Merkel's End Game

The New York Times on growing resistance to austerity:

A German-inspired austerity regimen agreed to just last month as the long-term solution to Europe’s sovereign debt crisis has come under increasing strain from the growing pressures of slowing economies, gyrating financial markets and a series of electoral setbacks.

Spain officially slipped back into recession for the second time in three years on Monday, after following the German remedy of deep retrenchment in public outlays, joining Italy, Belgium, the Netherlands and the Czech Republic. In the Netherlands, Prime Minister Mark Rutte handed his resignation to Queen Beatrix on Monday after his government failed to pass new austerity measures over the weekend.

...

It was only in March that leaders from 25 of the 27 European Union countries gathered to sign the fiscal compact championed by Ms. Merkel. Her plan, combined with $1.3 trillion in cheap loans injected into the banking system by the European Central Bank in December and March, raised hopes that the worst of the crisis had passed.

But those hopes have been dashed as growth has faltered and interest rates on the debt of struggling countries like Spain and Italy have shot up to dangerous levels again.

...

Another possibility, which Germany will be under renewed pressure to accept, is some form of common European debt, generally referred to as Eurobonds, which any member of the currency zone could tap. It is a step that Ms. Merkel’s conservative bloc has opposed forcefully, but with more than 17 million people in the euro zone out of work and the unemployment rate at 10.8 percent, the need for urgent steps is growing.

Marie Diron, an economic adviser to the consulting firm Ernst & Young, said Germany could slow down its own drive to balance its budget and do more to encourage domestic consumption. Other European states would benefit if Germany bought more of their goods.

“Austerity has to fit into a wider policy context,” Ms. Diron said.

...

Ms. Merkel has proved herself a masterful tactician time and again. She was adept at working with the Social Democrats as her partner in the previous German government, and Mr. Hollande might be even more amenable than Mr. Sarkozy to ceding French sovereignty in economic policy in exchange for help on growth, Mr. Vaquer from the Barcelona Center for International Affairs said.

“She will have to backtrack on austerity anyway,” Mr. Vaquer said. “Germany can now extract a much more unified Europe in terms of economic governance than it ever could have before.”

I've thought for a while that Germany was eventually going to have to back down on austerity. Vaquer's comments point to the end game: after holding out for years, bringing Europe as a whole to the brink of recession (and shoving many periphery countries over that brink), Germany will finally relent, but not without extracting major sovereignty concessions from the rest of Europe and transferring much more power over economic policy to Brussels.

So perhaps Merkel has known all along that austerity was never going to stick, and that the EU was going to have to become more of a transfer union in to survive. But she held out for years, pretending not to grasp this, in order to put the fear of Yahweh into Germany's European partners. Mildly cunning, ruthless, Machiavellian! Not words that many Germans like seeing applied to their relations with the rest of Europe, but when it comes to protecting its economic interests, Germany behaves like any other country. This episode can, of course, be added to the tu quoque list I recently threw together, when a German criticizes the United States of ruthlessly pushing its economic agenda on weaker countries.

Comments

[nik]

Germany has only chosen Greece as a lab test experiment since first, the only country that really put up a fight to them and in WWII and now was and is Greece and its proud people, it took German occupying forces 8 months to capture Greece when France was captured in 3 days for example and their is bitter hate and resentment from the Germans for this and second, Germany wants to achieve what it always envied but never managed to get: an empire and it is trying to do this for the third time in history while creating misery and bloodshed in Greece. Germany and its nazi style domination are creating 3 million people on the verge of starvation in Greece. So please enough is enough on Germany, they should be stopped once and for all and they should never ever be allowed to have a say anymore on the fate of other nations and Europe. Basically it is Germany and their nazi indoctrinated complexes which are creating this mess in Europe.

[nik]

Germany is intentionally creating a 3rd world war in Europe and is started by trying to kiill of Europe´s proudest and most valiant peoples: Greece, Italy, Spain, Portugal and Ireland. The worst thing Europe and the Allies ever did was to re-build Germany. They should still be living in rags and misery for that´s what they deserved. Once a nazi always a Nazi, sick and tired with this German indoctrinated lunatic policies promted by Nazis Merkel and Schaeuble who instead of shutting up and staying at home since he is a miserable paralysed invalid, dares to have an opinion also. Pity that madman did´nt kill him when they tried to assasinate him.

[Mac keylogger]

This is so funny. I thought we weren't going to hear from you for three days and everytime I refresh, there's a new fun post!...lol.

[Zaungast]

"[W]hen it comes to protecting its economic interests, Germany behaves like any other country."

Right. But I think this is only true since Schröder and Merkel; the EC/EU in the 80s and 90s seemed to be based mostly on the grounds that Germany will give in in the end.

[Talvez...]

It is something I wondered for a long time: how do regular Germans feel about austerity... I'm glad there is still some solidarity in Europe, if not between Governments, at least between the peoples.

[Johannes]

Quis consultet ipsos consultantes?

I don't think it is a cunning plan.
I think that Merkel and Schäuble and most of their staff (like the Bundesbankpräsident etc.) really don't understand that the imbalances can't be cured by an austerity program. There are still quite a few German economists who back this policy (and almost all journalists do). Until half a year ago Flassbeck and Bofinger were about the only prominent dissenting voices, now a few more are coming around, but still not the majority.
Or maybe they think that the austerity program is still the only possible and best of several bad choice. The pill has to be bitter, otherwise it won't help.

[Junger Gott]

Why would Germany want other countries to cede sovereignty to Brussels? A combined and beefed-up Brussels bureaucracy would be much stronger, so strong that it would have the power to dictate the German government. Wouldn't it be smarter to keep the smaller countries just like that, small and divided.

On a side note: Why do consultants need advisers? I thought it was _their_ job to do the advising?!