It isn’t easy being German chancellor these days.
For months, Angela Merkel was accused of failing to provide leadership during Europe’s debt crisis. But after she prescribed austerity for debt-hit eurozone members, rejected issuing joint eurobonds and blocked making the European Central Bank as a lender of last resort, it now appears as if many in Europe preferred her previous lack of engagement.
And as the crisis has festered in recent weeks, ugly images of a bossy Germany have sprouted up from Athens to London.
Part of the British press, never keen to miss a chance to trot out tired Nazi clichés, has tastelessly made references to a Fourth Reich and portrayed German leaders as dictating economic terms to the rest of the Continent. Some Greeks have even taken to putting Merkel in a Nazi uniform along with their liberal use of swastikas at demonstrations.
Despite the cheap attacks – and some solid arguments for eurobonds – the German government’s line has stayed firm: Berlin does not want to put more German taxpayer money on the line until Greece, Portugal and Italy put their finances in order. Jointly issuing debt would undoubtedly raise German borrowing costs – while potentially taking the pressure off more profligate countries.
The Germans are also extremely leery of making the ECB a so-called lender of last resort for euro members unable to borrow on the jittery financial markets. Amid collective memories of hyperinflation between the wars, Germany remains the strongest advocate against having the central bank print money with abandon.
Germany’s economy has so far remained relatively unscathed by the debt crisis, but a poorly received bond auction last week set off a few alarm bells in Berlin. While the Finance Ministry played down the significance, some investors are apparently now looking to bond safe havens outside the eurozone.
There are good reasons against issuing eurobonds and making the ECB a lender of last resort, but many economists now consider either one or the other will be necessary to keep the eurozone from breaking apart.
And the longer the debt crisis continues the fewer options Merkel would seem to have.