Schaeuble did not want the IMF’s involvement in Greece

Before the tumultuous year of 2015, Greece actually came close to leaving the eurozone in 2012, following the election of Antonis Samaras as prime minister. Chancellor Angela Merkel was notably apprehensive about the New Democracy leader’s pre-election campaign. 

Harold James, Claude and Lore Kelly Professor in European Studies at Princeton University, as well as professor of history and international affairs at the Woodrow Wilson School, and the official historian of the International Monetary Fund), sheds light on this intriguing detail of the Greek debt crisis in an interview with Kathimerini.

In an early evaluation of Wolfgang Schaeuble’s legacy, James regards the former German finance minister’s position as consistent since the 1990s when he initially advocated for the creation of a core group of countries at the heart of the EU that would progress toward complete economic and monetary unification. Kathimerini’s questions to James naturally kicked off with the role of the IMF.

Was it Wolfgang Schaeuble’s decision to involve the IMF in the Greek program? The IMF did not reduce the Greek debt in the case of Greece at the beginning of the program. Was this a Schaeuble decision imposed on Dominique Strauss-Kahn?

Schaeuble was originally – like President Nicolas Sarkozy – skeptical about the IMF’s involvement in resolving the Greek debt problem: He was quoted as saying, “No IMF – but yes for technical assistance and implementation help.” Chancellor Merkel was the first major European politician to think that the Fund needed to be involved, in part because she mistrusted European institutions, notably the Commission. The IMF was quite divided internally on the issue of debt reduction in the spring of 2010, with some senior staff members fearful of a contagious run that might affect other countries (Portugal, Spain, Italy), and that belief was fully shared by the political leadership of those countries, and by President Jean-Claude Trichet at the ECB. Schaeuble was always more sympathetic to the case for debt reduction, but he saw that as a measure which only made sense if linked to a Greek exit or “holiday” from the euro.

Schaeuble had proposed the idea of a timeout of Greece’s participation in the euro. Was this ever seriously discussed, and what would the impact have been?

Yes, in essence the argument that Greece might be in the EU but not in the eurozone was the logical consequence of a position Schaeuble had laid out in a notable position paper (written with Karl Lamers) in 1994, in which he argued for a multispeed or variable geometry Europe, in which only a small core would go for the full integration required for a monetary union. In 1994 Schaeuble thought of that core as just five countries: the original six minus Italy, but with the possible addition of Denmark and Ireland. 

The possibility of Grexit was greatest in the late summer of 2012, after the formation of the Samaras government. Chancellor Merkel had been worried about the tone of Samaras’ electoral campaign, and this is the only time when she appeared to have seriously considered adopting Schaeuble’s long-standing approach on the timeout. This is probably also the first moment when such a move might have been realistic, not entailing the catastrophic aftermath of a contagious run on other southern European debt. But such a measure would not have been an easy option: It too would have required a rather tough stabilization program, without which Greece might have looked like Argentina after it exited the fixed exchange peg in the early 2000s.

The debate re-emerged in 2015 with the SYRIZA government, and then there was a peculiar parallelism between the Greek and German positions, with the heads of government (Tsipras and Merkel) firmly in favor of staying in the euro, and the finance ministers (Varoufakis and Schaeuble) aligned in that they were pressing for an economically logical but politically highly dangerous Grexit. Schaeuble indeed liked to describe, with a twinkle in his eye, Varoufakis as his friend. 

The framework set out in the 1994 paper was quite fundamental, and continued to figure prominently in Schaeuble’s thinking: One key theme in the 1990s but also in the 2010s was the need to keep a skeptical United Kingdom in the EU, and variable geometry offered the only solution: Greece, in his view, might have been a test case for the application of a new vision of Europe that would hold Europe together rather than dividing it. Schaeuble always thought of himself as a highly committed, but also logically thinking, European. 

There was a sense in Greece that Angela Merkel and Schaeuble were playing the good cop, bad cop in the Greek case. Is this true? Were there any serious disagreements?

No, I don’t think it was a strategic game. Both Schaeuble and Merkel were intellectually convinced that their position was right: Schaeuble saw the combination of debt reduction and a new currency as the best, and least painful, approach to a severe and testing crisis, while Merkel was terrified by the risk of contagion and by the fear that a Grexit would set off a moment of disintegration.

Is it fair that Greeks have identified the extreme austerity measures with Schaeuble?

No, Schaeuble would have preferred a different course, but he saw the extreme measures as the logical and unavoidable consequence of staying in the euro – a course that we know that the majority of Greeks wanted (though inconsistently, i.e. without the austerity measures).

Many thought that Poul Thomsen, the then head of the IMF’s mission for Greece, was more clearly allied with Schaeuble than with the Fund’s management. Any truth to that?

I don’t think it is right to see a large gap between Poul Thomsen’s and Christine Lagarde’s position. What is correct is that Thomsen was on the ground in Greece, as well as continually dealing with the European institutions, and felt frustrated by what he saw as the softness or political malleability of the Commission, and then angered in 2014 by what he interpreted as poor implementation of reform measures in Greece, especially after the removal of Harry Theoharis from the tax collection administration in July 2014.