The recent elections in France and Greece, together with local elections in Italy and continuing unrest in Spain and Ireland, have shown that the public has lost faith in the strict austerity forced upon them by Germany. Merkel’s kill-to-cure remedy has run up against reality – and democracy.
We are once again learning the hard way that this kind of austerity, when applied in the teeth of a major financial crisis, leads only to depression. This insight should have been common knowledge ; it was, after all, a major lesson of the austerity policies of President Herbert Hoover in the United States and Chancellor Heinrich Brüning in Weimar Germany in the early 1930’s. Unfortunately, Germany, of all countries, seems to have forgotten it.
As a consequence, chaos looms in Greece, as does the prospect of subsequent bank runs in Spain, Italy, and France – and thus a financial avalanche that would bury Europe. And then ? Should we write off what more than two generations of Europeans have created – a massive investment in institution-building that has led to the longest period of peace and prosperity in the history of the continent ?
One thing is certain : a breakup of the euro and the EU would entail Europe’s exit from the world stage. Germany’s current policy is all the more absurd in view of the bitter political and economic consequences that it would face.
It is up to Germany and France, Merkel and President François Hollande, to decide the future of our continent. Europe’s salvation now depends on a fundamental change in Germany’s economic-policy stance, and in France’s position on political integration and structural reforms.
France will have to say yes to a political union : a common government with common parliamentary control for the eurozone. The eurozone’s national governments already are acting in unison as a de facto government to address the crisis. What is becoming increasingly true in practice should be carried forward and formalized.
Germany, for its part, will have to opt for a fiscal union. Ultimately, that means guaranteeing the eurozone’s survival with Germany’s economic might and assets : unlimited acquisition of the crisis countries’ government bonds by the European Central Bank, Europeanization of national debts via Eurobonds, and growth programs to avoid a eurozone depression and boost recovery.
One can easily imagine the ranting in Germany about this kind of program : still more debt ! Loss of control over our assets ! Inflation ! It just doesn’t work !
But it does work : Germany’s export-led growth is based on just such programs in the emerging countries and the US. If China and America had not pumped partly debt-financed money into their economies beginning in 2009, the German economy would have taken a serious hit. Germans must now ask themselves whether they, who have profited the most from European integration, are willing to pay the price for it or would prefer to let it fail.
Beyond political and fiscal unification and short-term growth policies, Europeans urgently need structural reforms aimed at restoring Europe’s competitiveness. Each of these pillars is needed if Europe is to overcome its existential crisis.
Do we Germans understand our pan-European responsibility ? It certainly does not look that way. Indeed, rarely has Germany been as isolated as it is now. Hardly anyone understands our dogmatic austerity policy, which goes against all experience, and we are considered largely off-course, if not heading into oncoming traffic. It is still not too late to change direction, but now we have only days and weeks, perhaps months, rather than years.
Germany destroyed itself – and the European order – twice in the twentieth century, and then convinced the West that it had drawn the right conclusions. Only in this manner – reflected most vividly in its embrace of the European project – did Germany win consent for its reunification. It would be both tragic and ironic if a restored Germany, by peaceful means and with the best of intentions, brought about the ruin of the European order a third time.