Schäuble, the man who invented the euro crisis

The former German finance minister almost single-handedly transformed a financial crisis into a government spending crisis

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On December 26, Wolfgang Schäuble, Germany’s finance minister throughout the crucial years of the euro crisis (2009-2017), passed away — incidentally just a day before Jacques Delors, the “father of the euro”. However, unlike Delors, whose passing received widespread coverage in the media, mostly in the form of hagiographic puff pieces (you can read my counter-narrative of Delors, “Jacques Delors destroyed the European left”, here), Schäuble’s death went almost unnoticed. Pretty surprising for a man that until not too long ago was considered “Europe’s most important economic policymaker”. Sic transit gloria mundi, the Latins would have said.

Indeed, Schäuble, Merkel’s right-hand man ever since she took office in 2005, is widely considered to have been one of the chief architects of the EU’s response to the financial crisis — and then to the so-called euro crisis. He was notably one of the continent’s most vocal proponents of austerity, and played a key role in bringing Greece’s left-wing government to heel, in 2015, and forcing it to accept a new round of violent austerity measures and “structural reforms”. Schäuble is protagonist of some of the most memorable pages of Yanis Varoufakis’s famous memoir of his experience as Greece’s finance minister at the time of the negotiations with the EU, Adults in the Room.

Here’s an extract from the book that better than any other sheds light on Schäuble’s idea of democracy:

As he spoke, Schäuble directed a piercing look at Sapin [then France’s finance minister]. “Elections cannot be allowed to change economic policy”, he began. Greece had obligations that could not be reconsidered until the Greek programme had been completed, as per the agreements between my predecessors and the troika. The fact that the Greek programme could not be completed was apparently of no concern to him. What startled me more than Wolfgang Schäuble’s belief that elections are irrelevant was his total lack of compunction in admitting to this view.

But Schäuble did more than just enforce austerity in Greece — and across all of Europe, in fact (including Germany itself). Perhaps even more importantly, but less notably, he played a crucial role in establishing the ideological/narrative framework that underpinned the EU’s austerity-driven response to the financial/euro crisis. To understand that, we must return to the immediate aftermath of the 2007-2008 financial crisis. Following the burst of the subprime bubble, in the US, the crisis hit the European shores almost immediately.

In the aftermath of the Lehman Brothers crisis, Angela Merkel declared that no systemically important financial institution would be allowed to fail, but that each country was responsible for its own banks; in other words, there would be no EU-wide deposit-guarantee scheme or bail-out fund. Subsequently all major European governments declared their own heavily indebted and highly leveraged banks “too big to fail” and announced massive bail-out plans. In 2008 alone, the United Kingdom, Germany, France, Austria and the Netherlands injected into the financial system a total of €1.7 trillion of public money. By mid-2009, the European Commission reported that European governments had committed a total of €3 trillion in “guarantee umbrellas, risk shields and recapitalisation measures” to bail out banks.

Throughout 2009, the consensus in Europe was the same as on the side of the Atlantic: that the crisis had been caused by an out-of-control “casino-style” financial system and that this called for radical reforms — which was, of course, true.

Despite the governments’ attempts at playing down the crisis and the need for reform, the heat on the banks remained high throughout 2009. The effects of the global recession were starting to be felt, and there was no doubt among citizens and workers where the blame laid. On May Day, banks were the target of (often violent) protests all around the continent — from Athens to Paris, from Madrid to Rome. With neoliberal policies and the financial system widely discredited, it was becoming increasingly difficult for governments in Europe (and elsewhere) to ignore the calls for change coming from social and workers’ movements across the continent.