• Germany's news in English

Playing Europe’s bad cop

Marc Young · 24 Mar 2010, 13:07

Published: 24 Mar 2010 13:07 GMT+01:00

Facebook Twitter Google+ reddit

When I came to Germany 12 years ago to cover the introduction of the euro, many Germans were reluctant to give up their beloved Deutsche mark.

Seen as the guarantor of their post-war economic prosperity, it seemed insane to them to ditch the rock-solid mark for a single European currency.

And now, with Greece now teetering on the brink of financial ruin, six out of 10 Germans don’t want their government to bail out fiscally irresponsible Greeks. They needn’t worry – Merkel has apparently decided to play hardball with her EU colleagues in regards to aid to Athens.

Berlin even appears on the verge of convincing its eurozone partners that Greece should first look to help from the International Monetary Fund (IMF) before expecting bilateral European aid.

But make no mistake: the Germans are only marginally less to blame for this crisis than the Greeks.

As a correspondent following the newly established European Central Bank over a decade ago, I spoke to countless economists supporting the switch to the euro yet warning about situations just like the debt-crisis now facing Greece.

The problem was plain to see: if eleven (now 16) countries agreed to a common monetary policy they would also need to more closely co-ordinate their fiscal policies. But what national government would willingly cede its budgetary powers to its neighbours?

The classic European fudge was the Stability and Growth Pact, which was supposed to impart Teutonic fiscal responsibility on more profligate southern Europeans. However, over the years the Germans have repeatedly flouted the pact’s three-percent deficit limit, effectively proving how ineffectual the European Commission is at the policing fiscal policy of eurozone members.

This is why Merkel is right not to throw German taxpayer money at Athens, but also why she’s the completely wrong person to be playing Europe’s “bad cop” in this Greek tragedy.

As Greece’s debt crisis has shown, it’s far too easy for the important dialogue between two nations using the euro to degenerate into insult-trading. Lamentations about how the Nazis stole Greek gold six decades ago, and Germans suggestions the “lazy” Greeks just sell an island or two for some quick cash, came not from the tabloid press, but Greek and German politicians.

Both Germany and Greece have indisputably profited from the introduction of the euro in 1999. Whereas Berlin no longer has to fear its neighbours will simply devalue their currencies to make their economies more competitive against Germany, Athens has been able to tap international credit markets much more cheaply as part of the German-led eurozone than when it had the drachma.

With a common fiscal policy for the euro area both highly unrealistic and unnecessary (no-one would expect California to co-ordinate with Mississippi when levying taxes or setting its budget), Europe instead needs an enforcer to step in and offer tough love when things get ugly. This is why the German initiative for a European Monetary Fund is a laudable step in the right direction.

Story continues below…

An EMF should not simply be a eurozone version of the IMF. It would offer a financial lifeline to euro members in trouble, but it would also need to assume Germany’s bad cop role by having the power to force a country to get its financial house in order. Countries using the single currency would have to accept such restrictions if they needed help from this lender of last resort.

And if draconian budget cuts and other unpopular measures then sparked public anger, the respective national government could simply lay the blame on the EMF rather than Berlin or Brussels. Such an institution would essentially give countries like Greece the fiscal backbone to make difficult yet necessary political choices.

Merkel is right to take a hard line on European aid for Greece this week – but only if she can use it as leverage to get her eurozone partners to back the establishment of a proper fiscal enforcer for the 16-member currency union.

Only then will Berlin be able to hang up its badge for good.

Marc Young (marc.young@thelocal.de)

Facebook Twitter Google+ reddit

Your comments about this article

16:54 March 24, 2010 by Deutschguy
The elites and bankers in individual countries do not want to give up the power they have to make fiscal policy. A European Monetary Fund would diminish their influence. It's much easier and cheaper to buy off a country's politicians than it would be to buy off those of several countries.

Always throwing up "sovereignty" as a red herring to drum up nationalistic fervor is a tactic they use to pretend that it is in the public's interest of their country not to cede power. And they will use a self-fulfilling prophecy of the southern countries' irresponsibility to prove their point.

All Europeans, except the individual countries' elites and bankers, will reap the benefits of a more integrated and disciplined European Union. The larger your trading bloc and its concomitant economic power, the stronger the economic engine. That is especially true for internal, as in EU wide, capital accumulation and demand for consumer products and trade.

The primary issue is EU wide enforcement and monitoring. Once, erstwhile "nationalists" get over this, then the EU will be stronger, more prosperous, and, misbehavior from Greece or Italy can be stopped before it gets to a dangerous level. Portraying this as some other country "telling us what to do" is a self-serving argument that doesn't really benefit ordinary citizens. In fact, it endangers them.

Keeping Big Banksters and political favorites from chopping away at regulations for financial responsibility and risk taking makes more security for true innovation to take place.
19:34 March 24, 2010 by danamcmahon
Chancellor Angela Merkel is a good leader, one day in the future Chancellor Merkel will be a zero leader when it is good by to all the money. I am joking but could that be the future. Let us give her a hand of support in wanting to bring in the IMF in helping Greece.
19:36 March 24, 2010 by peschvogel
EMF = Taxpayer money
15:13 March 27, 2010 by Essertpitay
Marc YOUNG is spot on : We need more integrated and coordinated approaches and not just on fiscal policies...We need an United Europe. Before it is too late.
17:43 March 27, 2010 by wenddiver
California would do well to coordinate with Mississippi. Mississippi just built a huge new Nissan plant, is building a Toyota plant, supplies parts for Mercedes-Benz and BMW (famous Alabama Auto-makers) and makes high-tech stuff at Raytheon. At Northrup-Gruman Mississippi builds the worlds most advanced warship.

Mississippi has some of the lowest taxes in the US, but a balanced budget, due to economic growth. The Governor of Mississippi is cutting the already small state government to make Mississippi even more competitive.

California is one of the biggest State Governments and broke!
18:21 March 27, 2010 by So36
Haley Barbour is venal hack at best.
03:29 March 28, 2010 by peschvogel
@wenddiver: California makes 90bn a year. Their debt service ratio is 6.0x. The CA constitution pays out schools first and then debt payments second. They must pay about 10bn a year. This year, its 20bn. I would hardly call: 90bn - 20bn = "70bn" broke...Get a life...California is not going broke. Stop reading focus magazine or listening to Sonya Kraus.
19:55 March 28, 2010 by wenddiver
I guess I made California's ever dropping bond ratings, and asking for Federal Bail-outs up. Sorry, about the mis-understanding. Go ahead, continue to spend and borrow. Remember your tax bill and your spending are directly connected.
23:37 March 28, 2010 by peschvogel
Please dont make comments on a State Constitutional and their financial process unless you thoroghly understand them. It makes you look like the person you truly are! : p Live with "facts" and "data" not "opinions" or "theories"...Perhaps you will get somewhere in life if you practice these traits...
07:42 March 29, 2010 by wenddiver
@peschvogel-Why don't you get aWall Street Journal subscrition and ask the experts what they think about buying California's bonds or Real Estate mortages?

What about IOUs???? Does anybody else's government pay their workers with IOUs occasionally instead of money?

I understand your State Constituion well enough to move out of the People's Republic of California, while I could still sell my house; hows selling a house there working or those of you who stayed??
11:39 March 29, 2010 by edmond
Greece and any other Euro zone member should understand the region is operating just like one big family where everyone is supposed to play their part and play it well , there is no baby sitter , that mean watch your face, dress up and join the rest at the dining table as a responsible family member , can the Greeks learn to do that on their own without waiting for other to button them up, I believe this is the message Angela Merkel is sending out , its the correct one .
21:14 March 29, 2010 by peschvogel

The IOU's in CA are just like the shady accounting system in germany. You just forgo payment until the next year. Workers are indeed getting payed. There is money in CA, and alot of it. Thats why Angel wants to come there. She wants to sell her solar power that she is not subsidizing anymore. And to get sun because Germany is always cold, dark and grey...
11:22 March 30, 2010 by Essertpitay
Peshvogel & Wenddiver : I like this "inter-state" slanging match, very interesting, really. I might move to Georgia for work next year. Is Georgia well managed?
06:20 March 31, 2010 by wenddiver
@Essertpitay- Like most of the South not really managed at all by the Government. Small government that sticks to fixing the roads and arresting people mostly. Some of the companys seem to be well run in Georgia; I own Coca-Cola stock (KO) and it's dividends never dissapoint. It is kind of Lasez Fare capitalism run wild in Atlanta.

I was there as a young Army Officer in the 1980s and the Georgia Peaches (young ladies) are beautiful, plentiful and devilishly tricky at getting guys to say they want to get married. The Golf courses are nice, people are friendly and Alcohol is cheap and plentiful.

The houses were very nice in the Atlanta suburb called Cummings Georgia. Have a good time, but like all American cities, certain parts are dangerous.
06:54 March 31, 2010 by peschvogel

Outside of Atlanta, Georgia is slow and the people are sweet. There is a German Chamber of Commerce in Atlanta and there are very nice Germans working there. Give them an email before the trip. There is a thriving German community in Atlanta. Good luck!
19:08 March 31, 2010 by AirForceGuy
I'd still take California over Mississippi anytime. Mississippi has always been one of the worst states in poverty, education level and quality of health care. Just because they have more sound state economics doesn't make them 'better'...
11:22 April 5, 2010 by Bensonradar
Some thoughts from the Kitchen Sink Centre for Economic Research [KSCER].

Greek debt has accumulated because the Greek tax authorities are weak. If Greeks want all the goodies that the state can supply, they MUST pay for them. Unfortunately, the Greeks are as fiscally irresponsible as any kid on the block who feels they can buy now and pay later. It's classic muddled thinking.

Without fiscal discipline, a country is eventually forced to go begging to the IMF as corporate city investors vote with their feet and will no longer buy government stock to service a sick country's debt. The Germans WERE MAD to give up the Deutsche mark. It defined their country's wealth, power, manufacturing and export prowess.

Using a common European currency is sheer stupidity. Prices shot up when the Euro was introduced and consumers suffered. As politicians need votes to stay in power, the ceding of national budgetary powers to a group of 16 members of a Euro club is political suicide.

The fact that, as a member of the German-led Euro zone, Greece has been able to tap international credit markets much more cheaply is part of the problem. Countries are scared of using tough internal policies to cut public sector debt as such a move loses votes. So, what do they do? They simply borrow more money, and hope to pay it back later. This childish-thinking is the reason the Greeks owe so much. They have not bothered to sort out their home economic strategy to bring down their borrowing. Greek austerity measures, including sweeping tax hikes and deep cuts in public spending needed to happen years ago. The Greeks need to take the harsh medicine for many years to come to stabilize their economy.

Angela Merkel IS the right person to play bad cop. Consider for a moment what would happen is UK's Gordon Brown was tasked with this. He would ruin any chance of fiscal probity, go belly-up and then call in the IMF as a previous UK Labour government had to do in the 70s.

If Greece devalues its currency, why would this affect the German economy? Germany manufactures and exports high-value consumer and business goods that are in high demand globally. Greece manufactures and exports olive oil.

A European Monetary Fund might work. As a European brand, it could be a bigger vote-winner than the Washington-based IMF. However, it would only work if debt-ridden Eurozone members, like Greece, sorted out their internal tax-raising capabilities, increased taxes on the middle classes and the rich and cut public spending.

Merkel is right. She should wait to see what happens after the Greeks grow up, finish their pointless protests and nationwide strikes and learn to live within their means. Why should Germany be the Euro's banker of last resort? Why should Germany have to take the lead in bailing any economy out?
Today's headlines
Munich taxi driver in hospital after attack by British tourists
Photo: DPA

A taxi driver had to be hospitalized in Munich on Monday evening after three British tourists refused to pay their fare and then attacked him.

German police carry out nationwide anti-terror raids
Police outside a building in Jena during raids on Tuesday. Photo: DPA

Police forces in five German states carried out raids on Tuesday morning with the aim of tackling the financing of terror groups, police in Thuringia have reported.

The Local List
10 ways German completely messes up your English
Photo: DPA

So you've mastered German, but now it's time to learn English all over again.

Iconic German church being eroded away by human urine
Ulm Minster towering over the rest Ulm surrounding the Danube. Photo: Pixabay

It will now cost you €100 to spend a penny. That’s if you get caught choosing to pee against the world-famous Ulm Minster.

German small arms ammo exports grow ten-fold
Photo: DPA

The government has come in for criticism after new figures revealed that Germany exported ten times the quantity of small arms ammunition in the first half of 2016 as in the same period last year.

14-year-old stabs 'creepy clown' in prank gone wrong
File photo: DPA.

A 16-year-old in Berlin decided he wanted to scare some friends, but his plot backfired in a violent way.

Four Ku Klux Klan groups active in Germany, says govt
An American member of the KKK at a gathering in Georgia. Photo: EPA.

The German government estimates that there are four Ku Klux Klan (KKK) groups currently active in the country, according to a report by the Süddeutsche Zeitung (SZ) on Tuesday.

Ex-chancellor Schröder to mediate in supermarket row
Gerhard Schröder. Photo: DPA

Can Gerhard Schröder bring an end to the Kaiser's Tengelmann saga?

Outrage over ruling on 'brutal' gang rape of teen girl
The now convicted suspects, sitting in court in Hamburg. Photo: DPA.

A 14-year-old girl was gang-raped and left partially clothed and unconscious in freezing temperatures. Now prosecutors are appealing the sentences for the young men found guilty, most of whom will not set foot in jail.

Dozens of Turkish diplomats apply for asylum in Germany
Demonstrators holding a giant Turkish flag protest against the attempted coup in Istanbul in July. Photo: DPA.

Since the failed putsch attempt in Turkey in July, Germany has received 35 asylum applications from people with Turkish diplomatic passports, the Interior Ministry confirmed on Wednesday.

Germany's 10 most weird and wonderful landmarks
Sponsored Article
Last chance to vote absentee in the US elections
10 things you never knew about socialist East Germany
How Germans fell in love with America's favourite squash
How I ditched London for Berlin and became a published author
12 clever German idioms that'll make you sound like a pro
23 fascinating facts you never knew about Berlin
9 unmissable events to check out in Germany this October
10 things you never knew about German reunification
10 things you're sure to notice after an Oktoberfest visit
Germany's 10 most Instagram-able places
15 pics that prove Germany is absolutely enchanting in autumn
10 German films you have to watch before you die
6 things about Munich that’ll stay with you forever
10 pieces of German slang you'll never learn in class
Ouch! Naked swimmer hospitalized after angler hooks his penis
Six reasons why Berlin is now known as 'the failed city'
15 tell-tale signs you’ll never quite master German
7 American habits that make Germans very, very uncomfortable
Story of a fugitive cow who outwitted police for weeks before capture
Eleven famous Germans with surnames that'll make your sides split
The best ways to get a visa as an American in Germany
jobs available
Toytown Germany
Germany's English-speaking crowd