The Rebel Realist
Ms. Europe or Frau Germania?
Joschka Fischer
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BERLIN – Just what is the matter with Angela Merkel? Only a short while ago, she was celebrated as “Ms. Europe”; now, she increasingly gives the impression of being Frau Germania. Instead of providing resolute leadership in the global financial and economic crisis, the European Union’s largest economy is withdrawing into its shell.
Germany has always been the motor of European integration, in accordance with its political and economic interests. Every post-World War II government has always been willing to harness Germany’s financial strength to further that aim, i.e., to foot the bill for Europe.
The motto was simple: Germany gives and profits in turn. Should Germany spurn the first part of this formula, the European project would suffer serious damage – and so will German national interests. Yet this is the direction in which Chancellor Merkel seems to be heading.
Indeed, in the wake of the Greek crisis, Merkel spoke publicly of the need to be able to exclude eurozone members that do not play by the rules. Does she seriously believe that the euro and the EU would survive such punitive action? Instead of ideas for strengthening the solidarity and stability of the eurozone, absurd proposals are floated in Berlin.
The idea that Germany would show financial solidarity with weakened eurozone members only if they accept draconian stabilization measures is similarly unrealistic. Such measures would only exacerbate deflation in these countries, which are the most important markets for German exports.
What is essential is the right combination of stability and financial aid, even if the latter is unpopular with the German public. To be sure, eurozone member states also needed the courage to respond to the crisis of confidence confronting the common currency with concerted action for tighter control of national budgets and improved cooperation. As a first step, however, Greece must be given help, through the financial solidarity of EU governments.
On the other hand, foreign criticism of Germany for running a current-account surplus similar to China’s is unfounded. Such criticism disregards two important differences: first, unlike China, Germany, as a member of the eurozone, cannot undervalue its currency. Second, German “exports” go mainly to the EU.
To demand that Germany should stop increasing its competitiveness, or even reduce it, is simply bizarre. From 1990 to 2005, Germany struggled with high unemployment, slow growth, and low competitiveness, and Europe’s economy suffered as a result. Recovery was difficult to achieve, but the Common Market has profited from Germany’s renewed competitiveness.
The crucial point is not the German economy’s renewed strength, but whether Germany will use this strength in Europe’s interest or its own. Unfortunately, Merkel seems to have decided on the second option, because it entails fewer domestic political risks.
The responsibility for the current conflict within the EU rests with eurozone governments, but primarily with Germany and France, the zone’s two strongest economies. Rather than lead, the Franco-German couple is constantly, and publicly, at each other’s throats. While today’s quarrel is about who should pay for restructuring Greece, the real issue is the latent distrust between the two partners, which carries the danger of a permanent estrangement.
From the German point of view, France only wants to solve its national budget and debt problems at Germany’s expense, simultaneously weakening Germany’s competitiveness. The French government, on the other hand, fears that the Germans’ commitment to eurozone stability is a ploy aimed at pushing France into a corner and leaving it behind economically.
Since the global crisis erupted in the fall of 2008, both Merkel and French President Nicolas Sarkozy have been faced with threats that their political majorities might disappear if they put aside their national interests in favor of a European compromise. France has no chance of meeting Germany’s stabilization objectives unless Sarkozy wants to forget about re-election. Merkel would cause outrage among her conservative voters (as well as court defeat at the German Constitutional Court in Karlsruhe) should she agree to a more free-spending policy, including any direct financial assistance for Greece.
Soon, Helmut Kohl, Europe’s Honorary Citizen and Germany’s Chancellor of Reunification, will be celebrating his 80th birthday. As is usual on such occasions, there will be a lot of lofty speeches about Europe. But, in view of the current situation, we can safely ignore these. What Europe needs in this serious crisis are statesmen and women of Kohl’s caliber, not domestic politicians!
As the big economic and political winner of the eurozone, Germany, in particular, cannot let a serious crisis of confidence threaten the European project, because nearly two-thirds of its exports go to the EU. Ever since the collapse of Lehman Brothers in September 2008, it has been clear that the global crisis would challenge the EU and the euro, because Europe lacks a common government and fiscal policy.
Coordination within the eurozone – above all between its most important economies, France and Germany – is therefore all the more important. It is in Berlin and Paris, first and foremost, that the crisis-management strategy for the eurozone must be decided.
Joschka Fischer, Germany’s Foreign Minister and Vice Chancellor from 1998 to 2005, was a leader in the German Green Party for almost 20 years.
Copyright: Project Syndicate/Institute for Human Sciences, 2010.
www.project-syndicate.org
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ThomasL 06:52 11 Apr 10
Hannibal,
who are you criticising? Ms. Merkel or Mr. Fisher...
Hannibal 01:38 11 Apr 10
ThomasL,
isn't it obvious? Both.
Hannibal 01:02 25 Mar 10
"first, unlike China, Germany, as a member of the eurozone, cannot undervalue its currency"
Actually, Frau Germania has done and is still doing that, exactly because others EU countries, like the PIIGS cannot devalue either. It's the real exchange rate that counts. While Germany's real exchange rate hasn't changed much, pre-crisis till now, others' like Spain's has changed a lot because of their housing bubbles, which casued their nominal currency, the Euro to be overvalued, and thus German currency undervalue, relatively speaking.
Well, how did the bubble happened, you ask? It was because the German were buying assets in those countries. That's precissely how you acquire the current account surplus and trade surplus. That's why PIIGS need fiscal stimulus because they have no monetary policy.
The ECB perfromance had been atrocious during and before the crisis, maintaining interest rate unreasonably low for some and high for the others, and without any fiscal backing or recommendation. That's why Euro and EU fail at both economic and political level.
You maybe right that it takes statemen to get EU out of this quagmire, but that's just a "feel good" easy way out without any real action, like saying "we should work on our marriage" when a marriage is in crisis without tackling the real issues. I have yet to see any suggestion about Germany taking any responsibility. All we have seen is Germany delaying action to help fellow Europeans like the Greeks. Ask any economist, delay action costs much more than it saves.
"Germany's "exports" go mainly to EU" Yea, me selling my car to my neighbor is still my export to his import! For I'm earning my money on this trade. My surplus is his deficit. It is precisely this kind of hand waving prevented problem-solving in the EU, deep rooted problems unsolved because of self-interest or being ignorant of the situation or both.
Whatever it is you are suggesting is not real suggestion. I would suggest it is a good time to rethink and realize the EU is not a dream project and it shouldn't be. Time to think about taking real action to solve real problems. That is unless you want to have another crisis of this scale in the future, and a foreseable one I might add.