The biggest risk for the euro right now is not that Greece leaves, it’s that Germany leaves
HITLER moustaches and swastikas defiling
pictures of Germany’s chancellor, Angela Merkel, have become a recurring motif
in the iconography of the euro crisis, most recently in Cyprus. Scapegoating is
inevitable during financial upheavals, says Marcel Fratzscher, president of DIW
Berlin, a think-tank. Germany, he suggests, has taken the place of the IMF
during the Asian crisis of the late 1990s, with Mrs Merkel playing the role of
Michel Camdessus, the then IMF boss who was pictured in 1997 with folded arms,
standing over a humbled Indonesian president signing up to harsh austerity
measures. But scapegoating can be dangerous if the goat is powerful and it
begins to feel victimised.
The Germans are not yet openly angry. That
would be out of character in a people who have, since the second world war,
been eager to atone for the past and be good European partners. In one recent
poll, 34% of Germans even said they empathised with the wrath of the southern
Europeans. But the mood is shifting. The southerners may see Germany as forcing
excessive austerity on them and showing insufficient solidarity, but Germans
have a different view.
First, they feel they have already shown
solidarity. Almost a quarter of a century after the fall of the Berlin Wall
they still pay a solidarity tax to eastern Germany. Some also transfer taxes to
weaker German states such as Bremen. Many conclude that, once in place,
solidarity ceases being voluntary and instead becomes a yoke. They also bear
much of the risk of euro bail-outs, even though a study released this week by
the European Central Bank showed that the average German household has less
wealth than the average Spanish, Italian and Cypriot one (though this is partly
because German households tend to contain fewer adults and are more likely to
be in rented accommodation).
Second, they argue that Germany recognised
a decade ago that it was not competitive and undertook painful reforms that are
now paying off. The crisis countries should follow suit. And third, Germans
think the euro crisis was largely caused by rule-breaking (even by Germany
itself), which must not be repeated. As one diplomat puts it, “solidarity is
important, but it should follow rules. It is not just ad hoc giving.”
Together, these attitudes often have the
sound of a morality tale. Indeed, the English term “moral hazard”, which has no
direct German translation, has become a staple of discourse in Berlin.
Originating in the economics of insurance, it refers to the incentives to take
risks when other people stand to pay for any damage. The fear is that German
rescue money could cause the crisis countries to duck their reforms.
The Germans are not alone in these views.
The Dutch, Finns and Slovaks broadly share them. What makes Germany different
is that it is big and central. To historians such as Brendan Simms of Cambridge
University, author of a new book, “Europe: the Struggle for Supremacy”, this
sounds eerily familiar. Europe has long grappled with the “German question”.
Sometimes Germany was too weak, sometimes too strong. Or, as Henry Kissinger, a
former American secretary of state, put it, referring to Germany just after
unification in 1871, it was “too big for Europe, but too small for the world”.
Today, Mr Simms argues, “it sits uneasily at the heart of an EU that was
conceived largely to constrain German power but which has served instead to
increase it, and whose design flaws have unintentionally deprived many other
Europeans of sovereignty.”
The question is whether Germany can use
its power by unapologetically leading. Given Germany’s past, its political
culture militates against even trying. As Joschka Fischer, a former foreign
minister, jokes, “it’s nice to go to a conference of ‘young leaders’, but you
don’t want a conference of ‘junge
Führer’.” Most Germans worry that others might again come to hate
or fear them. Their neighbours are less concerned. As Poland’s foreign
minister, Radek Sikorski, put it in a speech in Berlin in 2011, “I fear German
power less than I am beginning to fear German inactivity.”
Some German academics agree with Mr
Sikorski. Christoph Schönberger of the University of Constance thinks that
German leadership should not be attacked as dominance. The first preserves a
system—to act as lender of last resort in the euro zone, say. The second is
overbearing assertion of power. He asks that “the German elites and public
forbear national introversion” because there is no alternative to German
leadership. Only a complete political union in Europe (as in such federal
countries as Switzerland or the United States) would obviate the need for one
member to be a hegemon, he thinks; but that is in the realm of “science
fiction”.
This is the underlying debate in Germany
as it enters into the long campaign before its federal election in September. A
new poll suggests that 69% of Germans want to keep the euro, which is an
increase over earlier polls. But those who want to go back to the D-mark now
have a political party, the Alternative for Germany, which holds its first
gathering this weekend in Berlin.
“The biggest risk for the euro right now
is not that Greece leaves, it’s that Germany leaves,” claims Michael Burda, an
economics professor at Humboldt University in Berlin. He points to recent
repatriations of German gold from France and America as a subtle signal to the
south that this is not impossible. If Mr Simms is right, “Germany is damned if
it does and damned if it doesn’t” lead. The euro, by contrast, is damned only
if Germany doesn’t.
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