumental failure, during the long years of ultra-low interest rates, to invest in clean energy, critical infrastructure, and the two crucial technologies of the future: batteries and artificial intelligence. Germany’s dependence on Russian gas and Chinese demand was not sustainable in the long term.
The claim that the German model was compatible with Europe’s monetary union is also being exposed as false. Lacking a fiscal and a political union, the EU was always going to saddle banks, and corporations with unpayable debts, which eventually would force the European Central Bank to choose between letting the euro die and embarking upon a permanent bankruptcy-concealment project.
Germans are realising this today as they observe a hamstrung ECB. While it never should have been the ECB’s job to save the euro from its flawed foundations, Germans can see that their politicians were not correct when they said their economic model could survive the 2008 crisis as long as other Eurozone countries practised enough austerity.
Once upon a time, those of us who criticised the notion that every Eurozone country should become like Germany objected that the German model worked only because no one else had adopted it. Today, with the end of cheap gas and America’s new cold war with China, the German model is kaput even for Germany. Yes, German exports will rebound, aided by the low value of the euro.
Volkswagen will sell a lot more electric cars once supply chains are restored. BASF will bounce back, once energy supplies are secured. What will not return is the German model: A large chunk of Volkswagen’s revenues will go to elsewhere, whence the battery technologies come, and mountains of value will shift from the chemical industry to AI-related sectors.
My message to German friends is simple: Quit mourning. Cut through the denial, anger, bargaining and start designing a new economic model. You still have enough sovereignty to do so without the permission of creditors.
If you do not want to go back to the Deutsche mark, you need a model embedded within a full-fledged, democratic European federation.
Project Syndicate
Yanis Varoufakis, a former finance minister of Greece, is leader of the MeRA25 party and Professor of Economics at the University of Athens
