Under Pressure


For the last three years, Europe has been on the edge. Time and time again, the collapse of the euro has seemed alarmingly close. However, European politicians have been able to muddle through, coming up with half- baked solutions to buy time. Meanwhile, the suffering endured by the people of Spain, Greece, Italy and Portugal has been immense – on a scale comparable to the Great Depression. The youth has been the hardest hit; consequently, we are at the cusp of facing a lost generation disillusioned with its politicians, hostile towards the idea of European solidarity and greater integration, and looking to the political extremes for salvation. This sets a dangerous precedent for the future, as the only solution to the economic crisis is greater integration and greater cooperation between the southern periphery of Europe and northern creditor countries. The alternative would be prolonged economic suffering, a complete shift to the extremes, and an experiment to reform a war-torn continent in tatters.

It is safe to say that Germany, the sole economic powerhouse in Europe at the moment, has been instrumental in holding the euro together.  For example, last month, the German court ratified the European Stability Mechanism, the permanent bailout mechanism. This newly created fund will increase Germany’s deficit from €26 billion to €29 billion and Germany’s commitment to the euro. Yet, perversely enough, Germany has been subject to sustained vilification about their handling of the crisis from politicians, academics, and journalists to the people of Europe themselves. The Greeks and the Spaniards detest the austerity programs Germany has “forced upon them” while the French under Socialist Francois Hollande has been hysteric about the need for greater government spending to promote economic growth. Angela Merkel was even infamously seen dressed up in a Nazi uniform in one of the Greek newspapers.

Merkel’s response has been simple. If no conditions are placed on the bailouts, it would create a case of widespread moral hazard. Southern European countries would be under the impression that Germany would always be ready to bail them out, having no incentive to reform their economies. The Germans understandably need assurance that the European periphery is ready to slash their unsustainable levels of debt and move towards reforming their uncompetitive and stagnant economies. Rescue packages and ECB action only buys time but the emphasis should be on Greece, Spain, and Italy to enact the long-overdue structural reform to put a definitive end to the crisis.

Instead, the onus has always rested on Germany to not only keep the euro together, but also to put an end to the crisis. There has been constant pressure on Germany to pool European debt together, approve the formation of a banking union, and relax its austerity demands. While these proposals might make sense economically, they are politically unrealistic from a German point of view. A banking union would lead to greater inter-bank lending, exposing German banks to the collapsing banks of Spain and Greece.  Pooling debt together would benefit the periphery with lower borrowing cost but the northern creditor countries would face higher borrowing costs than if they issued debt as individual countries. Debt mutualization would only be a realistic proposal if all the European countries would be in a similar fiscal situation and have similar social security systems. This could take decades. Thus, berating Germany for not supporting these rather ambitious and unrealistic proposals would only increase their sense of isolation and increase resentment in Germany towards the European project.

An anti-European sentiment is already on the rise in Germany. German taxpayers can see no end to the crisis. At this point in time, German liability to southern Europe seems unlimited. Meanwhile, the German budget deficit has come under increasing strain while the economy is teetering on the brink of recession after years of robust growth. Europe needs Germany more than Germany needs Europe –perhaps the most explicit illustration of this fact is the words of Thilo Sarazin, a former central banker in Germany, who says in Europa Braucht den Euro nicht, the pressure to bail out the rest of Europe “is being driven by that very German reflex, that the holocaust and WII will only be atoned when all our interests, including our money, are in Europe’s hands.” Although German politicians still seem committed to keep the euro together, the people seem much less enthusiastic.

The lack of enthusiasm towards European integration that was prevalent during the formation of the European Union does not bode well for Europe and the world. Conditions in Germany seem ripe for the rise of a far right-wing party with an anti- Europe, nationalistic platform; a platform that could resonate with voters. After WWII, right-wing parties in Europe were almost a taboo, but a right-wing insurgence is not an imaginary threat anymore. The Netherlands and Austria, countries that, like Germany, have become sick of bailing out southern Europe, have seen a considerable rise in popularity of the far right. The Dutch Party of Freedom (PVV) even promised to hold a referendum if elected on whether the Netherlands should be part of the euro, and the PPV ultimately came in third in the general elections showing it is now a prominent player in Dutch politics.

The rise of the far right in these northern European countries has been regrettable, but the rise of the far right in Germany would be disastrous simply because it is likely that Germany would turn its back on the euro. There have been whispers in Germany of whether a two speed Europe, a club of core countries and the southern periphery, would be a more feasible idea. The Economist magazine recently had Angela Merkel on the cover reading a secret memorandum titled “How to break up the Euro” – a previously unthinkable thought but one that the far right would surely entertain. A break up of the euro would be nothing short of economic catastrophe for Europe and the world economy.  Countries in Europe would become even more nationalistic and hostile towards each other; a climate that led to two world wars.

The German situation today has some chilling parallels to the inter-war period that preceded the rise of Hitler and the Nazis. Yet again German has been portrayed as a villain in a European crisis thus becoming more and more isolated, a situation resembling 1919, when Germany was forced to sign the “War Guilt” clause in the Treaty of Versailles. In the 20th century, Germany was forced to pay reparations to the rest of Europe and surely enough today, Germany’s money seems is again going to the rest of Europe. It is certainly not very far-fetched to foresee the rise of a far right party in Germany today taking advantage of the skepticism surrounding the euro that is prevalent in Germany today. Anyone with a sense of history should realize this. Thus, this is a time for greater European solidarity. Instead of isolating and incessantly criticizing Germany, we must cooperate with it before it is too late.