Germany Appoints Itself Parent to Restive Euro Children
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Version 0 of 1. BERLIN — Buoyed by solid finances, roaring exports and low unemployment, Germany increasingly sees itself as the only grown-up in Europe, responsible for bringing wayward children into line to hold the family together. The children are not enjoying it. Some, like the Cypriots and Greeks and many Italians and Spaniards, are openly resentful of “Mutti,” or Mom, as Berlin officials privately call Chancellor Angela Merkel. Others, like the French, are sulking. The mood among German politicians and officials is one of economic self-confidence tinged with a sense of parental duty to provide the euro zone with stiff-backed leadership, even if that makes them unpopular in Europe. “German policy makers have taken to their newfound status with something close to gusto,” Simon Tilford, chief economist at the Center for European Reform, said in the latest edition of that London-based research institution’s bulletin. “They routinely tell other euro zone countries how to run their economies, citing Germany as a model for the currency union as a whole.” The view from Berlin, set out by a range of policy makers who spoke on condition of anonymity, is that Germany, which has the largest euro economy, has a unique responsibility for the survival of the single currency. The subtext is that since the Germans are the main bailout contributors and have the most to lose in any collapse of monetary union, they must ensure that their partners cut their deficits, implement reforms and avoid mistakes that could sink the euro. German confidence in the ability of the European Commission and the European Central Bank to hold to a firm course without yielding to political pressure is limited. Hence Berlin’s insistence on involving the International Monetary Fund in all euro zone financial rescues and its own willingness to play bad cop, even if that means effigies of Ms. Merkel are burned or dressed in Nazi uniforms by protesters. Some European partners and many economists argue that her recipe of a synchronous fiscal contraction across Europe means deepening recession and rising unemployment and could turn the sovereign debt crisis into a social and political tsunami. “Prolonging austerity today risks not achieving a reduction in deficits but the certainty of making governments unpopular so that populists will swallow them whole when the time comes,” the French president, François Hollande, warned last week. “I perfectly accept that European countries have to be rigorous, and France first of all,” he said. “But not austerity, because sticking with austerity would condemn Europe not just to recession but to an explosion.” In Berlin, such comments elicit a rolling of eyeballs. From Ms. Merkel on down, German leaders feel the French have not fully accepted the depth of the crisis facing Europe and their own economy. “There is a lack of will, a lack of awareness,” a Francophile German lawmaker said. “What is needed is an emergency U-turn. There is still no clarity over their deficit reduction plans.” German leaders like to remind visitors that a decade ago their own country was depicted on the cover of The Economist as the “Sick man of Europe” for its rigid labor market, ineffective bureaucracy and low competitiveness. “We are quite a good example of a success story,” said one senior politician who was in opposition in 2003 when the chancellor then, Gerhard Schröder, a Social Democrat, pushed through a tough overhaul of labor laws and a reduction in unemployment benefits. The bipartisan celebration last month of Mr. Schröder’s “Agenda 2010” program highlighted a broad agreement that the changes had led to a jobs miracle, even though thousands of people in Germany now work for as little as €3, about $3.85, an hour. Whatever the outcome of the general election in September, a “grand coalition” also exists of Ms. Merkel’s center-rightists and the Social Democrats, providing a buttress on many policy issues. When German officials are asked what joint liability they are willing to accept for borrowing or insuring euro zone bank deposits in return for stronger central control over national budgets and economic policies, they answer by pointing to the future without making specific commitments. “The problem is getting reforms in return for the present German solidarity in the crisis mechanisms,” one official said. At an E.U. summit meeting on economic overhauls in March, Ms. Merkel drew the lessons of a slide show done by Mario Draghi, president of the E.C.B., showing how wages had soared in South European countries since the introduction of the euro in 1999, far outstripping productivity gains. Ms. Merkel said the crash course in macroeconomics highlighted the gap that had widened within the euro zone between countries with current account surpluses and those with deficits, and was an eye-opener for many leaders. “It shows that high deficits are bad for growth,” she said. There are three risks in her strategy: that the economic policy that worked for frugal Germany may not work for Europe; that a country unable to cope with tough bailout programs may default; and that South Europeans may rebel against mainstream parties and elect anti-austerity governments. Despite some improvement in Spanish exports and Greek productivity, the economic outlook for Southern Europe is still darkening and any recovery seems tenuous, while unemployment continues to rise. No country receiving a bailout has defaulted so far, but Greece has repeatedly fallen behind on its targets, and its debt has ballooned despite a second rescue last year. Germany made it clear that it would have left Cyprus to default and leave the euro if Nicosia had rejected its bailout terms. An electoral backlash is already under way. Anti-austerity populists narrowly failed to win two Greek general elections last year and have now caused political deadlock in Italy. There is a strong prospect that a backlash against German-driven austerity policies will fill the European Parliament next year with a bumper crop of euro-skeptics and political radicals. Faced with ever more unruly children, Mutti may eventually face a hard choice between the breakup of the family and more financial support for the poorer relatives. <em>Paul Taylor is a Reuters correspondent. </em> |