The playbook for Greece? That of the dismantling of East Germany

It may come as a surprise to you that we claim the playbook for Greece is eerily similar to the set of policies that governed the dismantling of East Germany.

Why would anybody in their right mind make this comparison? Wasn't the fall of the Berlin Wall something utterly different, a wonderfully joyous affair that offered a glimpse of, for lack of a better word, hope - as opposed to Greece with its woes, no hope, or not much?

Many experts have talked about similarities between Greece and Argentina, largely because of the involvement of the IMF as well as shady hedge funds and investors in both crises, and also because of the chaos associated with both.

In contrast, the transition of East Germany seemed pretty boring, efficient in that German way we still believe exists. But that impression is only one part of the story, the part the world got to see while the cameras were still rolling.

What is planned to happen with Greece is very much a combination of Argentina and East Germany. The basic monetary issues and the involvement of international players look more like Argentina, the dismantling of the country and the "nation building" are a lot like East Germany.

The latter is in part explained by the fact that many of the German actors are the same as back in the time after 1989. The current German finance minister Mr. Schäuble was a leading member of the then - and now - ruling conservative party. Many other current German cabinet members were already influential in West Germany, many others received huge career boosts when they were parachuted into the eastern half to bring the Western system to the newly formed, or re-formed, states of the downed socialist state.

The single eye opener in the latest EU-Greece "agreement" lifted straight from the East Germany playbook is the "asset trust" that is to oversee and handle Greek privatization.
It is smaller, granted, but otherwise the exact same thing - even lead by Germans through a Luxembourg subsidiary of the West German bank that oversaw World War II reconstruction in the West and then rebuilding in the East.

Besides added complexity through involvement of international interests, there is one crucial difference on the level of practical policy: far less cash is going to Greece than to East Germany. Ironically, the initial West German estimates for the East Germany buy out were around 100 billion Deutschmarks, roughly the same in Euros adjusted for inflation. Not all that different from the initial figures for Greece.

German politicians have avoided to track the true expenditures closely because...you guessed it, they were astronomical, standing at around 2 trillion according to the best figures scientists have put together.

German citizens paid for this through higher taxes and fees. A "solidarity tax" of 7,5% (now down to some 5,5%) on top of income tax that originally paid for the First Gulf War was extended to pay for East Germany. In case you didn't know that Germany put up lots of cash for the first Gulf War, they paid around 20 billion out of somewhere around 60 billion Deutschmarks. Anyhow, this rededicated tax plus subsequent hikes in sales tax and the introduction of other levies and taxes brought in a lot of cash for the East.

How did the asset trust work out?

Much of East German industry and infrastructure was sold off at bargain basement prices - which you will see more of in Greece.

There were a lot of shady deals and substantial corruption, too, some prosecuted, most not.
Going to happen with Greece, too. Corruption is a whole new topic, but let's just say that German corruption is alive and well, they simply do it differently than the Greeks, less envelopes of cash, more gentlemen's agreements. Although Mr. Schäuble himself was embroiled in a party donation scandal that involved envelopes of cash - but the party closed ranks, and he came out "clean".

At the political level, the current provisions regarding Greek laws and the neutering of the Greek parliament are almost identical to the East Germany playbook. When chancellor Merkel and the EU said they would want to undo laws passed by the Syriza government, they were echoing the East German playbook. Though, in the latter case, all laws of the German Democratic Republic were annulled.
The newly elected East German state parliaments were faced with the exact same situation planned for Greece: all planned legislation to be approved by the creditors. For East Germany, there was just one creditor, and that one didn't call itself creditor but bringer of democracy and freedom.
So, they passed the legislation they were told to pass.

And those East Germans who did not play ball?

They got the treatment of short term Greek finance minister Yanis Varoufakis or folded like the young Greek prime minister.

[Update 7/15/2015] German weekly Die Zeit website today has a short article on the German asset trust for East Germany.
The financial result of that venture? They expected a profit of 300 billion Euros (600 billion Deutschmark) and ended up with a loss of 120 billion Euros.