Germany and the rhinoceros
Why do Germans seem to be so relaxed about the euro crisis? That's the question I've been asking myself over the two years in general and the last two weeks in particular. A lot of smart people are now increasingly pessimistic about the future of the euro - despite the new emphasis by European leaders on growth. For example, in an interview with the Spiegel last week, Paul Krugman described the measures that Francois Hollande and Angela Merkel seem to have agreed as "a water pistol against a charging rhinoceros". When a Nobel-Prize-winning economist tells me that the economic equivalent of a rhinoceros is charging at me and all I have is a water pistol to defend myself with, it scares me. So why do Germans seem to be so fearless?
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Over the last two years I’ve been struck again and again by the apparent disconnect between the discourse in Germany and the discourse elsewhere in Europe and the world. It's partly that there is a different narrative about the crisis in Germany, which focuses on Greece and fiscal responsibility rather than economic imbalances and the flawed architecture of the eurozone (what Krugman calls the "Hellenization" of discourse). But it’s also that apart from a few exceptions such as Joschka Fischer, Germans just don't seem to think the situation as serious as everyone else does. Every time I talk to German politicians or officials about the crisis I am struck by the apparent lack of a sense of urgency in the way they talk about it – even compared to their counterparts in the UK, which is not even in the eurozone but is worried about the catastrophic effect that a break-up of the single currency would have on its own economy. "Are they on another planet?" I've often found myself wondering.
For example, the week before last, I went to listen to a senior German politician speak in London. Earlier that day, David Cameron had said the eurozone "either has to make up or it is looking at a potential breakup" and Mervyn King, the governor of the Bank of England, had warned darkly of the "storm heading our way from the continent". But the German politician talked calmly about supply-side reforms that will produce results in the next decade. A few days later, as Krugman was blogging about "apocalypse fairly soon", it was the same story with a German Christian Democrat MEP. Both of them seemed to be focused on solving long-term problems when there is a huge short-term problem – the rhinoceros – right in front of them.
It is frequently said that the reason Germans don't think the crisis is that serious is that they don't feel it personally because the German economy is doing relatively well. (I emphasise the word "relative" because Germans don't feel as if they've never had it so good. In fact, part of the reason Germany is so unwilling to make concessions is that the economic miracle doesn't feel like one to them because of the wage restraint over the last decade that is largely responsible for it.) That may be true for ordinary Germans. But policymakers read English-language newspapers and receive briefings. It is not lost on them that much of the rest of the world, including their traditional allies, sees things differently.
The best explanation I have for why Germans are so relaxed is that they're simply no longer listening. They think their approach to the crisis – austerity throughout the eurozone, minimal adjustment by surplus countries, no use of the ECB as a lender of last resort and no Eurobonds for now – is right and it longer bothers them too much if anyone else thinks they're wrong. In particular, criticism from Anglo-Saxon Keynesian economists such as Krugman whom they see as completely discredited – is water off a duck's back. ("The old Keynesian paradigm is not valid", the senior German politician said.) Germany policymaking is now, as my colleague Sebastian Dullien recently put it, "a closed shop". This is a big – and rather worrying – change.
Of course it could be that we are all wrong and the Germans are right. I guess time will tell. But it's still remarkable that, with the weight of opinion against them, they aren’t more worried. They are well aware that they would suffer more than anyone from a collapse of the euro. According to Chancellor Merkel herself, this would also mean a collapse of the European Union itself, which would be even more of a disaster for Germany. The Germans in general and Merkel in particular are generally thought to be extremely cautious. It seems to me, however, that right now they are actually taking huge risks with their own future and that of Europe.