Euro crisis: Germany evades its responsibilities

FOR 18 months now, the euro has been in crisis, yet until a few weeks ago I still believed that it would stagger through. This was not because I thought it made economic sense, but because I assumed that the powers that mattered, principally France and Germany, would do whatever it took to ensure that it survived.

Now, I am not so sure. Over the last few weeks, as the pressures within the euro zone have intensified still further, France has gone ominously quiet while Germany seems on the point of losing patience with the whole thing.
 
Knowing France, it will not stay mute for long. But no one really doubts that it is Germany that will call the shots on the euro.

It owes this power to two factors. As the eurozone's largest and most successful economy, only Germany has the resources and credibility to tackle the single currency's ever-growing debt crisis. The other factor is less obvious. Uniquely, Germany's constitutional arrangements allow both its politicians and its courts to gainsay the EU in a way that no other member country seems able to.

Last week, we saw both of these in action. On Tuesday, not just the rest of Europe but the entire global financial system, held their breath while the Constitutional Court in Karlsruhe delivered its long awaited verdict on the legality of last year's Greek bailout. When the court ruled it was acceptable, albeit with stringent reservations, everyone breathed again.

Then, on Friday, Germany's man on the board of the European Central Bank, Jurgen Stark, suddenly resigned. No explanation was given, but it is no secret that the Bundesbank objects strongly to the ECB helping out Italy and Spain by buying their bonds. Fearful that Mr Stark's departure signalled that mighty Germany was finally losing faith in the euro, the markets plunged.
 
Back in 1990, when the late Nicholas Ridley issued his notorious warning that monetary union was "a German racket designed to take over the whole of Europe", he had to resign from the Conservative cabinet. Twenty years later, you could argue that last week's events vindicated him. But rather than seize their moment, the Germans seem instead to be paralysed by indecision and indignation.
 
Why, they demand, should we have to pay for feckless countries which cheated to get into the single currency in the first place, and continued to break the rules afterwards? Only when a tight new regime has been enshrined in a fresh EU treaty, will they consider new measures to address the debt crisis.

There is a lot to sympathise with in this, but also more than a dash of hypocrisy - or, at least, the rewriting of history. It is not true, as many Germans seem to think, that the problems of the euro have somehow crept up on them unawares. Their government knew perfectly well that other countries were fiddling their books to qualify for entry. Like others, it chose to turn a blind eye for political reasons.

It was also warned repeatedly that the new currency would not withstand a crisis, yet it insisted on pushing the euro past its reluctant electorate, come what may. As for breaking the rules, Germany has been guilty of that in its time as well.

Unlike the Mediterranean countries, Germany has actually done rather well out of the euro. Because it is weaker than the old deutschmark, it has given its all-important exports a huge boost, while at the same time keeping inflation under control.

Yet the most striking thing about Germany today is how reluctant it is to accept responsibility for the system it played such a central role in creating. The euro is the currency of 16 other EU countries as well as Germany; there is a fire to be put out, but it seems engrossed in legalistic nit-picking. If it insists that further help for the debtor countries must be put on hold pending a new treaty, then the eurozone may well collapse in the meantime.  

It could be, of course, that the Germans will decide to give up on the euro altogether and leave, which would probably be the least painful way of unwinding it. But whether they stay or leave, whatever is going to happen to it depends on them. If they dither for much longer, the risk of a catastrophic accident bringing the whole shaky edifice crashing down on all our heads, must be very high indeed. ·