Ulrike Guerot, a senior fellow at the European Council on Foreign Relations, said Merkel cannot commit more money to the euro crisis without risking an open fracture between haves and have-nots in Germany. In recent years, Guerot said, “there have been extensive gains but they have been unevenly distributed.”
‘Not what we signed up for’
Germans joined the currency union a decade ago with some trepidation. They feared they could be stuck with the bill for other, less-productive economies in Europe and insisted on a “no bailouts” clause in the treaty establishing the union.
That clause was circumvented when European leaders created the recent emergency loan program. They said it was allowed under the section authorizing countries to aid each other in the case of natural disaster. The program is being challenged in the German courts.
“You can say it is better to share,” Guerot said, but “people will argue this is not what we signed up for: ‘We have options. We can go global alone.’ ”
Those resentments are a reason some of the proposed “once and for all” solutions to Europe’s problems could be out of reach.
Consider the eurobond. It is elegant in theory — a form of debt issued in the name of all 17 countries and backed by the economic resources of a major industrial region. Advocates say a eurobond would rival U.S. Treasury bonds, in the size of their potential market and their perceived safety as an investment, and — in a stroke — wipe away concerns about the riskiness of government debt in Europe.
But this would also represent an all-in bet by Germany, with its fortunes rising and falling with those of Greece, Ireland, Italy and other troubled economies. That is seen here as a recipe for higher interest rates. Local business publications have estimated that Germany, which pays record-low interest rates to borrow money, might have to ante up $45 billion a year more for its share of the debt service on eurobonds.
And there is an array of thorny questions: How much to issue each year? Who gets the proceeds? How to make sure the money is properly spent?
In a recent interview in Der Spiegel magazine, finance minister Wolfgang Schauble said that if such a bond were created, it could come at the end of a long process during which, in effect, Europe’s nations would submit their sovereign spending power to a common financial authority.
At their meeting in Paris, Merkel and Sarkozy suggested the start of this process. They reached agreement that the two countries would confer more closely on tax policy and encourage the other euro countries to meet more regularly on economic policy. A new euro-zone council would be established, with still-undefined powers for its president.
Without deep coordination, said Deutsche Bank economist Thomas Mayer, eurobonds and other expansive changes are unlikely, for a familiar reason.
“Germany taxpayers would be responsible for spending decisions in other country’s parliaments. You cannot do that without consequence,” he said. “You’d see a movement in the northern European countries that would be a true successor of the American tea party.
Any agreement that Germany makes with the EU could be officiated in the railroad car where the Treaty of Versailles was signed.
The Treaty of Versailles was signed in a rail car, which was kept as a monument in France for many years. Roughly 22 years later, in June of 1940, Hitler made the French sign their surrender in that same rail car. Four years later, just before the Allies liberated France, Hitler had the rail car monument dynamited and destroyed to prevent the French from making Germany sign another treaty in there.
This is the moment of truth for Europe.
For the last year or so, the Europeans have repeatedly produced workable compromises that kicked the can forward. They hoped these compromises would quiet the markets.
This strategy was often quite successful. Europeans kept promising, “Yes, we are going to bail out the weaker countries with the greatest debt load, but we want some structural reforms in return. And as we get more structural reforms, we’ll bail them out more. And if the crisis seems more intense, we’ll bail them out again.”
The Europeans repeatedly produced packages that were enough to satisfy the markets. Their hope was that at some point concerns would dampen down and then in the quiet of the night they could allow a country like Greece to soft default - a restructuring that doesn't spook everyone and doesn’t become a Lehman Brothers-like event. They sought a quiet reshuffling of debt.
I think this soft landing has now become impossible.
Today what people are basically asking is: “Is Europe’s debt going to be centralized or not?” In other words, is Europe going to be willing to say, “All our debt is pooled together and theoretically, as a single entity, we’ll pay it back.”
The key to this commitment is Germany. Germany is the only country that can pay.
But Germany is increasingly reluctant to do so. What we're watching is the rise of a new, ‘normal’ Germany, which in turn will lead to the unraveling of the old, highly unnatural structure of Europe.
The old structure of Europe rested on an extraordinary degree of German abnegation of its own interests. The Germans believed their national interest lay in subordinating itself in every way to Europe’s broader interest. That was what Europe was built on.
That’s why when you go to Brussels to the European Union you find a French-run affair with Germany’s money - a German-financed, French-run organization.
That has changed. The Germans, 60-years after World War II, are understandably becoming a more normal country. They are deeply, purely European but they are not going to pursue Europe’s interests at the expense of their own.
Despite what people say, Angela Merkel has been extraordinarily willing to bail out weaker states in Europe. Obviously, she's tried to get a good deal in terms of forcing some structural reforms in Greece and places like that. But the real story is that she did this despite German public opinion, which is now 75% opposed to any kind of bailout. This German opposition to bailouts will surely remain going forward.
And if that is the trend going forward, the Europeans are going to have a very, very big problem. There really is no way you can make the numbers work without a much more substantial German commitment of resources than there is now. If that doesn’t come through, it’s very difficult to see how the euro in its current form survives.
The key to Europe’s future is how Germany conceives of its interests. If it does so in a way that would be perfectly normal (it is important to emphasize there is nothing scary about Germany simply saying that it wants to do what’s right for Germany as well as Europe rather than always putting Europe above Germany) this might be the end of Europe as we've known it. It might be the end of Europe as a constructed, political entity built and supported by key nations, particularly Germany, no matter the cost.
I am thinking that one of the main motivations of the Germans in financing the EU has been guilt over the Nazi's, so it would be ironic if they work themselves back into the economic and social conditions that birthed Hitler. But this is interesting even if that does not happen, the German sense that they have been played for suckers, both by the rest of the EU and by their leaders, seems to be strong now. This will not end well.
Interesting...so under your theory what accounts for the Germans being so aggressive about making sure that no one speaks well of the Nazi's, and that no physical traces are left that could be used as a shrine to the Nazi's?? Is this a sweeping under the rug attempt? They want to make sure that no one ever needs to talk about the Nazi's and what happened? If so the outrageous attempts to make corporations pay reparations to the kin of the killed Jews seems to make no sense. That the Germans feel the same guilt that the Japs feel seems much more likely.
Interesting your take that the Germans never built anything like the other peoples of Europe empire wise, because now the future of the EU rests with the Germans willingness to give all of the money they have saved over to the project of building the EU. I am not sure if the lack of history with building makes this prospect more likely (under the theory that they want their turn) or less likely (under the theory that the Germans are not psychologically suited for the job, as proven by them never doing it)......
Not sure if I agree with your basic thesis, but I enjoyed hearing it..
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