As Europe edges toward emergency guarantees to stem market panic over one of the most profligate members of the euro bloc, the country that the region turns to for leadership, Germany, is suffering from growing doubts about the European experiment it long championed.
Reluctant German leaders now find themselves forced to help Greece remain solvent, or risk watching markets attack one weak member after the next, from Portugal to Spain to Italy, threatening the stability of the euro, the European currency Germany fought so hard to create.
In a conference call with the finance ministers from the 16 countries that use the euro and the president of the European Central Bank, Jean-Claude Trichet, officials said that some action had to be taken to calm markets and take pressure off Greece. But what form that rescue would take — be it loans, loan guarantees or a promise to buy Greek government bonds — still had not been decided Wednesday night, ahead of a summit meeting involving all 27 European Union governments on Thursday.
What did appear clear was that Germany, with an assist from France, would have to take the lead. “The Germans are the only ones with deep pockets,” said Daniel Gros, director of the Center for European Policy Studies in Brussels. “If it was just Greece, they could consider letting them go down the drain, but it threatens the entire euro zone.”
Berlin has been mostly silent on the matter. That is partly to put pressure on Greece, as civil servants struck there Wednesday to oppose cutbacks that the government has promised in order to rein in its enormous budget deficit.
But a bailout will be politically awkward for Chancellor Angela Merkel’s government. It is precisely the financial millstone that opponents warned about when Germany gave up its treasured mark, a move that a majority of people here, in contrast to their political leaders, opposed at the time.
The role of savior has been thrust upon Germany by default. The euro bloc has myriad rules and regulations intended to avoid the need for prosperous members to rush to the aid of those with weak economies.
But the markets have ignored the rules, fluctuating with unconfirmed reports that the Germans have agreed to rescue the Greeks, which often carry the implicit warning that everyone will suffer if they do not. As the largest European economy with the most fiscal flexibility, Germany is crucial to any euro zone effort to save Greece.
The apprehension in Germany runs much deeper than a single crisis. It comes in the same week that Germany gave up its most cherished title, world export champion, to China, heightening fears of a declining stature and importance globally.
Germany also faces a demographic challenge, managing a population that is not only graying but shrinking. Last month the government announced that the population dropped below 82 million last year for the first time since 1995. That means fewer people trying to pay off a growing national debt, with a projected budget deficit of $118 billion this year.
After Mrs. Merkel’s re-election in September and triumphant turn on the world stage in November for the 20th anniversary of the fall of the Berlin Wall, her approval ratings have fallen to their lowest levels in more than three years. Criticism of her government over infighting in the governing coalition — mostly over tax cuts and the budget — has risen steadily. She has been noticeably reticent about the crisis in Greece, speaking out far more forcefully on populist issues like tracking down tax dodgers hiding money in Switzerland.
“It’s a conscious decision to keep quiet,” said Jakob von Weizsäcker, an economist at Bruegel, an economic policy research institute in Brussels, who used to work for the economics ministry in Berlin. “In reality, they are thinking about what they could do.”
The pressure was apparent in a harsh statement against the idea of a bailout issued Wednesday by the coalition partners in Mrs. Merkel’s government, the Free Democrats. There should be “no direct financial help for Greece,” the statement said. “It would send the absolutely wrong signal to other euro countries that no country has to strain to save any more.”
But even German opponents of the euro said a bailout appeared likely. Joachim Starbatty, a professor of economics at the University of Tübingen, was one of four professors who sued before the German Constitutional Court in 1998 to stop the formation of the currency union, which the court rejected as “obviously without foundation.”
Professor Starbatty said he believed that Germany would bow to pressure and back measures to protect Greece from market pressure. “Looking at it realistically, I think you’ll see some form of help that isn’t too damaging for the donor countries,” he said.
Peter Bofinger, professor of economics at the University of Würzburg and a member of the German government’s independent council of economic experts, said in its report that last November, the council recommended that the European Union could give guarantees for newly issued government bonds from a country in Greece’s predicament, if it had presented a workable plan for getting its finances in order.
After European governments helped stabilize financial institutions during the crisis, it was necessary to send a signal that they would not be allowed to break the currency union, Professor Bofinger said. “It’s important also for politicians to show, we will not allow you to rock our boat. We did so much to save you, you destroyed yourself almost, but we saved you.”
The truth is very simple: The best that can be done for the people of Greece is to not provide one cent of assistance to its corrupt, bloated, and union-controlled government apparatus. A country’s bailout is like a corporate bailout, only many times worse! From this logically follows that the absolute worst Europe could do to the people of Greece would be to give their rulers any more means to continue their irresponsible policies.
The European Currency Union and the European Union itself are both such gigantic failures that it is already pre-ordained that the entire experiment will go down in flames sooner or later. Now is certainly not that time yet. What we are seeing are just a few more cracks emerging in the structure of the system. The European bureaucrats will come up with some sort of pseudo solution to paper over and patch the Greek problem for now.
But the structural problems remain. Remember, this is not the first time a European country has abused the EU’s lucrative transfer system, and it surely won’t be the last! Portugal, Italy, and Spain are in very similar situations. Almost exactly 1 year ago we had the same debate going on. Back then I wrote:
Consider the European stability treaty dead. One member state after another will violate the requirements. The fact that a bailout of some Euro states by others is discussed, just shows how torn this European Union really is, how severe its imbalances are. With discrepancies like these, it is completely unfeasible to maintain a currency union. (…) Individual responsibility per member state rather than complete collectivism should be aspired. Unfortunately Europe has not been very keen on individual responsibility. In Germany, France, and Italy, all one can hear is rants about “neoliberalism”, “anarchism”, “capitalism on steroids” which supposedly are to blame for the financial crisis.
Even if the Greek government were saved to the detriment of the people it tyrannizes, this won’t be the last time we’ll be having this discussion, and it sure as hell won’t get any better!