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Jane Kramer's profile of Italian prime minister Matteo Renzi in last week's New Yorker only mentions Greece by name once. But toward the end, there's a paragraph that perfectly sums up why Germany has been pushing policies on Greece that look clearly unsustainable to most outside observers:
[Former Italian prime minister Mario] Monti told me that, when he was Prime Minister and visited Barack Obama at the White House, Obama admitted to being at a loss to know "how to engage Merkel on matters of economic policy." Obama asked his advice, and Monti replied, "For Germans, economics is still part of moral philosophy, so don’t even try to suggest that the way to help Europe grow is through public spending. In Germany, growth is the reward for virtuous economics, and the word for ‘guilt’ and ‘debt’ is the same."
Even since World War II, German economic thinking has been dominated by "ordoliberalism," a philosophy developed by Chancellor Konrad Adenauer and other policymakers as West Germany recovered in the late 1940s. Ordoliberalism isn't purely laissez-faire, and maintains a role for state intervention in the economy, but it strongly emphasizes keeping debt to a minimum. This anti-debt economic dogma is very deeply held. University of Helsinki researchers Timo Harjuniemi and Markus Ojala analyzed German newspaper coverage of the eurozone crisis and found that the coverage overwhelmingly blames Greece and other indebted countries: "their fiscal policies have been too lax, social spending has been too generous, and the public sector has become overblown. As a result of countries living beyond their means, the public debt burden has become too heavy, thus causing the debt crisis." Harjuniemi and Ojala find that this consensus is held by both center-left and center-right German newspapers.
And because Germany is by far the most powerful actor in Europe, European policy toward Greece has reflected the ordoliberal consensus within Germany. The whole approach is premised on the idea that Greece needs to pay back what it owes, both to private investors who bought the country's bonds and to the European Commission, European Central Bank, and International Monetary Fund, the "Troika" that has been funding Greece's bailouts. The Europeans — led by Germany — have also insisted that Greece not take on any more debt and pass austerity budgets.
Those budgets have, in turn, prevented Greece from growing, raising the prospect that growth requires letting Greece deficit-spend. But as Monti notes, Germans' ordoliberalism is so deep as to be more of a moral principle than an economic theory. That — and the fact that German taxpayers want their bailout money paid back — eliminates any chance of chancellor Angela Merkel and other European policymakers letting Greece spend more.
