The Sad Case of the Germans
The maiden Europa is engaged
To the handsome genius ace
Of freedom; lying down, arm in arm,
They enjoy their first embrace.
The marriage is valid, though no priest
Has blessed it with holy waters.
Long live the bridegroom and his bride
And their future sons and daughters!
- Heinrich Heine, Germany, A Winter’s Tale, 1844
Ah, the Germans. Long have they dreamt of ruling the heart of Europa – one way or another. Their first attempt at monetary union, circa 1939, didn’t go so well. True, the Reichsbank’s script was circulated from the Pyrenees to the Urals, and with some neutral exceptions, Lapland to Libya. But it never really took.
Lessons were learned.The western Allies made a great fuss over the division of Germany into two states, particularly after the construction of the Berlin Wall in the early 1960s. But they also took a certain solace in not having to deal, yet again, with a self-righteous behemoth at the center of European affairs. The French novelist Francois Mauriac expressed it perfectly: ”I love Germany so much that I am glad there are two of them.”
Many politicians agreed, and when the Wall finally fell and West German Chancellor Helmut Kohl got President George H.W. Bush to help midwife a reunified Germany, Britain and France at first objected. ”The problems will not be overcome by strengthening the EC,” wrote Margaret Thatcher on February 2, 1990, just as the reunification train was leaving the station. “Germany’s ambitions would then become the dominant and active factor.”
Was Maggie prescient? Certainly not entirely. For both Thatcher, her French counterpart Francois Mitterrand and millions across Europe still old enough to remember, the real fear expressed in 1990 was of a resurgent militarism, the bullying of lesser nations, of torchlight parades and skin-heads torching Turkish gastarbeiter homes. A few instances of arson and a minor resurgence of fringe right activity did take place. And even as Germany has deployed its troops to Afghanistan, the weight of history has made them spectacularly ineffective combatants. Let’s all thank god for small blessings.
Bullying lesser nations, however, turns out to have been a less paranoid concern. Certainly it was never Germany’s deliberate intention to bankrupt its common currency partners into supplication, but this appears to be what is happening today. In the German chancellor’s hands rest the fate of millions of Irish, Portuguese, Greeks, Italians, Spaniards, Belgians and others being scapegoated for the failure of the vaunted “prudential states” that run the EU to do due diligence in their successive expansions of membership. The EU was treated like an Ivy League college: very difficult to get in, but once in, nearly impossible to fail out of.
Well, that hasn’t worked out so well either.
The EU began as a relatively narrow effort – the European Coal and Steel Community in 1958 — to help post-war western European economies of France, Italy, Belgium, the Netherlands, Luxembourg and West Germany get off their backs. By the millennium, it had grown into a club of 15 nations, with a half dozen others, including large economies like Turkey and Poland, waiting at the door. Today there are 27 member nations after a binge over the last decade that added most of the economies of Central and Eastern Europe, as well as the islands of Cyprus and Malta.
Over the years, internal debates raged over the propriety of these expansions that brought low-wage, struggling economies into the fold, decisions that inevitably meant transfers of money from richer, established members via the Euro-capital, Brussels, to the less affluent newbies. But by 2000, a conventional wisdom had set in, seemingly borne out by the experiences of countries like Ireland (joined 1973), Greece (1982), Spain and Portugal (1986), all of which seemed to have prospered and raised their game after joining. By shackling these nations to the powerhouse economies of the EU core, it was argued, and forcing them to adopt certain fiscal and regulatory reforms, they could be dragged into the top-tier of the world’s advanced economies, thus expanding the EU’s own economic might in the process.
In fact, the chains linking these four nations – collectively derided as the “PIGS” today – worked in precisely the opposite way. The revelation in the winter of 2010 that tiny Greece was effectively bankrupt and, worse, had cooked its books, hiding billions in debt (including defense spending spurred by its historic paranoia about Turkey). Inept and completely incapable of producing the kind of economic growth and serious reform that would allow it to pay its debts to international lenders and bond holders, the Greek debacle sent a shudder through the Rube Goldberg machine that is the EU system. The shackles meant to drag Greece up to Eurozone standards were suddenly dragging its EU partners toward the economic abyss.
Germany has to date refused to allow Greece to submit to the forces of gravity and default on its debts – an ugly option, to be sure, but one which, if handled carefully, provides the fastest way out of the crisis and could have prevented its spread to other weak Eurozone economies. This rests entirely on selfish German political calculations. Similarly, Germany has failed to use its considerable influence on the ECB to promote pro-growth policies that would allow Greece and other less competitive economies to fight for their survival. The risk of eroding Germany’s export colossus is deemed too great.
Now, the results of this insular MittelEuropean thinking are clear. As late as June 2010, still the early stages of the crisis, there were some – Nouriel Roubini included, who saw the train wreck ahead. “An orderly default of Greece’s debt is achievable and desirable for the debtor and its creditors. If Europe wants to avoid a deepening crisis, it is unavoidable, too.” Absolutely right, as usual. He’s right again today in the FT when he argues that Greece should, at this juncture, bolt the EU and revive the drachma (and thus its ability to determine its own fate).
Tongue-in-cheek reference to the German past aside, we must all now wonder about Germany’s ability to lead. Geopolitically stunted still by its horrible past, Germany prefers to appease when the difficult choices beckon – as in the recent Libya intervention, which it opposed. Economically, meanwhile, Berlin preaches from the gospel of integration, rightly arguing that this has brought a generation of peace and prosperity to the continent. It also points rightly to sacrifices made by Germany in the name of this goal – the abandoning of the Deutsche Mark, which amounted to a haircut for German savings accounts; reunification, and other sparkasse haircut, and the hard work it has done domestically to turn a 21st century economy into an export juggernaut.
But it cannot dodge responsibility for the mess that threatens the EU right now. After years of scorning the short-term disease that afflicts American capitalism, it has allowed short-term political motives and export earnings targets to threaten the very foundation of its post-war reputation. It is a very sad thing to behold.
(Check out my latest on Globalpost – “Sick Man of Europe Seeks a Chinese Bailout“)
2 Responses to “The Sad Case of the Germans”
"Geopolitically stunted still by its horrible past…"
And that won't go away. I am Swiss German, and still see the past all over. But as you economists keep saying, there was a basic problem in setting up a common currency for countries who had very different economies and lifestyles, i.e. very different ways of looking at work and at the notion of saving. That won't go away either.
By the way, I hope you know that PIGS is in fact PIIGS representing Portugal, Italy, Ireland….Otherwise it is a bit too rough. The city folks won't mind, but those living in the smaller towns would.
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