Germany’s power is a threat to the Eurozone
Under rigid euro rules, how long before Greece, Ireland or Portugal say enough is enough?
It is becoming a well trodden path; a Eurozone country admits that it will not be able to roll over its debts and asks the EU for help. Money is forthcoming, but the terms are so draconian that they push the supplicant yet further into debt and recession. A few months later, inevitably, it has to come back for more.
One of the problems with the euro is that none of the bodies that are meant to be in charge, be it the European Commission, the Council of Ministers or the European Central Bank, actually has much power. Instead, as the Eurozone has descended into crisis, it has fallen increasingly to Germany to take the lead.
But Germany is, itself, deeply divided on the euro. The government has always supported it, industry does well out of it, and German banks are the biggest creditors of troubled nations like Greece and Ireland. German public opinion, though, has never liked the single currency, and is strongly against helping weaker members who get into trouble.
The result is political stalemate in Germany, and financial paralysis across the Eurozone. Delinquent countries are solemnly lectured on their lack of prudence and ordered to accept ever greater austerity. Yet at the same time they are forced to take on still more debt, and at ruinous interest rates to boot. Everyone knows this is unsustainable, but no one can see the way out.
Elsewhere countries can and do default; Iceland has just done so, and is already getting back on its feet. Printing more money is another option, at least in moderation; Japan, the US and Britain have all had recourse to 'quantitative easing', as it is euphemistically termed, in the past few years without apparent harm.
But in the Eurozone, countries are forbidden to default. Nor can they run off a little extra cash, because the euro is under supra national control.
Recently the Germans have indicated that they might countenance some debt restructuring, but not before 2013. If they are not careful, matters could slip out of their control well before then. Why should countries in difficulty accept another two years of painful austerity and then default? Why not get it over with now and try to move on?
There are, of course, plenty of good reasons why Europe¹s debtors should continue to co-operate with their creditors. But as John Paul Getty famously quipped, "If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem."
Substitute billion for million and that is the position Greece, Ireland and Portugal are in today. Potentially it gives them huge power; if the Germans press them too hard, one of them could yet pull the house down. ·
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