Half-Baked Rescue Plans, Overwhelming Focus on Austerity
In mid-June of 2012, the
Economist ran a piece scolding Angela Merkel for Germany’s obstructionism in the
face of organized efforts to address the rapidly forming European sovereign debt
crisis. In the view of The Economist, Germany’s
actions have done a great deal to turn a crisis in Greece – around 3% of the
Eurozone’s economy- into a crisis of the 17-member Eurozone at large. “The
overwhelming focus on austerity; the succession of half-baked rescue plans; the
refusal to lay out a clear path for the fiscal and banking integration that is
needed for the single currency to survive". The Economist points the finger
directly at Merkel’s government over these policy failures “Since Germany has
largely determined this response, most of the blame belongs in Berlin.”
The Consensus in the Rest of Europe – and World
According to the economist, the
feeling in the rest of Europe, as well as in the US and China, a number of policy
measures could be put in place to respond to the crisis. They proposed measures
would help save southern economies as well as northern banks.
“Outside Germany, a consensus has
developed on what Mrs. Merkel must do to preserve the single currency. It
includes shifting from austerity to a far greater focus on economic growth;
complementing the single currency with a banking union (with euro-wide deposit
insurance, bank oversight and joint means for the recapitalisation or
resolution of failing banks); and embracing a limited form of debt
mutualisation to create a joint safe asset and allow peripheral economies the
room gradually to reduce their debt burdens. This is the refrain from
Washington, Beijing, London and indeed most of the capitals of the euro zone.
Why hasn’t the continent’s canniest politician sprung into action?”
For their part, southern Europe’s
banks have thus far proved to be considerably more resilient in the face of European
volatility than their northern counterparts. So far, Spain has only seen one
bank collapse… four years into the crisis at that. Compare this result with UK,
Ireland, Holland or Belgium.
Why the Arrogance Then?
“She believes, first, that her
demands for austerity and her refusal to bail out her peers are the only ways
to bring reform in Europe; and, second, that if disaster really strikes,
Germany could act quickly to save the day. The first gamble can certainly claim
some successes, notably the removal of Silvio Berlusconi in Italy and the
passage, across southern Europe, of reforms that would recently have seemed
unthinkable.”
In other words, the Economist
accuses that the action of Merkel’s government are designed to override the
sovereignty of both the European Union’s 26 other member nations (and their
democratically-elected governments) and the European Union itself. Berlusconi notwithstanding,
the removal of foreign heads of state and the forcing of policy changes in
foreign countries is a direct affront to the idea that the affairs of a country
should be decided by that country’s voters: Democratic Sovereignty.
What Should be Done?
First, the proposed measures
should be enacted. These are; the formation of a banking union, and the partial
mutualization of debt. Second, the democratic sovereignty and national interest
of the other 26 member nations should be defended as aggressively as is
necessary. Germany’s austerity-demand-based obstructionism can, for example, be
overcome by a series of bilateral agreements which simply exclude German
participation.
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Max
Berre is a financial regulatory economist at the EDHEC-Risk Institute (Ecole Des Hautes
Etudes Commerciales du Nord) who has worked as a sovereign debt expert
at the Inter-American Development Bank in Washington and has taught
financial economics at Maastricht University in the Netherlands.
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