Why Only Germany Can Fix the Euro. "Never did a ship founder with a captain and a crew more ignorant of the reasons for its misfortune or more impotent to do anything about it. " This was Eric Hobsbawm's damning judgment of the policy elite's response to the Great Depression. As these leaders reached for the old truisms of balancing budgets, lowering tariffs, and restoring the gold standard, they merely worsened the crisis.
The same judgment may soon be passed on Germany for its role in the ongoing European sovereign debt saga. After watching the economies of Greece, Ireland, and Portugal founder, the world has now turned its attention to Italy, home to the world's eighth-largest national economy and third-largest sovereign bond market. The diagnosis is sadly redolent: Europe should deflate its way to growth by sticking with a gold standard of sorts: the hard-money German-dominated euro. To continue reading, please log in. Don't have an account? Register Register now to get three articles each month. Have an account? How Germany could save the euro. Aided by market panic and confusion, it could be said that German toughness has transformed the reform prospects for Europe. Italy, Spain, and Greece now have credible, reform-committed governments.
Ireland, bailed out under tough conditions, has cut its unit labour cost by 17% over 2 years and is showing growth. Portugal is strenuously reforming its public sector and labour markets. However, market panic has been costly for the European banking system and for short-run economic prospects. All this would be a price worth paying, however, if Angela Merkel now completes the final stage of what would be seen as a remarkable moral, political, and economic triumph. The German Ministry of Finance could offer a two-year loan to the Italian government at 3% above what it pays, and promise that next year, if the Italian reform programme is showing visible signs of success, the spread could fall to 2.5% and then to 2% if progress continues.
Europe’s economic outlook could be rapidly transformed. The myth of the Fourth Reich. The spectre of history looms over the eurozone crisis and Germany’s role in it, but it has less to do with Nazism than with the traumas and economic woes of the 1920s. As the eurozone staggers from one crisis to the next, a growing consensus of opinion blames the Germans for the impasse. Europe's most powerful economy, Germany stubbornly refuses to sanction what seems to many the obvious way out, which would involve the European Central Bank (ECB) printing money to lend to countries such as Italy that have accumulated more sovereign debt than they can cope with. The new cash flow would enable bondholders of government debt to be paid. Quantitative easing would stimulate demand as people and businesses spend the extra currency, kick-starting national economies and helping them to get over the crisis.
Yet Angela Merkel's conservative-led coalition in Berlin refuses to sanction this obvious step and the crisis continues. So, Germany is the key to the problem. The Merkelization of Europe - By Paul Hockenos. Not so long ago, France was the political driver and Germany the economic motor of the European Union. "Now," remarked former European Commission president Romani Prodi in February, it is Merkel "that decides and Sarkozy that holds a press conference to explain her decisions. " This searing image could be embellished with the 24 EU members cowering in the press room -- and Britain now watching through the window. Now that Britain has sidelined itself from the historic "fiscal compact" concluded in Brussels on Dec. 9, which provides the EU with new powers to enforce stricter discipline in national budgets, the community appears even more fiercely segregated within its own ranks. Pathetically, the Brits walked not because of the starkly deficient democratic procedure or the fact these governance changes wouldn't adequately address the euro quagmire, but rather to protect London's financial services industry from regulations that were part of the deal.
JEAN-PAUL PELISSIER/AFP/Getty Images. US Economist Kenneth Rogoff: 'Germany Has Been the Winner in the Globalization Process' - SPIEGEL ONLINE - News - International. The German Hour - Jean Pisani-Ferry. Exit from comment view mode. Click to hide this space BRUSSELS – A series of developments over the last few weeks have set in motion a downward spiral for the eurozone. Unless officials – especially German officials – act fast, the verdict of financial markets is bound to be ruthless.
First, the eurozone has failed to turn the tide. Mario Draghi, President of the European Central Bank, was right to note that, despite numerous ministerial meetings and three summits, implementation of the decision to increase significantly the firepower of the European Financial Stability Facility (EFSF) is still lacking. There are now growing doubts about the effectiveness of the EFSF. Second, and partly as a consequence, virtually all eurozone countries’ debt is trading at a discount relative to German Bunds.
Third, financial-market participants and, increasingly, real businesses are pricing in a possible breakup of the eurozone, if not the end of the euro itself. This is a risky attitude. Toward a Gentler, Kinder German Reich? With each passing day, European Integration – the longest running political soap opera – is increasingly resembling the infamous “don’t mention the war” episode of Fawlty Towers. In a recent op-ed entitled “Germany has declared war on the eurozone,” the editor-at-large of the respected London Times minced no words about Germany’s grand strategy in the past two years: “If Clausewitz is right that “war is the continuation of policy by other means”, then Germany is again at war with Europe, at least in the sense that German policy is trying to achieve in Europe the characteristic objectives of war: the redrawing of international boundaries and the subjugation of foreign peoples….
Angela Merkel, the German Chancellor, has consistently claimed that Germany will “do whatever it takes” to save the euro. But what she has actually done is consistently to refuse to take any of the necessary action. Demographically and economically, Germany is one third larger than either Britain or France. Will Angela Merkel Act, or Won't She? It was Thanksgiving Day in the U.S., but just another tension-filled Thursday in Strasbourg, part-time home to the European Parliament and thus the fulcrum upon which the world’s financial future teeters. Angela Merkel arrived uncharacteristically late, keeping Nicolas Sarkozy and Mario Monti waiting. No matter. The press conference couldn’t start without Merkel any more than a performance of Hamlet could begin without the prince.
The day before, the debt crisis that’s been spreading for two years singed Germany, as investors shied away from an auction of 10-year government bonds. Ten minutes into the news conference, as Merkel’s turn to speak arrived, markets and fellow politicians were parsing her German for a sign that the Chancellor was ready to quell the panic by finally agreeing to issue euro bonds, perhaps, or supporting unlimited bond purchases by the European Central Bank. Merkel yielded not a millimeter. There is a whiff of August 1914 in the air. Still, Germany resists. Europe, facing abyss, embraces German might. BERLIN (AP) – For more than half a century, the legacy of World War II has meant that the mere mention of a new rise of German power sent shudders through European nations.
Now, Germany is increasingly calling the shots for the entire continent — and few seem to mind. Polish Foreign Minister Radek Sikorski — whose nation lost millions of people in the Nazi invasion and occupation — shocked many this week when he made a dramatic appeal for greater German influence. "You know full well that nobody else can do it," he told a largely German audience in Berlin. "I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity. " European leaders are panicked over unsustainable debt that could take down the entire global economy.
At the same time she talked down any fears of German preeminence in Europe. Increasingly, however, such fears appear to be getting more subdued. Merkel Is Wrong About EU Fiscal Regulation. The conventional wisdom -- of which the German government is the strongest proponent -- is that European sovereign debt markets are in crisis because Europe's leaders failed to enforce their own rules on macroeconomic policy. Last March, members of the eurozone agreed to a "six pack" of measures that would help states better coordinate policymaking. But the move failed to solve the problem, so German Chancellor Angela Merkel is pushing a new fiscal compact to save the union, and the currency.
Member states would write balanced budget provisions into their national constitutions, and the European Commission and the European Court of Justice would act as the enforcers. The problem is that this new approach assumes that compliance is a matter of enforcement. Two stories illustrate the difference between enforcement and incentives. To continue reading, please log in. Don't have an account? Register Register now to get three articles each month. Register for free to continue reading. The Chancellor Who Played with Fire - Joschka Fischer. Exit from comment view mode. Click to hide this space BERLIN – German Chancellor Angela Merkel should be happy nowadays: her party’s approval ratings aren’t bad, and her own are very good.
She no longer has serious rivals within the center-right Christian Democratic Union (CDU), while the left opposition is fragmented into four parties. Her response to the European crisis has prevailed – or at least that is the impression that she conveys, and that most Germans believe. So everything is fine and dandy, right?
Not so fast. But the real danger to Merkel is external: the European crisis. The European Union’s economy is sliding into a severe and, in all likelihood, long-lasting recession, largely self-inflicted. Hungary, where democratic backsliding appears to be taking hold, provides a foretaste of a Europe in which the eurozone crisis and deflation persist. The crisis has now reached Italy and is threatening to spread to France. That won’t come cheap. Germany and the Euro Crisis: Is the Powerhouse Really So Pure? Lazy, profligate, scheming Greeks versus honest, thrifty, industrious Germans.
Southern vice versus northern virtue. For much of the news media—not only in continental Europe’s “virtuous” north, but also in the United States—the euro sovereign debt crisis could be summarized in the form of this morality play opposing national or regional stereotypes. If in Germany itself it was the deliberately over-the-top tabloid Bild that famously took the lead in lecturing the Greeks on Greek vice and German virtue, in the United States, New York Times columnist Thomas Friedman adopted essentially the same tone and underlying “analysis.” “Can Greeks Become Germans?” Friedman asked in a column written last year, suggesting that this was the only way the crisis could be resolved.
But what if the financial strains on the PIGS that threaten the eurozone are a product of the eurozone itself? Related Essay Is Spain the Next Greece? Italy is a particularly interesting case in this connection. "The Threat of German Amnesia" by Joschka Fischer. Exit from comment view mode. Click to hide this space BERLIN – Europe’s situation is serious – very serious. Who would have thought that British Prime Minister David Cameron would call on eurozone governments to muster the courage to create a fiscal union (with a common budget and tax policy and jointly guaranteed public debt)? And Cameron also argues that deeper political integration is the only way to stop the breakup of the euro.
A conservative British prime minister! The European house is ablaze, and Downing Street is calling for a rational and resolute response by the fire brigade. Unfortunately, the fire brigade is being led by Germany, and its chief is Chancellor Angela Merkel. Let’s not delude ourselves: if the euro falls apart, so will the European Union (the world’s largest economy), triggering a global economic crisis on a scale that most people alive today have never experienced. Germany, for its part, will have to opt for a fiscal union. Today Germany is the Big Loser, Not Greece. By Marshall Auerback Given the German electorate’s long standing aversion to “fiscal profligacy” and soft currency economics (said to lead inexorably to Weimar style hyperinflation), one wonders why on earth Germany actually acceded to a “big and broad” European Monetary Union which included countries such as Greece, Portugal, Spain and Italy.Clearly, this can be better understood by viewing the country through the prism of the Three Germanys, which we’ve discussed before:Germany 1 is the Germany of the Bundesbank: the segment of the country which to this day retains huge phobias about the recurrence of Weimar-style inflation, and an almost theological belief in sound money and a corresponding hatred of inflation.
It is the Germany of “sound finances” and “monetary discipline”. In many respects, these Germans are Austrian School style economists to the core. In their heart of hearts, many would probably love to be back on an international gold standard system. So who holds the gun now? Germany, Not Greece, Should Exit the Euro. All the debate about the pros and cons of a Greek exit from the euro area is missing the point: A German exit might be better for all concerned. Unless Europe’s leaders take some kind of radical action, such as adopting and executing some of the many reform ideas they have floated, the currency union is headed for disintegration. The problems of Greece, Ireland and Portugal have spread to Spain, the fourth-largest economy in the euro area. Italy is probably next. The other members of the currency union can’t afford to bail them all out.
Further loans will serve only to exacerbate the fundamental problem of too much debt and add to the growing enmity between the strong northern tier and its wards to the south. A Greek exit from the currency union would make the situation even worse. German Exit What, then, might a German exit do? A single, powerful nation would have the best shot at executing a relatively swift exit that would be over before anyone could panic. Vital Interest. Merkel set on beating crisis in eurozone. Confronting follies. We're Good Europeans Yet They All Hate Us. Once again, Europe has a country at its centre that is too big for its neighbours.
Merely by keeping on its best behaviour, Germany has managed to reawaken the historic "German problem". It has succeeded its way into a crisis. Ever since Greece's finances became a matter of public concern just over two years ago, Germany has been regaining its status as the leading power in Europe. It subjected itself almost a decade ago to a painful reform of its welfare state and a freeze in real wages that has made it as competitive an exporter as any country in the world, including China. Now Germany's economy is better balanced than those of other European countries, its reputation for honest accounting stands higher, and it has kept its triple-A credit rating while France, Austria and others have been downgraded. Nearly everyone agrees that Germany must save the Mediterranean economies. But a brewing populist opposition believes otherwise. Germans have been fed a lot of nonsense about the euro. Debt crisis: German Chancellor Angela Merkel defends austerity in face of rebellion in Europe - European, Business.
German Mercantilism and the Failure of the Eurozone, Guest Post by Heiner Flassbeck. Only Germany Can Save Europe - By Heleen Mees. "Germany’s Neighborhood Watch" by Mohamed A. El-Erian. "A Berlin Consensus?" by Andrew Sheng. The World Waits For Germany. "Should Germany have to pick up Europe's check?" by Christopher T. Mahoney. Can the rest of Europe stand up to Germany? | Anatole Kaletsky. "A German empire?" by Hans Kundnani. "Is Germany going to brake? Well, not so fast" by Stefano Casertano. German own goal: why Berlin’s sense of invulnerability will be its undoing. "Europe’s Winners and Losers" by Joschka Fischer.