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If the Euro Fails, Merkel Fails

The chancellor’s destiny is to make good on the support Europe provided Germany a quarter century ago
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German Chancellor Angela Merkel may not be to blame for the crisis in Greece, but her handling has contributed to the emergency the euro finds itself in now. Keeping Greece in the currency union and the currency union from implosion are now her highest responsibilities.

© REUTERS/Fabrizio Bensch

© REUTERS/Fabrizio Bensch

The greatest irony of the final act of the Greek tragedy is its timing. EU leaders are considering another all-or-nothing summit, one that will nearly coincide with the twenty-fifth anniversary of a very different all-or-nothing meeting their predecessors held in Dublin.

On June 28, 1990, European leaders expressed confidence that “German unification . . . will be a positive factor in the development of Europe as a whole.” And as a French-driven safeguard against a dominant Germany in a unified Europe, leaders included two short sentences noting their agreement to “establish in stages an economic and monetary union.”

Was the energy released by German reunification responsible for today’s existential crisis in the currency union, as a growing Berlin-critical chorus around Europe believes? Or is the opposite view, widespread in Germany, more accurate, holding that currency union and its errant members are placing dangerous pressure on Germany?

Bridging this gap in the European narrative is the task of all European leaders, Angela Merkel most of all. The crisis fatigue on all sides is so great, however, and the atmosphere around Europe so poisonous, that she may now be able to save an intact eurozone or her political career, but not both. If that is the case, which will she choose?

A Toxic Attitude

Even if the German chancellor helps broker a compromise with Athens, she must sell it at home, overcoming a toxic attitude towards Greece that is partly of her own making.

It’s worth remembering that in the early days of the euro crisis Merkel saw no reason to intervene in what she viewed as others’ domestic financial difficulties. Even when she realized the problem’s scale, she continued to frame it as discrete debt crises in individual, profligate periphery states to be addressed with fiscal austerity. Only very slowly did the idea filter through that the visible symptoms indicated a deeper structural malaise in the single currency’s structure.

Even as the scale and potential consequences of the respective crises in Greece, Ireland, and elsewhere became clear, Berlin was slow to act. Today, even some of Merkel’s closest allies concede that refusing to contemplate serious debt relief for Greece in the spring of 2010 was when they began rearranging debt deckchairs on the Titanic.

The euro is once against drifting towards an iceberg – and probably not for the last time –because we have no politicians prepared to present their voters with the full truth. Instead, we have selective narratives offered up by nationalist stone-throwers – and Berlin is up there with the best of them.

Two Brands of Outrage

Germany’s euro debate – like Berlin’s approach to talks in Brussels – has been bookended by two brands of outrage at home. The Bild tabloid has influenced the popular end of the debate with its portrayal of the “Pleitegriechen” (“broke Greeks”), a slippery people not worth helping. At the other, “expert” end of the debate, meanwhile, a stream of outraged economists and broadsheet editorial writers have portrayed the eurozone crisis, like the currency bloc itself, as an all-pain, no-gain conspiracy against thrifty Germans.

The €80 billion-plus in various loans and assistance to Greece is viewed as dead money, while preserving the euro is still not seen as an act of self-preservation. Instead, commentators say that sidestepping the “no-bailout” clause – Germany’s condition for adopting the euro – would be unforgivable treachery. The cost to Germany of deciding otherwise – keeping the “no-bailout” clause intact at the price of the euro – is not discussed.

In fact, the treachery of betraying the “no-bailout clause” has become a modern Dolchstoßlegende, conveniently ignoring what came previously: the Franco-German watering down of the euro’s rules in the stability pact. In Berlin, Merkel officials view this as a regrettable error from a previous era, presided over by her Social Democratic predecessor Gerhard Schröder, with consequences that have nothing to do with those in government today. But it was the de-clawing of the European Commission – the euro’s fiscal guardian – that gave the green light for all European countries to load up on cheap debt.

This in no way excuses periphery governments for their irresponsible, debt-fuelled binges, of course – but in the euro crisis glasshouse, Berlin’s amnesia is painful.

Perhaps the most striking failing is how, when it realized that the periphery’s problem was its problem too (shared currency, remember?), Berlin adopted a selective and narrow “debt-crisis” narrative, one that served its own domestic political ends as much as crisis countries’ economic well-being. Forcing others in the EU into tighter fiscal straitjackets in an effort to balance budgets may have made some economic sense (though Europe’s many Keynesians dispute this), but in Berlin it was viewed as a prerequisite to placate voters. The loans-for-reforms narrative was a consolation prize for caving on the no-bailout clause.

That this had a positive effect in some cases – Ireland, for example – cannot be denied. But in Greece the fiscal straitjacket has been an economic failure and a political disaster because it was the wrong prescription for the illness at hand. And Berlin’s fiscal corset helped propel to power the very government German officials – and media – now dismiss as irrational amateurs. At the same time, this fiscal corset has squeezed Germany’s public debate and body politic: Angela Merkel, trapped between ordoliberal economic purists and tabloid Greek obsessives, has watched her “eurocrisis [sic] as a debtor morality play” narrative come back to haunt her.

If the Greeks vote “no” on Sunday, Angela Merkel knows she will go down in the history books as the woman who helped break the euro. If Greek voters say “yes,” it opens yet another can of worms for the German leader.

Holding the Euro Together

As this all unfolds, German public support for Greece remaining in the eurozone is trickling away rapidly in opinion polls, from 55 percent in January to 41 percent today – and could dip further if and when a third bailout is required. In Merkel’s Christian Democratic Union (CDU) Bundestag faction, one in 10 MPs rebelled against the second program extension in February, and a third have aired doubts about another.

If Greeks vote “yes,” restarting talks with Brussels – or if last-minute talks today (June 30) bear fruit – the chancellor will have to hold the euro together, with Greece inside, against German public opinion. The European policy of her mentor, Helmut Kohl, was spurred on by the graveyards full of soldiers scattered throughout Europe, but Angela Merkel’s motivations are more sober: she wants to avoid a post-Greek eurozone sleepwalking into the 21st century as the economic also-ran of globalization. Though she shies away from big political narratives, Merkel’s destiny is to make good on the support Europe showed Germany a quarter century ago in Dublin for unification by throwing German support behind the currency union, come what may – and according to some reports, she is willing to offer more than the official deal.

If the euro fails, as Angela Merkel says again and again, then Europe fails. Though in public she never follows this line of logic to its conclusion, the canny German leader knows that if Greece fails, then the euro fails, European integration fails, and Merkel fails.