Germany’s Moral Obligation to Greece

Let the country that is without economic sin throw the first stone. Polls and media accounts, as well as reports from expert forums, suggest that Germans see a moral argument for subjecting Greece to greater austerity and withholding forgiveness of its debts. It’s a simple sentiment: Greece behaved badly, lived beyond its means, and must now pay. But here’s the secret hiding in plain sight: Germany did exactly the same thing.

I’m not talking about Germany’s inability to pay its debts and reparations after the two World Wars. I’m talking about the euro itself, which has allowed Germans to enjoy standards of living which they would not otherwise have been entitled — with the rest of the eurozone footing the bill.

Germany’s success as an exporter in recent years has relied on two enormous changes. One is reunification, which instantly brought millions of low-wage workers into its economy — the equivalent of the United States annexing Mexico, if all Mexicans already spoke English and shared American customs at work and at home. The other is the euro, which took perhaps the world’s strongest currency, the deutsche mark, and diluted it with the weaker currencies of the rest of the eurozone.

Low wages and a devalued currency can turn any economy, especially one with tariff-free access to hundreds of millions of consumers, into an exporting powerhouse. And let me be clear — this only happened because of the weakness of other members of the eurozone. Moreover, none of it was any surprise to anyone, least of all Germany; experts had been predicting the dilution of the deutsche mark by weaker currencies from southern Europe for years before the launch of the euro.

Countries have weak currencies when no one wants to buy their products and securities, which often happens when economic uncertainty is rife, or when expectations for inflation are high. Greece was one of the countries that brought these potential negatives into the eurozone. By doing so, it pulled down the value of the euro. If Greece’s economy and its counterparts had all been as stable as Germany’s, then the euro would have remained just as strong as the deutsche mark. But they weren’t, and it didn’t.

Just as Germany got a weaker currency, other countries in the eurozone got a stronger one. That helped many of them to raise their living standards by buying more imports, building their savings, and, yes, using capital markets to raise money for both businesses and government spending. Yet their ability to export was also curtailed. Not only did their new currency make their products more expensive to foreigners; they would also have to compete with Germany, the continent’s biggest economy, which had suddenly become more competitive than ever.

I’m not the first commentator to identify these “beggar-thy-neighbor” aspects of the euro for Germany. But I do question whether exploiting smaller and generally poorer nations for the sake of economic growth is any better, from a moral perspective, than failing to pay one’s debts.

Of course, there are also plenty of Germans who don’t make the moral argument. To them, it’s a matter of incentives: Greece has to have its feet held to the fire so that it never misbehaves again, and so that all the other members of the eurozone think twice before getting into fiscal trouble. Not to punish Greece would be to encourage risk-taking by other governments, with similarly disastrous results for the euro.

Ironically, economists call this dynamic “moral hazard.” And it’s something Germany knows all about already. In 2005, after exceeding the European Union’s limits on government deficits and public debt for two years, it fought to weaken the rules that were intended to impose fiscal discipline. In fact, Germany failed to stay within the fiscal bounds set by the union’s Stability and Growth Pact several times, both before and after the rule changes, and it never paid any penalties; each time, it just got off with a warning. That sounds a lot like moral hazard to me.

By contrast, Greece has paid an enormous penalty for its fiscal profligacy. It’s hard to believe that any government — or its constituents — would deliberately want to risk all the suffering that Greece has already endured. Its economy has shrunk by a quarter since 2008, 40 percent of children are now in poverty, and its most talented young people are leaving in droves. Indeed, if Greece has already been punished enough to create the right incentives for itself and other countries in the future, then there is no economic reason to punish it more. To do so would be, at least to me, immoral. The European Central Bank apparently agrees; it released 900 million euros in new aid to Greek banks today, and its president, Mario Draghi, said he expected Greece to stay in the eurozone.

I’d argue that morality obliges Germany, more than any other member of the eurozone, to shoulder the burden of Greece’s unpayable debts. Who benefited the most from Greece’s membership in the eurozone? Germany, the currency union’s biggest exporter. Who flouted most frequently the rules that were supposed to keep countries like Greece in line? Germany, at least six times since the euro was born. And who is now insisting that Greece pay up, just to obey the system that created this crisis in the first place? I think you know the answer.

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