Why is Germany so tough on Greece? Look back 25 years.

Every drama needs a great baddie, and in the latest act of the Greek crisis Wolfgang Schäuble, the 72-year-old German finance minister, has emerged as the standout villain: critics see him as a ruthless technocrat who strong-armed an entire country and now plans to strip it of its assets.

Wolfgang Schäuble: ‘an ordinary politician repeating old mistakes’.One part of the bailout deal in particular has scandalised many Europeans: the proposed creation of a fund designated to cherrypick €50bn (£35bn) worth of Greek public assets and privatise them to pay the country’s debts. But the key to understanding Germany’s strategy is that for Schäuble there is nothing new about any of this.

It was 25 years ago, during the summer of 1990, that Schäuble led the West German delegation negotiating the terms of the unification with formerly communist East Germany. A doctor of law, he was West Germany’s interior minister and one of Chancellor Helmut Kohl’s closest advisers, the go-to guy whenever things got tricky.

The situation in the former GDR was not too dissimilar from that in Greece when Syriza swept to power: East Germans had just held their first free elections in history, only months after the Berlin Wall fell, and some of the delegates from East Berlin dreamed of a new political system, a “third way” between the west’s market economy and the east’s socialist system – while also having no idea how to pay the bills anymore.

The West Germans, on the other side of the table, had the momentum, the money and a plan: everything the state of East Germany owned was to be absorbed by the West German system and then quickly sold to private investors to recoup some of the money East Germany would need in the coming years. In other words: Schäuble and his team wanted collateral

At that time almost every former communist company, shop or petrol station was owned by the Treuhand, or trust agency – an institution originally thought up by a handful of East German dissidents to stop state-run firms from being sold to West German banks and companies by corrupt communist cadres. The Treuhand’s mission: to turn all the big conglomerates, companies and tiny shops into private firms, so they could be part of a market economy.

Schäuble and his team didn’t care that the dissidents had planned to hand out shares of companies to the East Germans, issued by the Treuhand – a concept that incidentally led to the rise of the oligarchs in Russia. But they liked the idea of a trust fund because it operated outside the government: while technically overseen by the finance ministry, it was publicly perceived as an independent agency. Even before Germany merged into a single state in October 1990, the Treuhand was firmly in West German hands.

Their aim was to privatise as many companies as possible, as soon as possible – and if you were to ask most Germans about the Treuhand today they would say it achieved that objective. It didn’t do so in a way that was popular with the people of East Germany, where the Treuhand quickly became known as the ugly face of capitalism. It did a horrible job in explaining the transformation to shellshocked East Germans who felt overpowered by this strange new agency. To make matters worse, the Treuhand became a hotbed of corruption.

The agency took all the blame for the bleak situation in East Germany. Kohl and Schäuble’s party, the conservative CDU, was re-elected for years to come, while others paid the price: one of the Treuhand’s presidents, Detlev Karsten Rohwedder, was shot and killed by leftwing terrorists. (Schäuble too became the victim of an attack that left him permanently in a wheelchair, only days after German reunification – but his paranoid attacker’s motives were unrelated to the political events)

But the reality of what the Treuhand did is different from the popular perception – and that should be a warning for both Schäuble and the rest of Europe. Selling East Germany’s assets for maximum profit turned out to be more difficult than imagined. Almost all assets of real value – the banks, the energy sector – had already been snapped up by West German companies. Within days of the introduction of the West German mark, the economy in the east completely broke down. Like Greece, it required a massive bailout programme organised by Schäuble’s government, but in secret: they set aside 100bn marks (£35bn) to keep the old East German economy afloat, a figure that became public only years later.

With prices for labour and supplies going through the roof, the already stressed East Germany economy went into freefall and the Treuhand had no chance to sell many of its businesses. After a couple of months it started to close down entire companies, firing thousands of workers. In the end the Treuhand didn’t make any money for the German government at all: it took in a mere €34bn for all the companies in the east combined, losing €105bn.

Wolfgang Schäuble led the West German delegation negotiating the terms of the unification with formerly communist East Germany.

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 Wolfgang Schäuble led the West German delegation negotiating the terms of the unification with formerly communist East Germany. Photograph: Lionel Cironneau/AP  What the Treuhand did should be a warning for Schäuble and Europe: the economy in East Germany completely broke down

In reality, the Treuhand became not just a tool for privatisation but a quasi-socialist holding company. It lost billions of marks because it went on paying the wages of many workers in the east and kept some unviable factories alive – a positive aspect usually drowned out in the vilifications of the agency. Because Kohl and, during the summer of 1990, Schäuble weren’t Chicago economists keen on radical experiments but politicians who wanted to be re-elected, they pumped millions into a failing economy. This is where parallels with Greece end: there were political limits to the austerity a government could impose on its own people.

The lesson Schäuble learned – and which is likely to influence his decision-making now – is that if you act the pure-hearted neoliberal you can still get away with decisions that don’t make perfect economic sense. If Schäuble is acting tough with Greece right now, it is because his electorate wants him to act that way; it’s not just that he doesn’t care about the Greek people, he wants people to believe he doesn’t care, because he sees the political advantage in it.

But Schäuble should have learned from history that the Treuhand gamble had catastrophic psychological consequences. Even though the agency was run by Germans, who spoke German, still it was seen by many in the east as an occupying force.

Schäuble’s idea of foreign countries controlling Greek assets and moving them abroad is an even more humiliating concept for any country. Schäuble comes across as a tough and sober accountant. In fact he is just an ordinary politician repeating old mistakes.

 

sourse:Why is Germany so tough on Greece? Look back 25 years | Dirk Laabs | Comment is free | The Guardian.

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