Friday, 8 June 2012
All eyes on Angela
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.
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.
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.