Governments, financial markets and European citizens seem to be absorbed by the euro zone debt crisis. It is all raising some fundamental questions: over responsibility, solidarity and the role and core functions of government.
Every country has a slightly different interpretation of what these are.
A key role in the crisis is being played by Germany because of its economic strength. The country realises, rather reluctantly, that financial power goes hand in hand with political leadership. The Berlin government is torn between what it can sell to its people at home and what its European partners expect.
Euro crisis: Merkel under pressure to compromise
Even when far from home, the euro zone crisis is a weight on the shoulders of the German Chancellor. But, while visiting Africa last week, an unflappable Angela Merkel rejected any hasty gathering of EU heads of state.
The comments from the leader of Europe’s biggest economy came just as storm clouds intensified over the euro again. After Greece, Ireland and Portugal, this time the tempest was threatening Italy and Spain, the euro zone’s third and fourth economies.
In Madrid, the President of the European Council took a different view from Merkel, declaring that action was needed, without delay.
“I am anxiously waiting for proposals from the Eurogroup in a very short period, in a very short time and (am) even adding the word ‘urgent’ to it,” said Herman Van Rompuy. “It is very urgent that Eurogroup come to us with proposals on stopping the risks of contagion.”
Since the start of the crisis in late 2009, Merkel has reluctantly agreed to bail out the euro’s financial weaklings while vowing to do all that is necessary to save the single currency. In May 2010, under pressure from financial markets and other leaders in the bloc, she agreed to the creation of a rescue fund, a decision backed by a vote in the Bundestag.
Merkel had to justify Berlin’s contribution to a reticent German public.
“This package is meant to strengthen and protect our common currency,” she said. “It is unprecedented in the history of the euro and the European Union and we are protecting our currency during what is an extraordinary situation. And, to our citizens, let me put it this way: we are protecting the money of the people of Germany.”
But the Chancellor could not prevent a backlash at the ballot box. In a series of elections over the last year, she has lost several states, and control of the upper house of parliament, the Bundesrat.
Polls show that support for Merkel’s centre-right coalition is continuing to lose ground, despite Germany’s economy powering ahead.
At seven per cent, unemployment is at its lowest since reunification, two decades ago. The economy has seen stunning 1.5 per cent growth in the first quarter. The IMF forecasts it will rise to 3.2 per cent before the year is out.
It is all good news for Germany’s finances. Its fiscal deficit is set to sink below two per cent of GDP from 3.3 per cent. And its debt is expected to slip from 82 per cent of GDP this year to 81 per cent in 2012.
Last year, Merkel used a meeting on the world stage to advocate private sector participation in tackling the debts of countries in difficulty. So far, she has made this a pre-condition for a new Greek rescue but she may ultimately be forced to retreat, with no compromise in sight.
Claudia Kade: ‘Germany is seen to be isolated within the EU.’
Claudia Kade is the political correspondent of Financial Times Deutschland. She spoke to euronews from Berlin.
Stefan Grobe, euronews: “We hear very often that the Germans are fed up with the debt crisis, that they don’t want to be the paymasters for the undisciplined Greeks, Portuguese and, maybe soon, Italians any longer. Give us your assessment. What is the degree of European solidarity in Germany right now?”
Claudia Kade: “Germany is split down the middle on this question. Just last weekend a poll was published according to which 50 per cent of Germans are ready to support Monetary Union, come what may. But 50 per cent refuse to do so. And that is a problem for Chancellor Angela Merkel, for whatever she does and decides, she will also anger half of the electorate.”
euronews: “Investors and financial analysts have been criticizing the political zig-zagging of the German government and Chancellor Merkel. Think of the Greek bailout, extremely high interest on rescue loans or a European economic government. Chancellor Merkel seems overwhelmed and helpless. Why is that. What is behind that impression?”
Claudia Kade: “Firstly, the population is divided. But then, even in her own government camp, the number of euro sceptics has risen. Among the liberals and Merkel’s conservative sister party in Bavaria, there are powerful voices who are unwilling to use billions in taxpayers’ money to stabilise the single currency. So, Angela Merkel has to pay attention to that.
“Then she is in permanent conflict with her own finance minister, Wolfgang Schäuble, over how to deal with the crisis properly. All this does not lend itself to a clear strategy for the Chancellor. In addition, she is somebody who hesitates a lot. In such a situation, in the crisis involving Greece, Portugal and Ireland, the markets react much faster than the Chancellor.”
euronews: “Let me raise another important point, on international staffing policy. The Merkel government was unable to appoint a German at the helm of the ECB and at the International Monetary Fund. Why that strange passivity? In a country of 80 million people, why wasn’t there a single appropriate nominee?”
Claudia Kade: “Regarding the ECB, there was a German candidate, Axel Weber, the ex-head of the Bundesbank. But then he surpisingly deserted the Chancellor. There were several explanations as to why he did it. Apparently, he did not feel sufficiently supported by Merkel, although her office claims that they always backed him. So, Merkel was totally overwhelmed by events and unable to produce another candidate of international standing at short notice. The same thing happened with the IMF top post. She was totally surprised by the Dominique Strauss-Kahn affair and could not react quickly enough. But let’s face it: Germany cannot be sure of broad European support anymore. In fact, Germany is seen to be isolated within the EU.”
euronews: “That brings me to the question of political support in Europe. Who are Merkel’s allies?”
Claudia Kade: “Well, as far as the broad lines in the crisis are concerned, for instance, the necessity to implement austerity measures and structural reforms in the countries in debt, Angela Merkel can only count on some smaller allies like Austria and the Netherlands. But it is clear that Germany cannot move on without France. The two biggest countries need to find agreement and march together. And here is the problem: Nicolas Sarkozy marches in a totally different direction from Angela Merkel.”