BEING THE sensible one in the family is no fun, but it’s a cross the Germans have carried with dignity in the EU for decades. Of late, though, the cross has begun to weigh them down.
Since the start of the Greek crisis, Germany has been savaged in the European press as the pedantic Prussian insisting that everyone adhere to euro-zone guidelines even as Greece – and with it the euro-zone rule book – goes up in flames. Berlin is wagging its finger at Greece when all anyone else in the EU wants is for it to get out the cheque book.
“I think Germany has shot itself in the foot here,” said economist Niall Ferguson in Germany’s Handelsblatt daily. “I don’t think Chancellor Merkel has realised the benefits and cost of a rescue. Most certainly she hasn’t realised that her hesitance would drive up the final price.”
It’s a compelling and compulsive way of looking at things, but only one side of the story. Anyone hoping to understand the other side has to begin with the realisation that Germany is, quite simply, a country in shock. The shock stems from Germans’ still raw emotion at being forced – they were never asked – to give up their deutschmark.
After the trauma of inflation in the 1920s that helped Hitler to power, and the scarcity of the post-war years, the deutschmark was for generations of Germans the promise in their pocket of plenty, a guarantee better than any government of security and stability. Then Germany exchanged the tangible stability of the hard-as-nails deutschmark for an untested currency backed by the mere promise of stability: the euro-zone no bailout clause.
No matter what happened, Germans were told, they would not have to bail out European neighbours simply because they shared a currency. After 20 years of no bailout rhetoric, German politicians have had to perform the most painful U-turn possible.
It is an emotional wrench, comparable to an Irishman being forced to swap the deeds of his home for a life-long lease: it’s almost as secure, but may amplify lingering Famine-era traumas of being put out of the house. That this U-turn has been forced by Greece’s flagrant breach of euro-zone rules makes it especially bitter, a double betrayal in a country where obeying rules is passed on with mother’s milk.
That bitterness has bred a populist, vitriolic campaign against Greece in German tabloids – one that has skirted with xenophobia. The Greece that German tabloids have painted for their readers is a land exclusively filled with lazy boors who have tapped Germany for years to finance their corrupt ways (“What will it Costas?”) – but no more.
The blind spot many ordinary Germans have is in seeing the important difference between what was once right – no bailout – and what changed circumstances have now made the right thing to do, according to EU governments: bail out Greece before the entire euro zone loses its footing.
The argument is a slippy one which needs to be driven home by politicians. Rather than go out and argue the case this week though, the shutters came down in political Berlin.
At the finance ministry, officials say they are not sure what to do. Finance minister Wolfgang Schäuble is in hospital and, in his absence, all policymaking on the euro zone has been co-opted by the chancellery. And in chancellor Merkel’s inner circle, no one is talking.
“An EU policy change took place at the weekend and not one to our liking,” said one government source. “That’s not something one usually likes to talk about.” In private, senior German officials admit they suffered a setback last weekend in the long-running French/German battle over the EU.
Long-term German insistence on EU stability and an independent European Central Bank (ECB) had come off second best against the French vision of greater flexibility towards euro-zone debt nodded through by a politically obedient ECB.
Berlin officials insist that, regardless of French jubilation this week, the EU has not been transformed overnight into their nightmare of a “transfer union”, moving wealth from richer northern countries to poor southern countries.
The weekend deal is limited to three years and the stabilisation package has been outsourced to a special purpose vehicle beyond European institutions – all at German insistence. When the three years are up, Germany is confident it will return to business as usual with the kind of stability pact worthy of its name. Berlin may have lost the most recent battle, but they are determined to win the war.
At the same time, Berlin officials feel that EU partners have misunderstood Germany’s motivations and its intentions in this crisis. Berlin has a big problem beyond the deutschmark trauma: though the EU may have agreed a new reading of the Stability Pact last weekend, Germany’s powerful constitutional court in Karlsruhe has not. “No other country in Europe has a constitutional court with such a strict control of the executive,” said one high-level Berlin source.
In rulings on the Maastricht and Lisbon Treaties, the court has said it would find a euro-zone bailout only acceptable as a last resort or ultima ratio.
Thus Berlin says it was obliged to exhaust all options in the Greek talks and push for a stringent deal to keep the court happy. It was terrified of being rushed into a half-baked deal that could be successfully challenged in Karlsruhe – with unpredictable consequences for the euro zone.
“The problem with the court is we can’t simply make an attempt at a deal and have Karlsruhe force us to roll it back,” said the government source. “We needed to get the toughest deal possible – involving the IMF – to make sure it will stick. Other countries are underestimating the danger posed by Karlsruhe.”
Berlin’s palpable fear of Germany’s constitutional court judges is something that has been given too little attention abroad. But Dr Merkel’s government is at least partly responsible with poor communication that has come at a huge price.
“The government is nervous and it failed to recognise that the nervous markets were looking for a signal,” said a leading political adviser of the government, who requested anonymity. “Germany should have said early on to Greece: ‘We promise to give you money in a serious situation, but only if you accept our conditionality’. But no one told Dr Merkel’s team how markets work. The chancellor is, simply put, poorly advised and the government is overwhelmed.”
There’s a widespread opinion in Berlin think tanks at the moment that German officials in the chancellery and foreign ministry are unaware of the negative perceptions of Berlin abroad. Where it has been recognised, countering it is not seen as a priority.
“To be honest, it’s all hands on deck here just to secure a majority [in the Bundestag] next week,” said one leading Christian Democrat official.
The €40 billion rescue plan was approved last week by angry MPs with heavy hearts. Next week’s vote on the €700 billion euro-zone stabilisation fund – €123 billion from Germany – is far from a sure thing. Already many MPs are looking for a chance to let off steam at what they see as an abuse of euro-zone emergency bailout regulations.
“They were intended for situations like natural catastrophes and emergency situations,” said MEP Werner Langen from Dr Merkel’s Christian Democrats (CDU), “but heads of state and the European Commission should not use them to rescue states from debt crises they have caused themselves”.
Views like that are widespread in Berlin, meaning chancellor Merkel faces a growing headache as she works to secure a convincing majority in next week’s vote.
When it comes to stabilising the euro, Germany’s priority is not to win an EU popularity contest. It simply wants to save itself and the euro zone as best it can, then claw back the confidence of its citizens for the little-loved single currency.
