Does Germany Really Want to Save the Euro?
I have just spent the weekend with close German friends in beautiful Vienna. The sense of pending doom was everywhere. Much of the blame for this was placed on the very narrow legalistic approach Chancellor Merkel has adopted in this crisis. Her focus on a ‘new treaty outside the treaty’ is seen as the financial equivalent of discussing patio design as the house burns.
The Euro may be beginning the death-dive from which it is unlikely to recover. The costs of Italian borrowing reached record highs last week, Belgian and Hungarian national debt was reduced to junk status and even a bond auction for mighty Germany flopped. And yet Berlin continues to insist on disaster-defying ‘red-lines’ that seemingly have little or nothing to do with the danger of the moment.
Vienna knows a thing or two about death dives. In the nineteenth century the death-dive of the Austro-Hungarian Empire led to the ‘shot that rang round the world’. By trying to hold onto a swathe of the Balkans its final dying act led indirectly to World War One. It was the mother of all unintended consequences that swept the ruling Hapsburgs away. A relatively minor shock brought the whole rickety edifice crashing down. Just like the Euro today. In fact it was a miracle Austria-Hungary endured as long as it did. This was due to a mixture of luck, geopolitical convenience and a few able leaders and statesmen such as Count Metternich. Absent of any of the above and the empire’s fate was sealed.
However well-meaning Chancellor Merkel may be, ‘able’ is not a word I would associate with her leadership thus far of what is fast becoming an existential European crisis. The French and Germans last week failed to agree a common strategy and thus failed to reassure the markets. In a clear sign of the times my sources within the European Commission tell me the minor ‘nobility’ of the Euro-Aristocracy who work therein have been told to say nothing that might harm the Euro, whilst being encouraged to consider how best they might protect their own savings. Nice people. Of course, the rest of we Europeans are being left to the dogs. That is what aristocracies do at times of crisis – look after their own. It is the Brussels Onion at its very worst, and there are some who actually want these people to run our lives.
The thing about crises is that the choices they generate are never comfortable. I found last week’s picture of ‘Merkozy’ instructing Mario Monti, their new man in Rome, quite nauseating. Naked German and French power and electoral politics are clearly at play behind the pretence of Berlin and Paris to be speaking for Europe. As a Briton I also find it galling that the world’s fifth or sixth largest economy has been deemed by the disaster-defying duo simply not to exist. Although much of the blame for that I lay at the door of PR-Meister Cameron who has been ‘outed’ by this crisis as a very little leader of an increasingly irrelevant country. Above all, as a Dutch taxpayer, I find it particularly distasteful that two so narrowly-motivated foreign politicians are deciding the future fate of my hard-earned money.
That said someone has to act. The stakes are now simply too high. Debt defaults, bank failures, single-market destroying currency swings are just around the corner, maybe even widespread social unrest. Indeed, if the investors who have hitherto provided the bridge between what EU member-states can afford and what they spend really take fright the EU itself could be in danger. And yet Chancellor Merkel seems strangely immune to the immediate, the need to reassure the Dark Lords of the Market Universe and fight the fire which is threatening to engulf us. We get lots of strong posturing (finger-pointing, stern faces etc.) but little by way of strong leadership.
Maybe Berlin has made a secret choice; Germany would prefer the Euro in its current form to collapse, the unreformable southern Europeans to be pushed out and the currency rebuilt around a northern, western European core. Maybe it could even include the British. Now there’s a thought. Did Cameron and Merkozy do a deal?
Certainly, Berlin's behaviour means the very real prospect now looms that the whole rickety Euro edifice will come crashing down. Just like Austria-Hungary. If Berlin does indeed have a Plan B it should perhaps consider one other truism of legalism; the law of unintended consequences. Vienna learnt that the hard way.
Nice patio, Chancellor. Shame about the house.
Julian Lindley-French is Eisenhower Professor of Defence Strategy at the Netherlands Defence Academy, Fellow of Respublica in London, Associate Fellow of the Austrian Institute for European and Security Studies and a member of the Strategic Advisory Group of the Atlantic Council. He is also a member of the Academic Advisory Board of the NATO Defence College in Rome. This essay first appeared on his personal blog, Lindley-French's Blog Blast.