Every country in the Eurozone has its own collection of big fat lies that politicians and eurocrats have served up in order to make the euro and the subsequent bailouts or austerity measures less unappetizing. Here are some from the German point of view, gleaned from the Wirtschafts Woche.
1999: “Can Germany be held liable for the debts of other countries? A very clear No!” said a multi-colored piece of propaganda issued by the CDU, the party of Helmut Kohl who was Chancellor at the time, and of Angela Merkel who is Chancellor now. It explained: “The Maastricht treaty forbids explicitly that the EU or the other EU Partners are liable for the debts of any Member State.” Sounds like a bad joke today.
But fear not: because of the 3% deficit limit in the Maastricht Treaty, “euro Member States will therefore be able to service their debts over the long term without any problems.” Thus, the big fat euro lies started before bank notes had even been put into circulation.
January 2001: “This money will have a great future,” said Kohl during a speech celebrating the introduction of the euro that he’d pushed through with all his corpulence. For a while, it worked. Euros were growing on trees. Even Greece had access to cheap euro debt with which to buy votes and fund the Olympics. Everyone was happy. Until it didn’t work anymore.
March 2010: “I’m solidly convinced that Greece will never have to use this aid because the Greek austerity program is credible to the highest extent,” said Euro Group President Jean-Claude Juncker. He was trying to get disbelievers to believe that Greece could and would cut spending and raise taxes enough to bring its deficit under control without actually needing the bailout funds. Hysterical! Turns out, Greek politicians would say anything to get their hands on new money.
July 2010: “The bailout funds will expire. That, we have agreed on,” said German Finance Minister Wolfgang Schäuble. But now the big save-the-euro ESM bailout fund is being bolted together, and it’s a “permanent” bailout fund.
February 2011: “Italy is not a country at risk,” said former vice chairman and managing director of Goldman Sachs, Mario Draghi, at the time Governor of the Bank of Italy and member of the Governing Council of the ECB.
A year and a half later, Italian yields were in the stratosphere. Investors doubted if the country could fund its deficits or roll over its maturing debt. “Country at risk” had become an understatement. Draghi, by then promoted to President of the ECB, announced that the ECB would buy “unlimited” amounts of sovereign debt to bail out countries like, well, Italy.
March 2011: “We will pay back every penny,” said Greek Prime Minister George Papandreou. He wanted to reassure the restive German taxpayer. A year later, a 70% haircut was forced on private sector creditors, such as German banks, including Hypo Real Estate, a failed bank that the German government had nationalized during the financial crisis. And the German taxpayer got a haircut.
Now a much larger haircut is in the works, this time for the official sector, such as the ECB, that holds most of the Greek debt. The IMF has been pushing for it, against stiff resistance. But suddenly Merkel said today that it could happen by 2014.
March 2011: “We cannot lower yields artificially so to speak,” Merkel said even though the ECB—along with just about every other central bank in the world—has been forcing them down to absurdly low levels.
March 2011: “Germany can use its veto power if the conditions for aid are not fulfilled—and I will use it,” Merkel said to bamboozle a disgruntled public into swallowing the first bailout of Greece, or rather of German banks in whose closets this Greek debt was decomposing.
During a period of not fulfilling the conditions, Greece continued to receive money, and when that wasn’t enough, a second bailout. Some payments were delayed—not vetoed. The old unmet conditions have been replaced with new conditions. Goals have been kicked further down the road. And money will soon flow again.
August 2011: “The idea that we in Europe have a liquidity problem is completely wrong,” said ECB President Jean-Claude Trichet. In December 2011, his successor, Mario Draghi, flooded the land with the huge Long Term Liquidity Program (LTRO), followed by another one in March 2012. Combined, they handed banks €1 trillion in ultra-cheap money for three years. OK, maybe Europe didn’t have a liquidity problem. But then why the LTRO? One of the two guys was lying.
January 2012: “Spain will reach its deficit goal of 4.4%,” Spanish Prime Minister Mariano Rajoy told his incredulous listeners. Since then, the goal has been revised to 6.3%. And then Rajoy admitted that even 6.3% may be unachievable. In the same vein, through July, he reassured the world that Spain would not need a bailout. Days later, it needed a €100 billion bailout, just for its banks.