When Europe wanted to crush Greece

The Financial Times obtained revealing transcripts that US treasury secretary at the time, Timothy Geithner gave to assistants preparing his book “Stress Test: Reflections on Financial Crises,” which show that the comment made by Draghi was inserted at the last minute without wider consultation.

Quoting Geithner, the FT writes:

“Interviewer: This was just impromptu?

Geithner: Totally impromptu…. I went to see Draghi and Draghi at that point, he had no plan. He had made this sort of naked statement of this stuff. But they stumbled into it.”

The 100 pages obtained by the FT also include poignant, and often expletive, commentary on how EU partners actually wanted to deal with Greece.

Geithner recounts: “...because the Europeans came into that meeting basically saying: “We’re going to teach the Greeks a lesson. They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we’re going to crush them,” was their basic attitude, all of them….”

For his part the former US treasury secretary noted his reaction, which was to try and hem in the European bloodlust against Greece:

“But the main thing is I remember saying to these guys: “You can put your foot on the neck of those guys if that’s what you want to do. But you’ve got to make sure that you send a countervailing signal of reassurance to Europe and the world that you’re going to hold the thing together and not let it go. [You’re] going to protect the rest of the place.” I just made very clear to them right then. You hear this blood-curdling moral hazard-y stuff from them, and I said: “Well, that’s fine. If you want to be tough on them, that’s fine, but you have to make sure you counteract that with a bit more credible reassurance that you’re going to not allow the crisis to spread beyond Greece and that’s going to require, you’ve got to make sure you’re putting enough care and effort into building that capacity to make that commitment credible as you are to teaching the Greeks a lesson….””

Geithner also discloses that EU leaders approached President Barack Obama ahead of the November 2011 Group of 20 summit in Cannes, France, with a plan to deny financial aid to Italy unless Silvio Berlusconi, then Italian prime minister, resigned.

Elsewhere the former US official talks of his admiration for German finance minister Wolfgang Schauble, whom he sees as a much more powerful figure than his nominal boss, chancellor Angela Merkel.