Clinton Emails Give Away Schauble Plans in 2012 – Exclusive Commentary by Varoufakis

As it is clearly illustrated in the following email, the German government was concerned by the possibility of SYRIZA coming to power in 2012. According to the information sent by Hillary Clinton’s office, Schauble thought there were only two ways to face the European debt crisis “none of which was pleasant to Germany and the rest of the member states”. The first plan was based on a proposal made in 2011 by German economic experts, “The Five Wise Men”, regarding a European Redemption Pact. The Pact would include a fund of 2.3 trillion euros for debt relief and preventive protection of Eurozone member states affected by the debt crisis. (Details of the plan have been released by global media here  and here ) Other than that, issuing Eurobonds could also be a solution but Schauble did not approve any of these ideas because of the turbulences they would cause to the German political system. 

Although the German minister of Finance stated in private that “if the Greek people vote for a government led by the anti-austerity Syriza party, they must bear the consequences of their actions”, he also believed that a Grexit would be a highly negative event, since he considered it would have a significant impact on Spain, Portugal and Ireland. In response to the possibility of Greece leaving the Eurozone, Schauble was elaborating the idea of the creation of a two tiered Eurozone.

In the email, it is written that “in any event, Schauble continues to believe that a complete collapse of the currency union is unacceptable for Germany, as the newly reconstituted Deutsche Mark would be considerably more valuable than the Euro; seriously damaging Germany’s export driven economy” and also in other part “a Greek withdrawal from the currency union may set the stage for Portugal, Spain and Ireland to follow”.

The declassified email is available below. Also, the Greek ex-minister of Finance, Yanis Varoufakis is commenting on the information provided by the document right after it.

Read the full document

 

United State's Position

 

Throughout the period I was minister of Finance, the position of the US government was solid:

Washington completely disagreed with the European economic policy imposed to Greece and to Eurozone in general. Regarding the Greek “problem”, as it was called by highly ranked American officials, they strongly disagreed with the denial that there was an immediate need for debt restructuring, with the European institutions fixation in the self undermining austerity and the consistent clinging to outrageous primary surplus targets (in fact, all the US officials with whom I spoke agreed with the principle that the target of the primary surplus must not exceed 1% of GDP).

However, simultaneously, the same officials said to me they were not willing to intervene decisively, beyond counseling to Berlin, Brussels and Frankfurt, as “honest brokers”. Indicatively, a US official told me boldly: “For us you belong to the sphere of influence of Berlin, which we will not question.”

Reading the Wikileaks documents about the United States position back in 2012, especially towards Berlin, I am observing that the US government is consistent since: it criticizes but it does not interfere. 

 

Mr. Schauble’s “dilemma”

 

The two memos from Wikileaks confirm that Wolgang Schäuble, at the end of the spring in 2012, had realized the deadlock of the European policies (which he had forged himself).

As we read in the document, Mr. Schäuble had understood that the austerity policies and substantial inactivity had reached their end. He realized a Grexit would break down the Eurozone and that Mrs. Merkel and he could no longer continue to let the crisis creep. The “dilemma” to which the notes refer to was as follows: 

(1) The announcement of the creation of a Redemption Fund, which was suggested by Mrs. Merkel’s five economic advisers 

or

(
2) The countries that showed a deficit, except France, should exit the Eurozone while those showing a surplus should remain, France included.

 

It is obvious Mr. Schäuble was in a difficult position. 

 

The first “solution”, the Redemption Fund was unlikely to be accepted by Rome and Madrid. Its central idea was: Surplus countries, especially Germany, would contribute by helping countries such as Italy and Spain to reduce drastically (for example, by issuing new bonds guaranteed by Germany) interest rates, in order to reduce public debt below 60% of GDP within twenty years.

In exchange, those countries would have to accept high surpluses, on permanent base, for the next 20 years. In other words, Italy, Spain, etc. would have to accept austerity of the proportion Greece did for at least twenty years! Also, the plan included the creation of an Asset Development Fund in every state of the European periphery. The EuroWorkingGroup (that is essentially Berlin) would choose the administration of each fund and every country’s asset would be transferred to it. The countries committed to this plan would also have to oblige that if the target of debt reduction by 60% of GDP was not met, those assets would be sold with fast track procedures.

To put it simply, the “solution” that Mr. Schäuble was considering, meant that all the European periphery would accept the 3rd memorandum signed by the Greek government in the summer of 2015. Something like that was, apparently, impossible. No Spanish or Italian government would ever accept that.

As for the second “solution”, which would result to the shrinking of the Eurozone, it is worth noting that this is the consistent opinion of the German Central Bank -which since the early 1990s, has never revised its view on the matter and has advocated for a “small” Eurozone from which deficit countries would be excluded. (This opinion did not go through, when Helmut coerced Bundesbank consensus on a broader euro, in exchange for the reunification of Germany.)

Actually, Mr. Schäuble was not talking to Mrs. Merkel about a dilemma on how to save the Eurozone. The dilemma he placed in front of her was, in 2012, to impose an austerity deal on the whole European periphery or to dismantle the euro and return to Bundesbank’s proposals. The documents presented by Wikileaks confirm precisely that. 

What happened after all? Neither the one, nor the other. Mr. Draghi provided a third “solution”. In agreement with Mrs. Merkel, he appeased the debt crisis through the ECB, leading the “metastasis” of the problem to real economy (eg. precipitation of private investment even in Germany). But that is another story.

 

The lost opportunity of Greece in 2012

 

Reading these notes is hard to fight the feeling of anger against the loss of another opportunity by the Greek government at the time. Even Mr. Schäuble was under panic for the uncontrollable effects of a Grexit -read the notes and you will see. At that time, the Greek government had the chance to demand redemptive interventions in the 2nd Memorandum -eg. debt restructuring, low primary surpluses, clearing bad loans through a bad bank. Instead, the new government of 2012 decided not to use Mr. Schäuble panic and to comply with the tactic of the exemplary prisoner. The same politicians, who, at that time, allowed Mr. Schäuble and Mr. Draghi to make the moves which cancelled Greece’s negotiating power, are the politicians who, when we started negotiating with what was left, attacked us for going to deal with the international lenders with small negotiating power.

 

Europe’s shame, America’s weakening

At the end of the document presented by Wikileaks, I am reading that Mr. Schäuble, the French president and other European officials placed their hopes on the development of the United States. After they had done whatever was humanly possible to diminish European investments to a record low and to smother any traces of development, then they turned their eyes to America hoping for a miracle there. At the same time, Washington was confirming that it did not feel strong enough to enforce a policy change. This reflects the irresolution of international capitalism: a silly Europe, a weak America.