After Greece – How the "Schäuble Doctrine" changed the Eurozone Landmark

The Grexit supported by the German finance minister was not at a random proposal. No one could before imagine a consensual exit from the euro; now it is a possible choice. The membership to eurozone is not an irrevocable destiny,

1. The singular characteristic of the deal between Greece and Eurozone authorities is that no one believes in it, but François Hollande, who has been the mediator of the alleged agreement. It is not a coincidence that Alexis Tsipras declared that he was forced by the knife to his throat. I had no choice - he said – but signing "a bad agreement in which I do not believe”. The only alternative would have been to bring Greece out of the euro – a hard choice that would have betrayed the mandate of the Greek people.

And even less Wolfgang Schäuble, the German finance minister, believes in the deal. He had advanced the surprising proposal of an agreed Greece’s temporary exit from the euro. Something that was so far inconceivable given the universally accepted paradigm of the euro irreversibility. For the future historians it will probably appear as the most important and unpredictable turnaround in the long journey of the euro preparation and implementation.

The skepticism is easily understandable. The blackmail conditions imposed on Greece are the most irrational, intrusive and punitive among those experienced through any previous memorandum applied to the eurozone countries. According to the IMF, the debt will grow in the next years by up to 200 percent of GDP. And, not surprisingly, the debate has moved to debt restructuring, in the sense of an extension of maturities and a reduction in interest rates. But it is a way to disguising the real Greek problems of the economic depression and social disaster. In fact, 80 percent of the debt has already maturities that extend up to more than half of the century with minimum interest rates.

“The Greek people – had written Barry Eichengreen of Berkeley University - deserve better than what they are being offered. Germany wants Greece to choose between economic collapse and leaving the eurozone… This, clearly, would be the effect of the politically intolerable and economically perverse conditions tabled by Germany’s finance ministry (“Saving Greece, Saving Europe”,

The conditions imposed to the Greek government appear in some cases grotesque as when they  dictate the rules of competition for the bakers. Yet, there is no room for irony, when it switches to the imposition of a privatization plan of 50 billion euro, expected to reach ports, airports, post offices, railways, water, gas, electricity, roads, and all kinds of public goods and services, including monuments. A crazy plan that translated on Italian, French or British scale would equate to 400-500 billion expropriation of public goods. Not even Margaret Thatcher would have gone so far. Not to mention the socially punitive aspects of the program, such as the "structural reform" for excellence, that is the substantial abolition of collective bargaining and the freedom of collective redundancies.

The Schäuble’s  alternative to Grexit was sounding as a provocation. In fact, it was not at a random proposal, neither just a tactical stance within the negotiation framework. It is not a coincidence it was supported by a fifteen countries out of the nineteen members of the eurozone.
The crucial stop to the Grexit solution came from François Hollande. Why? The plausible reason is that for the French Government the exit of Greece from the euro was an unbearable event. Whether sorting out of the eurozone would  become an open option, not a shameful sin, the National Front of Marine Le Pen and all other scattered oppositions forces  would get a plain and indisputable legitimacy. In any case a threatening challenge for a president marked by the less popular consensus among the presidents of the Fifth Republic. The Schauble's proposal was definitely an unacceptable threat to the French government.

In the end, the wretched mediation of Hollande consisted in offering to Angela Merkel and Schäuble the scalp of Alexis Tsipras: that is, the unconditional surrender of the Greek government, as the price to remain in the eurozone - a badly hidden complicity in denying to Greek government a chance of a decent compromise, without having to pay an economically unsustainable, and politically humiliating price.

2. It is fitting, at this point, to take a step back. The creation of the single currency, as envisaged in the early ‘90s, had to be, according to the intent of Francois Mitterand e Jacques  Delorsr, the irreversible seal of the Franco-German partnership. The crisis of the EMS (the European Monetary System) in ‘92 had led to the sunlight the weakness of the French currency. The international financial attack had brought down the sterling and the lira, forcing the United Kingdom and Italy to get out from the EMS. France had just been saved by the German support. The creation of the single currency was envisaged as the right mean to get irreversible currency parity. In effect, an artificial parity that could not long disguises the dissonance between the two national currencies and economies.

Despite a vast opposition in Germany, not surprisingly animated by the Bundesbank, the monetary unification, hard-pressed by France, became the political counterweight for the German unification. It's a matter of fact that, without the eminently political settlement wanted by François Mitterand and Helmut Kohl, the euro, as we know it, would unlikely have born.

 But the French ambition of an equal partnership was illusory. The euro became the European version of the deutschemark. The Franco-German partnership was increasingly reduced to a simulacrum to which the two governments periodically reserve their ceremonial tribute. In this context, the exit of Greece from the euro was considered a move that French government should have avoided at all costs. So Hollande - with Matteo Renzi deployed at his side, after being excluded from the different stages of negotiation – has resiliently worked to avert the Grexit, and persuade Germany to accept, as the best option, the unconditional surrender of the Greek government.

3. IThe July alleged compromise has been a success for Angela Merkel, who obtained the capitulation of Greece avoiding, at the same time, the crash of the eurozone. But the deal has never acquired the real consensus of Wolfgang Schäuble. He has confirmed his position also after the eleventh hour deal on the possibility and the opportunity for an exit, even (theoretically) temporarily of Greece. It is safe to say that, independently from the ending of the Greek crisis, the Schäuble doctrine has forever changed the eurozone landmark. No one could before imagine a consensual exit from euro. Now it is a possible choice. The membership to eurozone is not an irrevocable destiny.

The Schäuble doctrine was double faceted.  For Greece it represented an alternative chance to take its risky freedom in confronting the crisis. For all other eurozone members - first of all, France and Italy - it should be a threatening warning: to stay in the eurozone all members have to fully abide to the rules as they have been stated. The alternative is the exit. We know that this option is unthinkable for Hollande, as well as for Renzi. Yet the new German stance is bound to give new breath to the parties and movements that are euro-skeptics, let alone openly euro-hostile. Now they know that sorting out is not a damnation, but a possible recognized alternative.

Given the growing eurozone troubles, this is not an irrational stance. Let us consider the remarks of Alan Blinder, professor of economics at Princeton University and former vice president of the Federal Reserve. "Countries – he writes - have three main weapons to fight recessions: the fiscal stimulus, monetary stimulus and the depreciation of the currency. Membership in the euro area precludes the latter two are ... (while) limits brutally first. From here, the Greek problem No. 1: a depression worse than the Great Depression in the United States. The latest agreement seems to worsen this depression.... How to find a solution? With floating exchange rates, a semblance of parity would be restored by the depreciation of the currency. But this cannot occur with a single currency. ... So the Greek problem will never be resolved until the eurozone will remain "(See  “Opinions” section of the WSJ, July 16, 2015). This kind of stance is generally considered a typical American point of view characterized since the origin by skepticism in regard to the single currency.

Yet this is not any more the case. According to the conclusions of the recent document of the German government’s council of independent economic advisers, countries should be able to exit the euro as a last resort if they cannot manage their debts. “In a currency union – Lars Feld, one of the council’s members explains -the basic rules must be adhered to, and for this reason the exit of a member state should not be taboo” (“German feel pressure on debt crisis” – INYT, 4 August  2015).

In this framework,the desperate mediation of Hollande - ambiguously followed by Matteo Renzi who, in the end, would have accepted the exit of  Greece as an exemplary punishment for its rebellion - has been an escamotage in the attempt to hidden the difficulties of the French government, struggling with fragile growth and a deficit that is still around 4 percent.

Meanwhile, it is not a gamble to foresee a growing temptation to summon national referendums on the eurozone policies. Referendums can become a new old democratic instrument to reaffirm the value of the democracy. This is the only way to free the countries from the servitude to a blind technocracy supported by the German hegemony.

Paradoxically, the Schäuble doctrine is a warning to governments that are tempted to violate the rules, but at the same time an unexpected help for the euroskeptic forces. The Greek referendum as well the next British one, even though inspired by different targets, are the testimony of a new political way to democratize the European politics. In other words, the popular referendums can become a normal and powerful democratic tool to give voice to the citizens and to mobilize, in a unified approach parties and movements that, even set on different political fronts, claim either a draconian change of the eurozone policies or the sorting out from the euro.

It is a matter of fact that the countries outside the euro - from the United Kingdom to Sweden and Poland - responded much better to impact of the crisis. And the countries that were candidates to join the euro have taken note, starting with Poland, of the risks of eurozone participation, and dismissed the prospect of a more or less close accession.

The sorry story involving the Greek people shows that the European vocation does not coincide with the future of eurozone. It’s quite the contrary. The euro is likely to destroy the European "dream". Any forecast is hazardous. Many contradictory things can happen. But it is fair to assume that after the Greek mess and the new German approach to the eurozone’s prospect, nothing will keep being as before.