Whither Merkel’s Europe

THE TRIALS and tribulations of the eurozone make for riveting but sad reading.

By M N Hebbar (View from Europe)

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Published: Sun 29 Jul 2012, 1:32 AM

Last updated: Fri 3 Apr 2015, 3:41 PM

Successive European Union summits and attempts at newer treaties have only served to make the waters murkier and revealed huge vested interests behind the treaties. The streets of Brussels have now been likened to late Hapsburg Vienna. They throng with officials, commissioners, court mercenaries and pseudo-parliamentarians. The empire is their livelihood and they will fight to preserve it. The eurozone crisis has made Europe interesting.

It would be instructive at this stage to ponder on how Europe got into this mess in the first place. Has it been all about government profligacy and its lessons of slashing spending even in the face of mass unemployment, with Greece serving as an example of what could be in store if governments did not behave?

The painful truth, however, is that lack of fiscal discipline alone is not the source of Europe’s woes, not even in Greece where its government covered its fiscal irresponsibility with creative accounting. The real culprit behind the current mess has been the arrogance and hubris displayed by the European politicians and policymakers who created the single currency before the continent was ready for such an experiment.

Long before the euro came into being, economists warned that Europe was not ready for a single currency. But the warnings were ignored. The economics were treated as though they could be altered by political will. The reality is that they can’t.

As the crisis unfolded, Greece was joined by Portugal, Italy, Ireland and Spain (collectively called the PIIGS) in running up huge unsustainable fiscal deficits. Unfortunately, they expected to be readily, and unreasonably, rescued by the relatively better-off Northern neighbours, especially Germany.

But Germany has its own story. The Germans have been the beneficiaries of the huge prosperity created by the European Union. Germany’s large trade surpluses have not been a little due to corresponding deficits of the rest, including those of the PIIGS. But Chancellor Merkel’s government will not reward the ‘lazy bums’, as the southern European recalcitrant countries have been termed, for their bad financial governance. The hardworking Germans are where they are due to sensible policies and hard work. The Germans will not subsidise the PIIGS. The harsh reality of the eurozone today is that a small economy like Greece has spilled its troubles into other eurozone countries such as Spain and Italy. Germany is seen as the locomotive that can drag the entire eurozone countries out of the present crisis by organising financial bailouts through the European Financial Stabilisation Fund. But it isn’t so simple as that.

But German chancellor Angela Merkel has been both far-sighted and pragmatic in her dealing with the eurozone crisis. She stands out in the actual EU discussions at Brussels by virtue of being in command of her brief. The chancellor’s negotiating style at gruelling EU summits has often been lauded for her firm hand on Germany’s real national interests. She is looked up to as effectively “the voice of Europe”.

Ms Merkel had, for instance, gently ticked off US President Obama when he declared that Europe should be spending its way of out of recession. Germany has, in fact, emerged from recession early, in the teeth of those foreign pundits who were forever criticising her for her caution in dealing with the downturn.

The eurozone integration plan drawn up at last month’s EU summit does not provide concrete answers to how the next steps towards political union can be intensified. While giving the green signal at the summit for bailing out Italy and Spain, the German chancellor was firmly opposed to the creation of a giant joint liability European bond market.

“You can’t demand Eurobonds but not be prepared for the next step in European integration”, Merkel declared in Brussels. “We won’t be able to create a successful currency like that, as then no one will lend us money any more”, stated the chancellor.

Germany’s finance minister Wolfgang Schauble also emoted in the Bundestag that he would not countenance Eurobonds in his lifetime. If federalism in Europe is the aim, it means very little unless accompanied by banking federalism too.

A new European treaty will also mean a new German constitution. “The ‘democratic deficit’ in how the EU is run would widen exponentially without a radical overhaul of the electoral underpinning of eurozone government”, said Germany’s former Foreign Minister Joschka Fischer.

The EU is not going to become a super-state. Open markets, subsidiarity, better regulations and enlargement are now far more part of the conventional vocabulary of European debate than a United States of Europe.

The inflexibility of the euro lies at the heart of the eurozone debt crisis. The abolition of the euro is almost unthinkable, although the German public, for instance, would be delighted to return to their beloved deutschemark. An attempt to reintroduce the national currency would trigger “the mother of all financial crises”. So the only way forward would be to make the euro work.

Jean Monnet, intellectual father of the European Union, had predicted that a united Europe would be forged through a crisis. If the present eurozone debt crisis serves to push European countries to a far closer political union than could be achieved otherwise, it would ring true. But before we can declare a United States of Europe, Chancellor Angela Merkel may have to give her ‘thumbs up’!

M N Hebbar is a veteran 
journalist and commentator based in Berlin

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