A Game of Euro Chicken

Playing Until the Germans Lose Their Nerve

by Jan Fleischhauer

For Germany, being part of the European Union has always included an element of blackmail. France has been playing this card from the beginning, but now the Spanish and the Greeks have mastered the game. They're banking on Berlin losing its nerve.

France's newly elected Socialist government has just decided to lower the retirement age to 60. From now on, no Frenchman will be forced to work any longer just because it might help kick-start the country's flagging economy. And there's no way the French are going to work as long as their poor fellow Europeans in Germany, whose government is obliging them to labor and toil until age 67.

Blessed France, where the ruthless laws of the economy lose their ability to frighten people bathing in the eternal sunlight of socialism. Granted, this grand nation doesn't produce enough children to guarantee the prosperity of its inhabitants into old age. But in France, something that would elsewhere be viewed as a serious demographic problem demanding tough attention is seen as a mere misunderstanding that the strong arm of the president can simply dispel with the stoke of a pen, should he so desire.

OK, things aren't quite that easy, even for François Hollande, the freshly minted sun king of France's Fifth Republic, and his fellow brothers-in-arms. At least they understand enough to know that economic problems can't be solved by merely kicking them down the road. But, luckily enough, those in the Elysée Palace can also still rely on the willingness of the Germans to work hard. And it's there that we come full circle.

Splitting the Bill

We've now reached a phase in the euro crisis when everyone is trying to feather their own nest at someone else's expense. Hollande is campaigning to have the European Union help the Spanish rehabilitate their banks without involving itself in their business dealings. But, in doing so, he's much less focused on Spain's well-being than on France's. Once the principle stating that countries can only receive financial assistance in return for allowing external oversight has been contravened, one is left with nothing more than a pretty piece of paper to insure against the vicissitudes of economic life. And, of course, the next banks that will then be able to (and presumably also will) get a fresh injection of cash straight from Brussels are the ones in Paris.

Sigmar Gabriel, the head of Germany's center-left Social Democratic Party (SPD), has already called Hollande a friend. But Franz Müntefering, the wise party elder, has just warned his party colleagues not to sing the French president's praises too loudly. The old fox knows when he's standing face to face with someone who only has his own interests in mind. Indeed, despite all his calls for European solidarity, most of Hollande's proposals are ones that others will have to pay for. Someone is obviously going to have to be responsible for all the social programs the French government is concocting. And why not the nation whose people are viewed as particularly hardworking and dependable by an overwhelming majority of the people surveyed in a recent poll?

Hollande's policies depend on foreign creditors being willing to lend him the necessary funding, but their read on things differs from that of the domestic electorate. Since they're worried about whether they'll ever see their money again, they're demanding higher risk premiums. One path to fresh capital with cheap conditions leads to the savings of Germans -- which also explains why the French government has been so badger-like in its championing of euro bonds and, more recently, a banking union.

Then again, there's another option: having the French work harder. But Hollande would prefer not to ask that much of his countrymen.

Fears of German Hegemony

French foreign policy has always been plagued by an obsessive fear of German hegemony over Europe -- and the euro was supposed to be the way to prevent it. It's well-known that French President François Mitterrand made his approval of German reunification contingent on German Chancellor Helmut Kohl's acceptance of the common currency.

Seen in this light, the process of communalizing the debt of the EU's members states brings to full circle a project that the French have always viewed as something directed more against Germany than at uniting the Continent. Nicolas Sarkozy, Hollande's predecessor, believed that the best way to pursue this traditional goal was by using the novel approach of fostering a sense of solidarity with German Chancellor Angela Merkel. But Hollande is returning to the tried-and-true method of weakening the Germans by undermining their economic strength.

The next stage in the crisis will be blatant blackmail. With their refusal to accept money from the bailout fund to recapitalize their banks, the Spanish are not far from causing the entire system to explode. They clearly figure that the Germans will lose their nerve and agree to rehabilitate their banks for them without demanding any guarantee in return that things will take a lasting turn for the better.

Playing Hardball Among Supposed Friends

The next test of the resolution of Europe's donor nations will come from the Greeks. As chance would have it, I was recently standing next to the foreign minister of a country that is inclined to be friendly with Germany. If I understood him correctly, he said he firmly expects that, after the election on June 17, the Greeks will bargain with the other EU countries to see what it's worth to them to see Greece abandon the euro. The Greeks no longer have much to lose; but their EU neighbors -- and particularly the Germans -- still do. This discrepancy will determine the price to be paid.

Germans have always expected that being part of a united Europe meant that national interests would recede into the background until they eventually lost all significance. One recognizes in this hope the legacy of political romanticism. Indeed, only political simpletons assume that when people in Madrid, Rome or Paris talk about Europe, they really mean the European Union.

But, as one can see, it's hard to liberate Germans from this particular form of herd mentality -- even when they're the leaders of the SPD.