Schäuble's Honesty Transparency Poses Risks in Euro Crisis

German Finance Minister Wolfgang Schäuble has raised the possibility of a third bailout for Greece. Now many are calling for leaders to lay out all they know about the euro crisis. But total transparency carries serious risks.
A woman walks by a pawn shop in central Athens August 26. Greece may need billions more in aid.

A woman walks by a pawn shop in central Athens August 26. Greece may need billions more in aid.


In a time when people wrote in autograph books and not on Facebook walls, one sentence from the 18th- and 19th-century German poet Matthias Claudius became immortalized: "Say not all that you know, but know all that you say." That would be a good lesson for those politicians who are handling the euro crisis . Absolute honesty, which many are now demanding of the German government after its most recent comments on Greece, is simply not wise.

Of course politicians should not lie or twist the facts. German Finance Minister Wolfgang Schäuble  has been guilty of the latter over the last week. First he stated publicly what many have long accepted as obvious -- that Greece  will need a third bailout package . Amid the ensuing uproar, Schäuble defended himself with the following words: "The German government states what it knows at each point in time."

Such words are not credible. Schäuble certainly didn't suddenly become aware yesterday that Greece needs more money, yet he's only talking about it now. In the European Union , such small-step approaches to problem solving are unavoidable.

The euro crisis has bound Europe together in a common fate -- the Germans, Finns and Dutch putting billions of euros on the line for Greeks, Portuguese and Irish. Yet political institutions in the EU and euro zone remain weak. That's why in the past, virtually all member states, from southern Europe through to Germany and France, flagrantly disregarded the bloc's rules on sovereign debt limits. They knew there was no reason to fear sanctions when they spent beyond their means. The rules have since been strengthened. But the EU still has no real government, its parliament has severely limited powers and real policy-making occurs almost exclusively on the national level.

Selling Policies at Home and Abroad

It's under these constraints that the EU approaches the euro crisis through negotiations between member states. And a fundamental principle of these negotiations is that not all cards are laid on the table at once. It's a classic way in diplomacy of avoiding bursts of outrage.

Especially problematic is the fact that negotiations don't occur among EU policymakers alone. Rather, the maneuvering increasingly resembles what political scientist Robert Putnam describes in his two-level game theory: Politicians have to sell their policy goals both at home   and abroad. And all too often, one side is pitted against the other -- as when the Greek prime minister says he personally opposes draconian budget cuts, but that his EU partners give him no choice but to accept them.

This game of contortionism will never win the prize for most graceful politicking. Yet in today's European Union it is often the only way to push through legitimate demands. A prime example is the list of conditions imposed on Greece in exchange for emergency loans. Despite all justified criticism of the specifics of those conditions, the fact that Greece needs reform is just as evident as the fact that Greek domestic politics is incapable of making that reform happen. Only under pressure from abroad did change ultimately come.

This pressure occurs only when aid is given out piece by piece. Why should Greek politicians adhere to fiscal discipline or implement reform when they know they can count on unlimited credit from abroad? The threat of stopping payments is the only weapon the so-called troika of lenders has when it makes its repeated visits to Athens.

Slow Pace of Change

And the political contortionism works both ways: Schäuble himself doesn't have to ask for billions of euros at home in Germany when he can simply point to the findings of the troika. In the end, the haggling over releasing loan payments is frustrating for both sides. It brings only a very slow pace of change to a political system that even most Greeks regard as broken.

Bearing all this in mind, it would make sense for German politicians not to make public all their thoughts on the euro crisis at once. Yet voters expect not to be lied to. The only way through this conundrum is for politicians, when in doubt, to admit that they cannot answer certain questions while the crisis continues.

However, they can make clear the direction in which they are headed: Long before Wolfgang Schäuble raised the possibility of a third bailout for Greece, Social Democrat Peer Steinbrück told SPIEGEL in September 2011: "Of course the Germans have to pay." Who would have guessed back then that the current candidate for chancellor would be considering not just loaning, but actually giving money to Greece -- something that is increasingly part of the discussion?

In the long run, there's one thing that will help Europe through its crisis management: a stronger European Union -- in the form of truly binding rules, perhaps even a European finance minister who could directly intervene in national budgets and put an end to the cumbersome quibbling among member states. Schäuble himself has raised the idea of such a master minister. Perhaps out of frustration with the endless diplomatic game playing.