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Published on February 29th, 2012 | by Katharina Obermeier
Image © [caption id="attachment_8461" align="alignleft" width="308" caption="© Katharina Obermeier"][/caption] This week, the German Parliament voted overwhelmingly in favour of approving the second bail-out package for Greece. On the surface, this looks like a vote of confidence by German parliamentarians for the Greek economy, the EU leadership and the currency union as a whole. The circumstances surrounding the vote, however, reveal a more fractured picture of German attitudes towards the eurozone crisis, which are increasingly posing a threat to the efforts of governments and the EU to overcome it. Several members of Germany’s governing coalition, including Interior Minister Hans-Peter Friedrich, have openly criticised Germany’s continued aid to Greece, suggesting that it should exit the eurozone or be allowed to default. Bild, the country’s ever-subtle tabloid, carried the message “STOP!” on its front page the day of the vote for the bail-out package, lamenting the “madness” of Germany’s payments to keep Greece from bankruptcy. Despite the positive outcome of the vote this week, the country’s political leaders are not immune to this type of argumentation. In fact, the discussion around the bail-out vote fits into a broader pattern of Germany’s behaviour in the eurozone crisis, which the opposition has summarised as “too little, too late.” “We Europeans are bonded to a common future,” German Chancellor Angela Merkel declared during her speech preceding the vote in the Parliament. “Europe will fail if the euro fails. Europe wins if the euro wins.” If only she would listen to her own rhetoric. In the very same speech, despite talk of the interconnectedness of eurozone economies, Merkel dismissed the idea of increasing the strength of the European Financial Stability Facility or its successor, the European Stability Mechanism, as “unnecessary.” Given that Greece has just been downgraded to “selective default” and that Italy, Spain and Portugal are in very precarious positions following January’s ratings cuts, it is hard to imagine a situation in which Merkel would think it necessary to enhance a fund designed to provide emergency loans to governments and intervene in debt markets. German leaders have similarly rejected, since the beginning of the eurozone crisis, greater intervention by the European Central Bank, which could have eased the pressure on countries in crisis by further lowering bond yields, the involvement of the public sector in slashing Greek debt, and the development of so-called Eurobonds. These Eurobonds, jointly issued by eurozone countries, would basically be a way of spreading government debt across the eurozone, thereby reducing borrowing costs and lending greater financial credibility to countries at risk. While Merkel and her colleagues have made some commitments to the currency union, such as the financial assistance to Greece and the establishment of the fiscal pact, whereby eurozone countries are obliged to exercise fiscal discipline, these steps have lagged far behind the escalating series of events in crisis-stricken countries, and have failed to convince global markets that eurozone debt is safe. Meanwhile, recession has set in, and high unemployment rates are sabotaging the futures of millions of young Europeans. Too little, too late. In 1992-1993, several European currencies came under heavy speculative attacks, prompting chaos in European financial markets not dissimilar to the current situation. That crisis demonstrated two important principles: that only a high level of government commitment to defending its currency will dissuade speculators from betting against it, and that markets tend to react irrationally to crises, meaning even the healthiest economy can suddenly find itself in danger. German leaders would do well to remember both lessons. Their cautious approach is jeopardising the recovery of the eurozone, and, as Merkel herself noted, that puts Europe as a whole – including Germany – at risk.

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Too Little, Too Late: Germany’s Mishandling of the Eurozone Crisis

© Katharina Obermeier

This week, the German Parliament voted overwhelmingly in favour of approving the second bail-out package for Greece. On the surface, this looks like a vote of confidence by German parliamentarians for the Greek economy, the EU leadership and the currency union as a whole. The circumstances surrounding the vote, however, reveal a more fractured picture of German attitudes towards the eurozone crisis, which are increasingly posing a threat to the efforts of governments and the EU to overcome it.

Several members of Germany’s governing coalition, including Interior Minister Hans-Peter Friedrich, have openly criticised Germany’s continued aid to Greece, suggesting that it should exit the eurozone or be allowed to default. Bild, the country’s ever-subtle tabloid, carried the message “STOP!” on its front page the day of the vote for the bail-out package, lamenting the “madness” of Germany’s payments to keep Greece from bankruptcy. Despite the positive outcome of the vote this week, the country’s political leaders are not immune to this type of argumentation. In fact, the discussion around the bail-out vote fits into a broader pattern of Germany’s behaviour in the eurozone crisis, which the opposition has summarised as “too little, too late.”

“We Europeans are bonded to a common future,” German Chancellor Angela Merkel declared during her speech preceding the vote in the Parliament. “Europe will fail if the euro fails. Europe wins if the euro wins.” If only she would listen to her own rhetoric. In the very same speech, despite talk of the interconnectedness of eurozone economies, Merkel dismissed the idea of increasing the strength of the European Financial Stability Facility or its successor, the European Stability Mechanism, as “unnecessary.” Given that Greece has just been downgraded to “selective default” and that Italy, Spain and Portugal are in very precarious positions following January’s ratings cuts, it is hard to imagine a situation in which Merkel would think it necessary to enhance a fund designed to provide emergency loans to governments and intervene in debt markets.

German leaders have similarly rejected, since the beginning of the eurozone crisis, greater intervention by the European Central Bank, which could have eased the pressure on countries in crisis by further lowering bond yields, the involvement of the public sector in slashing Greek debt, and the development of so-called Eurobonds. These Eurobonds, jointly issued by eurozone countries, would basically be a way of spreading government debt across the eurozone, thereby reducing borrowing costs and lending greater financial credibility to countries at risk. While Merkel and her colleagues have made some commitments to the currency union, such as the financial assistance to Greece and the establishment of the fiscal pact, whereby eurozone countries are obliged to exercise fiscal discipline, these steps have lagged far behind the escalating series of events in crisis-stricken countries, and have failed to convince global markets that eurozone debt is safe. Meanwhile, recession has set in, and high unemployment rates are sabotaging the futures of millions of young Europeans. Too little, too late.

In 1992-1993, several European currencies came under heavy speculative attacks, prompting chaos in European financial markets not dissimilar to the current situation. That crisis demonstrated two important principles: that only a high level of government commitment to defending its currency will dissuade speculators from betting against it, and that markets tend to react irrationally to crises, meaning even the healthiest economy can suddenly find itself in danger. German leaders would do well to remember both lessons. Their cautious approach is jeopardising the recovery of the eurozone, and, as Merkel herself noted, that puts Europe as a whole – including Germany – at risk.

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About the Author

Katharina Obermeier

Katharina considers herself a German-Canadian hybrid. She grew up in Germany and completed her BA in International Relations at the University of British Columbia in Vancouver, Canada. Politics, especially in relation to concepts of nationality, have always fascinated her, and she is particularly interested in international political economy. During her studies, she was an avid participant at Model United Nations conferences, and helped welcome international exchange students to her university. She is currently completing an internship at a Brussels-based trade association and hopes to work in European affairs in the future. In her political writing, Katharina marries social democratic principles with a keen interest in the European Union and its implications for European politics and identity. She writes to counteract simplistic ideas about politics and economics, continuously attempting to expose the nuances and complexities involved in these subjects.



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