Anatole Kaletsky | Can the rest of Europe stand up to Germany?

June 21, 2012, Donagh, Leave a comment

Anatole Kaletsky | Can the rest of Europe stand up to Germany?

Merkel doubtless believes that she is helping Europe when she maternally instructs the Greeks, Italians and Spaniards to “do their homework” and so become good little Germans. But like its less benign predecessors, this effort to impose German hegemony is guaranteed to fail. Europe’s leaders must therefore start considering a previously unmentionable question, perhaps as soon as next week’s summit, if the euro crisis intensifies. This question is not whether Europe will agree to live under German leadership, but whether Germany will agree to live under EU leadership – or whether the other nations must form a united front against Germany to prevent the destruction of Europe, as they have repeatedly in the past.

To be specific, the euro’s only chance of survival now depends on a decisive move toward political and fiscal union. Angela Merkel plays lip service to such political union, even claiming that democratic accountability is her main condition for financial rescues; but what she means is accountability to German voters, German newspapers and German constitutional judges. She promises to “do whatever it takes to save the euro” but vetoes anything that might actually work, claiming deference to German public opinion or national interests.

Europe must now call this bluff.

But there’s more

Without Germany, the euro zone would have much smaller internal imbalances and much more political coherence, with a much weaker currency and higher inflation, both of which would make debts easier to resolve.

Merkel would probably insist on Germany’s legal right to remain within the euro, ironically echoing the Greek position. At this point the other nations could play their trump card: To reduce interest rates and make their economies more competitive by weakening the euro, the debtor nations could vote for unlimited bond purchases by the ECB. The Germans on the ECB council would doubtless oppose this, but even with support from Finland, Slovakia, and perhaps Austria and Holland, Germany could command no more than 7 votes out of 23. Germany would then face the very same existential choice about its relations with Europe that Merkel has inflicted on Greece and other debtor nations.