The European Council on Foreign Relations

The European “clash of civilisations”

Date: 22nd August 2011 | Author: Hans Kundnani,

Categories: Euro Crisis, Germany in Europe, Reinventing Europe,
Tags: , euro zone, germany, germany in europe, merkel, euro crisis

Since the beginning of the Greek crisis last year, Germans have tended to explain the European single currency’s problems in terms of a difference between a fiscally-responsible north and a fiscally-irresponsible south. Although all eurozone countries including Germany are to blame for the flaws in the construction of the single currency that have now become apparent, and although German banks arguably helped create excessive sovereign debt through irresponsible lending, Germans have tended to see the euro crisis in cultural terms. It seems as if Germans see the crisis in terms of a kind of European “clash of civilisations”.

What Germany has feared above all is the emergence of a “transfer union” – in other words, an EU in which fiscally responsible member states (e.g. Germany) pay for fiscally irresponsible member states (e.g. Greece). However, as the crisis has developed over the last year and the single currency itself has been threatened, Germany has repeatedly been forced to give ground and accept, step-by-step, the de facto creation of such a “transfer union”: first the Greek bailout; then the creation of the European Financial Stability Fund and the European Stability Mechanism; and now, apparently, the idea of eurozone “economic governance” (though the German government prefers to talk about Steuerung, or “steering” the eurozone rather than “governing” it).

In particular, following last week’s Franco-German summit, there is much speculation that Chancellor Merkel’s opposition to Eurobonds – which Thomas Klau and François Godement recommended in an ECFR policy brief last year – may been softening. (However, the FDP, the junior partner in Angela Merkel’s coalition, remains opposed. "There are no euro bonds," said Christian Lindner, the FDP's general secretary, after last Tuesday's meeting between Merkel and Sarkozy.) Now the question from the German point of view, as my colleague Ulrike Guérot suggests in a post last week, is how it can maintain the pressure on heavily-indebted member states to become more responsible – in other words, how to force cultural change in the periphery.

The problem with this approach based on a cultural analysis of the crisis, apart from the way it obscures Germany’s own role in creating some of the eurozone’s problems and thus feeds a German sense of resentment rather than responsibility, is that it leads to solutions that might not make economic sense. George Soros – who is also in favour of Eurobonds– wrote earlier this week that Germany has “unsound ideas about macroeconomic policy”: “It wants the rest of Europe to follow its example. But what works for Germany cannot work for the rest of Europe: no country can run a chronic trade surplus without others running deficits.” In other words, although Germans tend to see their own export-dependent economy as a model, it won’t help anyone, even Germany itself, to force other eurozone countries to emulate it.

The Financial Times made a similar point in a leader the day before yesterday after new figures showed eurozone growth had dropped to 0.2% in the second quarter and German growth to just 0.1%: “As any Keynesian will point out, if everyone tries to be virtuous at once, the result is stagnation – or worse.” But like the Tea Party in the United States, Germany seems to want austerity at any price. Even if Germany sooner or later agrees to Eurobonds in order to save the single currency, therefore, this agreement may come at the expense of economic growth in the periphery and perhaps even in Germany itself. The question for the rest of the eurozone will be: is it worth it?

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4 comments

F.Meyer 22nd August 2011 at 01:08pm

The author forgot to mention that , according to the Greek PM, the country does not have a IRS which is the name worth. Fiscal Responsibility is a question of expenses and of income, that means taxes.

Why should he German taxpayer pay, what the Greek Government is unable or unwilling to collect?

Eurobonds are the end of democracy in europe.

Chris Tregenna 23rd August 2011 at 07:08pm

But the EU always HAS been a ‘transfer union’.

It was based in 1948 in a thoroughly sordid deal between France and Germany whereby German tax-payers would keep French farmers in the manner to which they wished to become accustomed. In return for which the French would pretend to the world that Germans were actually human beings.

How much has changed since?

Kimi 28th August 2011 at 08:08am

“As any Keynesian will point out, if everyone tries to be virtuous at once, the result is stagnation – or worse”

Yeah! Time for all the germans to leave germany and become greeks. Than they can be the ones who are “not-virtuous” too. Because it does not pay at all to be virtuous. According to the Keynsians it must be rewarded if you spend more than you earn. So why should I earn anything at all? The Keynsians say that its ok. Somebody else should pay for me. And since patriotism is officially a crime if you are german (you are a nazi and mass murderer if you are), I would suggest all germans take US citizenship because there, you still are allowed to be virtuous and get benefits for working. Unlike in europe where you get insulted and screamed at.

In the EU, there is only downsides to being virtuous. Its better to be unemployed and have the germans give you all their money. That btw is called “justice” because the germans dont deserve money for their work, the greeks and french deserve the money that I get for my work and if i dont give it to them but instead buy food for my children with it, that is very unfair and a gross injustice… to buy food for german children cant be right if a greek wants more money for his corrupt government that he voted for for decades.

“In return for which the French would pretend to the world that Germans were actually human beings.

How much has changed since?”
Well, nobody pretends that germans are acutally human beings, we are still money-sacks that can be used and thrown away. Just the germans get used to be seen that way and there is no need to pay if you’re seen that way anyways. Greece can go back to the good old times of 16% interest and 12% inflation. They seem to want that time back.

mises ghost 12th September 2011 at 03:09pm

Blame the germans and they will pay.
The EU was since the treaty of common coal and steel a french extortion scheme. The deeply flawed euro atrocity was only implemented because france made it a procondition to the german reunification.
BTW the FED has 14 districts which muswt balance their credit supply with output- one might imagine who wasn’t willing to implement such a sensible policy in the euro treatisies!
The outcome was forseeable , but even worse things were to happen: TARGET2 money was siphoned by our PIGIS from the Bundesbank in the rather astonishing amount of 350 BILLIONS!! And the germans are not even receiving interests on that money.

Now, let’s imagine what smaller northern nations must feel: germans at least can pretend to have some influence in this enarquy, but the dutch, finnish, danish etc…. They allready have strong national-conservative parties and their ideas are becoming mainstream politics at a fast pace. My best wishes our political class, but the time that they could raid the public coffers and enrich themselves are over- the american answer was the tea party, let’s see if if we will have one type (one must admit that so far only protestant nations choose the national-conservative approach) or the club med will have a resurgimento of their once strong communist parties.

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