Tag Archives: CDU

The wrong battle

Illustration in linocut by Manos Symeonakis

“There is no Greek-German war,” government spokesman Giorgos Petalotis said last week. “Greece and Germany are not on collision course,” said Foreign Minister Dimitris Droutsas. All these statements can only mean one thing: Greece and Germany are very much at loggerheads. But their dispute is not just a bilateral squabble; at its heart it’s about divergent views on how to respond to the crisis threatening the euro and, beyond that, on the very purpose of the European Union.

The frantic attempts by the government to play down any rift between Athens and Berlin came after Greek Prime Minister George Papandreou decided on November 15 to dust himself off, stand on the ruins of the Greek economy and hit back at German Chancellor Angela Merkel with a rebellious passion. Speaking in Paris, Papandreou accused Merkel of driving up bond yields for weaker eurozone members by insisting that private investors should foot part of the bill for a permanent mechanism to support countries with failing economies, like Greece’s. “This could create a self-fulfilling prophecy,” said Papandreou. “This could break backs, this could force some economies into bankruptcy.”

On the face of it, there seems little wrong with Merkel’s insistence that private bondholders should accept losses, or a “haircut,” on their investment as part of a debt crisis mechanism to be adopted by 2013. Most Europeans would accept that this would create a fairer system although, clearly, German taxpayers would benefit the most as they’re the ones who would be called on more often to bail out failing eurozone members. But the self-serving element to Merkel’s position is not what should be of most concern to Europeans. Instead, it’s the way Berlin has tried to steamroller other EU countries into accepting the inclusion of the “haircut” clause ahead of a decisive EU leaders summit in Brussels next month. It’s this lack of consultation and the absence of consideration for struggling eurozone members that is undermining the Union.

Papandreou argued that making such a big fuss about investors having to pay their share simply gave jumpy bondholders a seriously aggravated case of the jitters, pushing up the yields on government bonds for Ireland, Portugal and Spain to dangerous levels. Few EU leaders backed Papandreou openly but there is great concern about Germany’s stubbornness. “When the history of the eurozone is written, last month’s German-driven EU summit agreement to devise a crisis resolution mechanism for countries to service their debts may well be cited as the event that pushed Ireland over a cliff,” Bloxham, Ireland’s oldest stocbrockers, said last week, a few days before Dublin turned to the EU and the International Monetary Fund for emergency loans.

In Germany, though, there is a different view. “If Merkel were to abandon her plans, then it would be paradise for investors and weak governments,” wrote the Suddeutsche Zeitung newspaper last week. “The speculators could charge higher interests on Irish or Greek bonds without any risk of losses. And the Greeks could continue with their record indebtedness because they would have no more pressure from the financial markets and in an emergency would be rescued by their euro partners.” However, this ignores that when Greece tries to go back to the international bond markets in 2013, its borrowing costs will be pushed up anyway, as investors will be wary of having to take a haircut should Athens have to revert to the permanent EU mechanism for further loans.

The Greco-German dispute is symptomatic of the differing views emerging within the EU about how to combat the debt crisis. There is a tendency for the EU to speak with two voices and to pull in two different directions. “The euro, which was supposed to make European integration irreversible, could become its undertaker,” wrote the Frankfurter Allgemeine Zeitung daily last week. Every day the debt crisis gnaws away at the EU’s confidence, making the Union seem an exhausted shadow of its former sprightly self. This dissipation of energy and will is leading to division and, whether through bad luck or design, Merkel is at the forefront of creating ever-deeper rifts.

Speaking at a rally of her Christian Democratic Union (CDU) in Karlsruhe on November 15, the same day that Papandreou challenged her scheme for private investors, Merkel said her predecessor as chancellor, Social Democrat Gerhard Schroeder and his Finance Minister Hans Eichel had blundered when they allowed Greece to join the eurozone. “In 2000, Schroeder and Eichel couldn’t let Greece join the euro fast enough and they ignored all the warnings,” she said. “It was a political decision… political decisions are important but those which ignore the facts are irresponsible.”

It’s now obvious that Greece was not ready in 2000 to stick to the single currency’s fiscal guidelines, as prescribed by Germany. It’s also clear that allowing Greece into the eurozone was a political decision — one aimed at giving the nascent single currency numerical, if not necessarily economic strength, but also the opportunity to encourage economic reform and German-style efficiency in a sluggish European state. A decade ago, it was a convenient political decision for Germany — Greece, after all, became another market in the eurozone for its exports — but now it’s a terrible inconvenience for Berlin. But that’s the thing about political decisions: You take a risk. Sometimes you ignore the facts because you have a conviction that something greater is at stake, even if the numbers don’t back you up.

Merkel might consider, for instance, that the Marshall Plan, which ensured Germany’s post-war reconstruction and helped it become the economic powerhouse it is today, was a political decision. The United States, which led the effort, could have decided that paying to help rebuild Germany did not make economic sense but Washington chose to look at the bigger picture — the opportunity to fight “hunger, poverty, desperation and chaos” as US Secretary of State George C. Marshall said when he unveiled his plan in June 1947. Using words that are eerily relevant to today’s Europe, Marshall said: “The United States should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace.” Peace in Europe is not under threat in 2010 but the EU’s faltering economic health is putting its unity at risk.

While leaders argue over bond yields, haircuts, bailouts, deficit and debt, one very important factor is being overlooked. As was the case in the Europe of 1947 before the Marshall Plan, it’s the people that are suffering. They are the ones that pay the cost of failed economic policies and soaring bond yields — people who have fulfilled the wishes of politicians and bankers by mortgaging their futures to buy houses and cars and who believed the euro would bring the permanent stability they were promised. This is why unity must be restored.

Somewhere between Papandreou’s rebelliousness and Merkel’s intransigence, we’ve forgotten that the EU and its institutions were created to improve people’s lives. Many of these people are now losing their jobs, homes and hope. That’s why, even though Greece and Germany may not be at war, their dispute is confirmation that Europe is fighting battle, but the wrong one.

This commentary was written by Nick Malkoutzis and was published in Athens Plus on November 26, 2010.

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Germany, a cold case

Dortmund – It used to be said that if the United States sneezed then Mexico caught a cold but in the German heartland of North Rhine-Westphalia, you get the impression that as far as the European family is concerned there has been a reversal in the relationship between the economic superpower and the lesser associate and that Greece’s sniffles are causing the Germans a big headache.

There was a state election here on May 9 that Chancellor Angela Merkel’s party lost. Her reluctance earlier this year to commit quickly to a rescue package for Greece was partly down to the fact that she didn’t want the coalition government – made up of her center-right Christian Democrats (CDU), its Bavarian sister party the Christian Social Union (CSU) and the pro-business Free Democrats (FDP) – to suffer a defeat in North Rhine-Westphalia and lose its majority in the Bundesrat, German Parliament’s second legislative chamber. But this is not turning out to be Merkel’s year and that’s exactly what happened.

Although there is no conclusive evidence to prove that the Greek crisis was the decisive factor in her party’s defeat, it did appear to have some impact. Pollsters Infratest dimap found that the Greek crisis was “important” or “very important” to 52 percent of voters. On the other hand, 47 percent said it wasn’t important. The actual election result was equally ambiguous as it didn’t leave the opposition Social Democrats in a position to form a center-left coalition to govern the state and negotiations about who will do so are still continuing. But maybe it’s in this absence of a clear cut message that one can find the true effect of the Greek crisis. Above all, it seems to have disorientated the Germans –  Merkel and her citizens appear to be confused about what kind of Europe they want and what role Germany should play within it.

Merkel had wanted to bring a “culture of stability” to the European Union but her actions have been more schizophrenic than stable over the past few months. First she procrastinated over whether to come to Greece’s aid then she allowed French President Nicolas Sarkozy to play the lead role in constructing an unprecedented 750-billion-euro EU support framework for debt-ridden countries. Now, Merkel has sprung into action and over the last few days has called for a global levy on banks and the creation of a new European credit rating agency, as Germany unilaterally banned naked short selling of eurozone government bonds and other securities.

This has all played out against the backdrop of a divided domestic opinion – 52 percent of Germans support the Greek aid package and 43 percent are against it according to a poll by Forsa for Stern magazine on May 5 and 6. In North Rhine-Westphalia, Germany’s richest and most populous state, it’s easy to see why Greece’s debt and borrowing problems seem like a world removed. Whereas Athens has been faced with interest rates of more than 7 percent above the German bund rate, North Rhine Westphalia is paying just 0.35 percent more than Berlin to borrow money. Equally, committing funds to bail out Greece galls some Germans when their government has agonized over whether to prop up Opel, the local subsidiary of General Motors, and the Karstadt department store group. Maybe it’s no surprise that Germans are split over the way forward.

There is a feeling, however, that this indecision starts with Merkel. “Her whole governing style in domestic politics since she became chancellor has been one of hesitation, cowardice, not taking a stand, not doing what a leader should do,” Florian Hassel, a business reporter for Die Welt daily told Athens Plus.

“Her lack of solidarity with Europe this year has made many Germans feel extremely uncomfortable,” Daryl Lindsey, the editor of the online version of German weekly magazine Der Spiegel told Athens Plus. “The idea of Germany being isolated in Europe is horrifying to most Germans because the country’s strong role in fostering European integration is a large part of what has created the modern Germany which has been able to move forward from its difficult history.”

Having a flummoxed Germany as the EU is facing a cascade of new challenges could be a disaster for the Union, especially when the problems the euro has run into mean that more, not less, cooperation is needed. “It has become apparent that the euro was a fair-weather construction from the beginning and that you cannot have an economic union in the long run without a political one,” says Hassel. “But as few Europeans are willing to move forward with a political union, we have a crisis on our hands which will last a long time.”

However there is some hope that Germany will snap out of its stupor. The swift agreement between EU leaders earlier this month to put together the 750-billion-euro guarantee was “close to a miracle,” according to Lyndsey who thinks it’s a sign that Germany could yet be a champion of European solidarity. “It actually shows the extent to which European unity already exists,” he says. “If Merkel is ready to state that the threat to the euro represents an existential threat to the European Union, then I think she and the Germans are ready to fight to save it.”

Germany’s participation in the so-called “shock and awe” package, which may reach some 150 billion euros, was approved by the country’s Parliament last week. It could prove a pivotal moment for Germany, which has profited so much from membership of the EU and eurozone, which are captive markets for its exports, just at his from its business, banking and defense dealings with Greece. “We’re doing this in our best national interests… the common European currency has been a huge benefit to Germany,” said Finance Minister Wolfgang Schaeuble before last week’s aid vote. “Without the euro, we would have a much weaker economy, a much weaker Germany.”

It’s clear, though, that much more than the future of the euro and the continent’s economic stability is at stake. The crisis is not just an economic one, at its root it is political. The real question being asked of EU countries is not what fiscal policies they should follow but how closely coordinated and managed they should be. In other words, how much solidarity is enough and how much integration is too much? “It isn’t just about a currency but about the European project per se,” Germany’s former Foreign Minister Joschka Fischer told Der Spiegel in an interview this week. “It’s about the issue of whether Europe is strong enough and has the common desire to defend its project against external attacks, in this case, by speculators.”

With the stakes so high, we may see a much more decisive Angela Merkel from now on, suggests Lindsey. “There has always been a feeling in Germany that Merkel’s background as a scientist is too often reflected in her political decision-making. Logic and reason are comforting in situations that permit slowly calculated decisions, but that scientific thinking appears to be incompatible with fast moving markets.” He believes the criticism she has received for dithering over key European issues “is likely to be highly motivating for the German chancellor.” He also thinks public opinion will gradually swing behind efforts to bolster the union. “The money required to save the euro will directly affect German quality of life, but people are slowly coming to terms with this now and they know that the alternative would be far worse.”

In the meantime, we wait to see if Germany has contracted a common cold that it will soon recover from or whether it has a case of pneumonia that could prove deadly, not just for the patient but for the rest of the family as well.

This commentary was written by Nick Malkoutzis and appeared in Athens Plus on May 28.