Greece: France or Germany — Who Really Dunnit?

Germans are getting a bum rap over the Greek crisis. France’s role is more problematic.

July 16, 2015

Germans are getting a bum rap over the Greek crisis. France's role is more problematic.

I think the authors of the Greek tragedy are French rather than German. We have to remember that President François Mitterrand promoted the idea of the euro above all — and that France gave a warmer welcome than Germany to Greek membership in the EMU. (See TG’s recent coverage of Greece here)

French banks had by far the largest exposure to Greek government bonds in 2009. As CFR’s Benn Stein has shown,

    “In March 2010, two months before the announcement of the first Greek bailout, European banks had €134 billion worth of claims on Greece. French banks had €52 billion – this was 1.6 times that of Germany, eleven times that of Italy, and sixty-two times that of Spain.”

We must recognize, too, that the sensible suggestion to write down privately held Greek government debt was made at the outset of the Greek rescue operation in 2010. The IMF proposed this, and Chancellor Angela Merkel accepted it.

However, it did not come about because on the French side in particular, two key players vehemently opposed it. One was Christine Lagarde, now the IMF’s Managing Director, then French finance minister. The other was Jean-Claude Trichet, then European Central Bank president.

France made a misjudgment. Yet, if Greece ever left the EMU, France would totally lose face. Probably as a result of these episodes, we won’t see another French managing director of the IMF for another 50 years.

Editor’s Note: Excerpted from “France shifts the blame to Berlin,” originally published as The OMFIF Commentary (16 Jul 2015)

Takeaways

We won’t see another French managing director of the IMF for another 50 years.

The authors of the Greek tragedy are French rather than German.

If Greece ever left the EMU, France would lose face.

French banks had by far the largest exposure to Greek government bonds in 2009.