Fiscal Responsibity Yes, Austerity No

July, 2015

Berlin -- Germany's heavy-handed maneuvering in Greece's financial crisis has set many Berliners against each other and raised eyebrows around the world. Germany, in appearing so arrogant, is ruining a quarter century of good-neighbor diplomacy and responsible European Union leadership.

Germany cannot claim the high moral ground when it comes to debt forgiveness for Greece. Germany has itself been the beneficiary of debt forgiveness after both world wars. Germany's misstep makes the country seem like a bully and only serves to remind everyone of what Nazi Germany did to Greece in World War II. What ingrates, to put it mildly.

The crisis is not over. One way to help defuse it, it seems to me, would be to stop using the term austerity, as if austerity were synonymous with fiscal responsibility. Greece needs greater fiscal responsibility, to be sure, but in the sense that its sacrifices now should be directed toward self-help of its own country for the future. Greece needs better tax policy and tax administration, more equitable pensions, improved infrastructure, and most of all, a sense that it is on a path toward recovery. The term austerity too often is used to include these needed changes but also that Greek sacrifices should be made, above all, to repay loans from German and French banks. Many of these loans were irresponsible. The IMF is correct in its analysis that some of this debt simply needs to be written off.

Because of Greece's strategic importance, the U.S. government should not be sitting on the sidelines. The Chinese and the Russians both have designs on exploiting Greece's instability. They are surely pleased to see discord in western Europe. The situation has parallels to 1947, when the British were unable to help Greek recovery and asked for U.S. assistance. The result was the Truman Plan, in which both Greece and Turkey were given assistance and brought into NATO as protection from Soviet expansion on Europe's southeastern flank.

If Greece leaves, or is forced out of the Euro currency, the U.S. should consider backstopping whatever currency replaces it -- Drachmas, scrip, IOUs -- pegged at a level against the dollar that keeps credit and commerce going. The Greeks would be grateful. American taxpayers should see the wisdom of investing in Greek stability as opposed to allowing a military confrontation with Russia or China to develop, which would be much more costly. Building and deploying even two aircraft carriers for the Mediterranean, to counter China's and Russia's naval buildups, would likely cost much more than helping Greece's economy for a few years. The precedent would be the Truman Plan. It worked once, and perhaps should be dusted off again.

Discussion of this might even bring Germany back to its senses. It is not too late for Chancellor Merkel to split with her hard-line finance minister, Wolfgang Schäuble, drop the self-serving aspects of austerity, and help devise a workable plan for Greece's economy to recover.