Martin Wolf’s March 30 column in the Financial Times „The Riddle of German Self-Interest“ once more hits the point. He details seven “nos” from Germany towards proposals to solve the Euro crisis: no to Eurozone bonds; no to common backing for the banking system; no deviation from fiscal austerity; no monetary financing of governments; no relaxation of Eurozone monetary policy; and no powerful credit boom in Germany. And all this from the by far largest country in the Eurozone – which should have the viability of this region at its heart – out of self-interest.
Somehow, this German position reminds me of Bertolt Brechts 1930’s play “Die Sieben Todsünden der Kleinbürger” (The Seven Deadly Sins) in which the 2 protagonists (they are in reality the same person), Anna 1 and Anna 2 venture from their family home into the world, in order to earn money for the family back home. While Anna 1 is the worker, Anna 2 is her constant minder, not to slacken in their efforts to make money; while Anna 1 – exploited by her family’s dream – tends to be tempted in turn by each of the 7 deadly sins, Anna 2 keeps reminding her of her duties and urges her on – in the end, their “reward” is accusations and recriminations by the family back home. In this comparison, Angela Merkel is Anna 2, urging the “rest of Europe” onto the perceived path of virtue, notwithstanding the costs to the whole of maintaining her rigid stance.
I myself have grouped Wolf’s “no” areas under the headings of the need for more “unions”, in order to get the Eurozone out of this mess. A true fiscal union (with transfer mechanisms, joint tax policy and joint budgetary policies), a banking union (joint working out of the banking crisis, instead of each country going by itself – frequently at the expense of other countries), a financial union (a lender of last resort function for the ECB and a mechanism to remove sovereign financing from private financial markets and hand it over to a public authority, be it ECB or ESM), and a growth union (a joint strategy to revive growth dynamics in Europe, in the surplus as well as the deficit countries). This “unionization” would have both short-term crisis resolution effects and longer-term effects on the viability of the Eurozone. It would amount to a balanced economic policy package, instead of the present pre-dominance of austerity policies. All these “unions” would need to be underpinned and legitimized by a political union, where legitimate sovereign power is transferred to duly elected Eurozone and EU bodies. Such a policy package would require the courage of EU policymakers to think “outside their narrow box” towards solutions which remedy some of the constituent flaws of the Eurozone, and also look beyond crisis resolution towards a post-crisis situation.
Like Wolf, I feel that the rigid German position is a puzzle. Do they want the Eurozone to break up, by making it so unpleasant and hard for the deficit countries to stay in? Do they really believe that joint austerity can lead to a better future? They must feel that their own exports – which depend to nearly 50% on the Eurozone – are suffering, that their puny 1% growth rates are less than optimal. But are the waiting for a much more severe crash before they see that also their own interests require a stable and surviving Eurozone? Time is running out. The zero rates of return of German bonds are not (only) a reward for German virtue, but a flight to supposedly safe havens, causing the deficit countries to the mired even deeper in trouble. Did not the delays to erect the umbrella for Greece more than a year ago teach our German friends that as long as private financial markets call the shots on sovereign financing and bank ratings further delays cost money and bring the Eurozone and the global economy to the brink of depression? It cannot be their wish to “punish” reckless behaviour by Southern politicians (and their own banks) to bring disaster to the European economy – or can it?