Friday, 8 June 2012

All eyes on Angela

These have been anxious times here in Europe, but this month tensions have risen to a whole new level. The world may be just weeks away from financial collapse. There is an increasing consensus that there is only one person who can prevent the catastrophe – Angela Merkel.

Next Sunday Greeks will return to the polls in a do-over election that is likely to yield the same unacceptable result – a majority in parliament who refuse to abide by the austerity conditions attached to their financial bailout. This means they can no longer receive the bailout, which means they will have to leave the euro, which economists say is very likely to spark a domino effect for other countries like Spain and Italy dropping out. Panic would ensue.

But the world may not have the luxury to wait until the 14th. There are rumours circulating today that Spain is going to have to ask the EU for a bail-out tomorrow. This could set off a financial earthquake globally, as it would be the first large EU country to have to be bailed out (so far only Greece, Ireland and Portugal have received bail-outs).

There is a lot that is uncertain about the way the next three weeks will play out. But there is one thing is certain - only Germany can pull Europe back from the brink. It is the largest European financial power by far, and it is the only one with the heft - and the resources - to stun the debt markets into submission. So far it has resisted every entreaty to do so. But time is running out.

For the past three years, German chancellor Angela Merkel has only been willing do to the minimum necessary to avert disaster with each new emerging phase of the crisis. She has been reflecting the mood of the German people. Though there is a crisis raging in Europe, in Germany it is not being felt. German unemployment is at a 20-year low and the economy is growing. Though Germany's economy was a basket case in the 1990's, the introduction of the euro, and the export boom that accompanied it, worked magic.

But the average German may not see the connection between the introduction of the euro and the country's current prosperity. They are being asked to make a huge national sacrifice in order to save the euro, by collectivizing Europe's debt. But many Germans either don't believe that the euro will really fail if Germany doesn't agree to a shared Eurozone debt burden, or they don't understand what will happen to the German economy if the euro does fail. A recent survey showed that over 50% of Germans think the euro has been more of a negative than a positive for the country, despite the empirical evidence.

Even the assistance that has been granted so far - the bail-outs - was a tough sell for the German people. They had to be coupled with harsh austerity regimes for the receiving country in order to be acceptable to the German public. Many economists now say this has only made a bad situation worse. But it has been politically nercessary for Merkel. West Germans may have been willing to pump money into East Germany in 1991, but they have not been willing to do the same this time around for their European neighbours who speak a different language. Part of this is surely due to a perception that while East Germans were the unfortunate victims of Communism, the Southern Europeans have no one but themselves to blame. But another explanation is that despite all the efforts, there is still no sense of European solidarity - even from Germans, always considered the most committed to the European project.

The steps that the economic community and world leaders want Germany to take are clear: the collectivisation of eurozone debt through the issuance of eurobonds, shifting from austerity to a focus on economic growth and establish a banking union that would have a European-wide bank deposit guarantee. It's hoped that this last measure would avert bank runs in struggling countries.

So, Germany must make a choice - and it must make one fast. World leaders including Barack Obama and David Cameron have been putting the pressure on Merkel to relent. But that's easy for them - it's not their money. If Germany doesn't act, and there is an economic meltdown this summer, it's clear who world leaders will blame.

This may or not be fair. After all, it wasn't Germany that ran profligate economies. But it was Germany that was the driving force behind the euro, and it is Germany that has benefited the most from it. For the country now not to step in to save the project they created and benefited from is seen by many both outside and within Germany to be morally repugnant.

This sentiment was expressed in perhaps the most stark terms earlier this week by former German foreign minister Joschka Fischer when he said, "Germany destroyed itself, and the European order, twice in the 20th century. It would be both tragic and ironic if a restored Germany, by peaceful means and with the best of intentions, brought about the ruin of the European order a third time."

A similar sentiment was expressed this week by former German chancellor Helmut Schmidt: "More than once we Germans have caused others to suffer because of our position of power...whoever doesn't understand this original and still relevant reason for European integration is missing the indispensable requirement for solving today's precarious crisis."

Part of this stark language is due to a wide sense of disappointment that the Germans, who for 60 years have forsworn their own national interests for the benefit of the wider European project. Now that seems to have changed. Germans have always been at the heart of the European project, and if they've lost the willpower to see it through, it spells doom for Europe.

Germans have built up much good will among Europeans - and the world - over the past 60 years. But how will history judge what is happening now, if in the end it is German intransigence that destroys the European project? This is the question that the country must tackle, and it must do so quickly.

1 comment:

Anonymous said...

Call for action: closer collaboration by European leaders as the continent struggles to overcome its debt crisis?

With the financial crisis raging, the German government is willing to deploy the tools at hand whenever needed to bolster the euro region, she told reporters at a joint press conference with the British Prime, David Cameron. German Chancellor Angela Merkel was meeting with her British counterpart David Cameron in Berlin, Thursday.

“In view of the current difficulties, it’s important to emphasize that we have created the instruments of support in the euro zone, that Germany is ready to work with these instruments whenever that is necessary and that this is an expression of our firm desire to keep the euro area stable,” the chancellor said. Merkel didn’t outline to which tools she was referring.

With Spain struggling to avoid a bailout and Greece at risk of exiting the euro, Cameron and President Barack Obama called on Europe’s leaders yesterday for an “immediate” plan to resolve the crisis. Merkel has stepped up her opposition to debt sharing in the euro region and rejects proposals that Spain’s banks be allowed direct access to the euro bailout funds.

Speaking earlier, Merkel said that she supports a two-speed European Union, with a core group in the euro pressing ahead with deeper integration and the U.K. among others relegated to Europe’s margins. Her comments underscore her differences with Cameron as he presses for more aggressive action by euro countries to counter the financial crisis.

“Those in a monetary union will have to move closer together,” is Merkels intention. “We have to be open. We always have to make it possible for everyone” to join. “But we must not stop because one or the other doesn’t want to come along just yet.”

Europe is already moving at different speeds, that's a fact, citing the Schengen agreement that abolished border controls between some European countries and the monetary union that excludes the U.K. and Denmark. “This will be intensified,” Merkel said. “We need more Europe, we need not only a monetary union, but we also need a so-called fiscal union, in other words more joint budget policy. And we need most of all a political union, that means we need to gradually give competencies to Europe and give Europe control.”

Ceding more control to Brussels is anathema to many lawmakers in Cameron’s Conservative Party, more than a quarter of whom defied the government in October and voted in favor of a referendum on continuing British membership of the EU.

“All countries across Europe can help by offering the right advice and the right steps forward to the euro-zone countries,” Cameron demanded in Oslo today before leaving for Berlin. “Clearly the first priority is to stabilize the financial situation. That means recapitalization of banks, it means building of firewalls, it means reassuring markets.”

EU President Herman van Rompuy is drafting proposals on a “fiscal union” that will be discussed by European leaders at a Brussels summit on June 28-29. Merkel said leaders will consider a plan to transform the EU into a political union. Still, a breakthrough can’t be achieved at just one summit, she said.
The United States and Great Britain are now calling for an immediate plan for the euro zone - this confirmed a spokeswoman for the Downing Street in London. U.S. President Obama and British Prime David Cameron had discussed the issue during a telephone conversation late on Tuesday evening. Speaking with Cameron, the chancellor reiterated the need to push for deeper cooperation in Europe to staunch the crisis, saying that “we have common interests for all of Europe.” There is agreement in the following point: “We (all) want solid budgets and we (all) want growth.” she said. And there are particularly large differences for the issue of introducing Euro-bonds. It remains questionable whether this is sufficient. Sandro Valecchi