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2 Merkel
wedded to euro and guilt By
Gunnar Beck
"If the euro fails, Europe
fails." German Chancellor Angela Merkel's words
remind one of her predecessor Helmut Kohl's dictum
that "European integration is the other side of
the coin of German reunification." And just as one
set of words is reminiscent of the other, so both
are equally devoid of logic.
Yet, they
signify a deep-seated and abiding commitment to
European Union integration and the defense of the
single currency which is not readily understood
outside Germany. Merkel will defend the euro to
the hilt, to her own peril, that of her country,
and that of the euro itself - and the same holds
for any mainstream German politician who might
replace or succeed her. The reasons for this are
many, but they all relate to Germany's historical
guilt complex and the triumph of short-term calculus
over long-term
evaluation that is symptomatic of our Western
democracies.
First, Chancellor Merkel,
like Helmut Kohl and indeed almost any mainstream
German post-war politician outside Bavaria, is a
convinced pro-European and pro-integrationist. For
better or worse, that means she is committed to
the euro. It also means that she will defend it
for its own sake, not because it may be in
Germany's narrow economic self-interest, debatable
as even that no doubt is.
Second, Merkel,
who is a clever politician and not beyond the
occasional political volte face, as
exemplified by her decision to phase out nuclear
power plants after fighting the last election on a
pro-nuclear platform, knows that after pledging
somewhere between half and one trillion Germans
euros (US$625 billion to $1.3 trillion) to save
the single currency - a sum that ignores further
liabilities which may arise from some countries
leaving the euro, additional leverage of the
rescue fund and the TARGET2 claims by the
Bundesbank - a sudden reversal of policy and
German euro exit or "no more money" stance would
be one U-turn too many.
She would have to
explain a one trillion euro mistake, and would be
criticised in the press and by the europhile
opposition for having done too little too late.
She could probably rely on majority electoral
support, but that may not be enough to shield her
against unprecedented foreign and domestic
political and media criticism of the kind not
experienced by any Germany chancellor.
Third, the German political establishment
has been committed to "ever closer" EU integration
for the past six decades, ever since West Germany
became a state in 1949. The euro is part of that
integration process.
Any German Chancellor
who would pull the plug on the euro would go down
in history as an irresponsible and dangerous
nationalist who placed narrow self-interest over
wider responsibilities, turned their back on six
decades of ostensibly consensus-based integration
politics, plunged Europe into a long recession,
and would get no credit for having had the courage
to avert a foreseeable, much greater calamity.
By contrast, even if things go badly
wrong, a pro-euro German leader who dutifully
continues throwing more good money after bad until
the markets finally lose confidence in the euro
when there is no German money left, would still
get credit - at home and especially abroad - for
having done "the right thing", for accepting
Germany's everlasting historical responsibility,
and failing not for the wrong but the right
reasons - the spirit of international solidarity -
whatever Germany's expense.
Fourth, the
euro crisis no longer affords of any cost-free
options. If Germany had refused to bail out
Greece, Ireland and others right at the start, she
would have suffered a contraction of some export
markets and written off some of the Bundesbank's
claims on other central banks, but there would
have been no question of transfer payments,
eurobonds or a German bailout of Spanish and
Italian banks.
Germany, in theory, still
remains free to leave the euro now and renege on
all guarantees given on the perfectly lawful
grounds that the beneficiaries did not fulfil
their side of the rescue bargain.
In this
scenario, Germany would stand to lose somewhere
around 800 billion euros, which is roughly
equivalent to the value of the Bundesbank's
TARGET2 claims against other eurozone central
banks. Germany's public debt would rise from its
current 81.5% to an estimated 110% of GDP or more,
which in turn would force up German government
borrowing rates.
The combined effect of a
prolonged recession in the former eurozone and the
write off or devaluation of a substantial amount
of Germany's foreign assets would have immediate,
very significant although not catastrophic
economic effects within Germany. Withdrawal now
would mean disaster but avoid a catastrophe.
By contrast, if Germany simply continues
granting loans and guarantees she cannot afford,
or if the European Central Bank (ECB) buys up more
government bonds that cannot be repaid, or if by
eurobonds, eurobills or some spurious means
Germany finally agrees to full burden-sharing of
all EU debts, the losses to the German economy and
taxpayer can be spread out indefinitely and
obscured and in part be paid for by inflation.
The cost of a bailout will amount to many
dozens of billions of euros a year and the German
public will over time see their savings devalued
by a few percent each year. If the European
Stability Mechanism (ESM) is implemented and the
ECB starts buying up governments bonds, the
longer-term cost to the public purse in Germany
will exceed one trillion euros and could reach in
excess of two trillion euros. But, because it can
be spread out and does not hit everyone at once,
it will not appear to the electorate as
catastrophic as a sudden write-off and euro
collapse.
For Western governments, costs
that are lower overall but immediate almost always
are a less-attractive proposition than much
greater but also more distant and less-transparent
long-term costs. Long gone is the time when
long-term thinking was still possible in Western
Europe.
Fifth, few people and politicians
have the strength to admit and correct an error -
and German politicians are amongst the worst at
realizing when the time has come to cut one's
losses.
That was true in both world wars,
and it oddly remains true now. Merkel was able to
change her mind on nuclear energy because,
although broadly supportive, she and her party
never embraced France's unqualified commitment to
nuclear power. She cannot do the same with the
euro as she committed herself early on, linked the
euro rescue to the integrationist cause long ago,
and has been whipping aid packages through
parliament for the last two years.
If she
pulled out now, it would be like Hitler making
peace with Stalin before the battle of Kursk - it
would be the only rational course of action, but
also the admission of a colossal error. For this
reason alone it will not happen.
Sixth,
there is no eurosceptic politician of note in
Germany despite occasional reservations expressed
by the leaders of CSU (Christian Social Union),
the Bavarian wing of the ruling CDU (Christian
Democratic Union) led by Merkel. Both the Greens
and the opposition SPD (Social Democratic Party)
have criticised Merkel for not doing more, and
both parties were advocating eurobonds and the
mutualisation of all eurozone government debt well
over a year ago.
The leader of the Greens,
Jurgen Trittin, a well-spoken ideologue with no
sense of reality or responsibility, also demands a
banking licence for the ESM, unlimited use of the
printing press, and a bail-out for all European
banks.
If the current government were to
be replaced by an SPD-Green coalition at the next
election or before, the result would be a more,
not less, uncritical euro-support policy in
Germany, until the moment when the euro support
machine is switched off and Germany joins the
intensive care unit as the latest euro coma
patient.
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