Analysis: Eurozone rescue row doesn’t shake German view

By Stephen Brown and Andreas Rinke

BERLIN (BestGrowthStock) – Germany has grown inured to criticism over its role in Europe’s woes and, seeing itself vindicated by events, is unlikely now to give up its insistence private investors accept risk in future euro zone crises.

When Finance Minister Wolfgang Schaeuble said on Wednesday Germany was not to blame for the euro zone’s problems and would stick to its proposal for a new crisis mechanism, he was not so much being defensive as saying what Germans find obvious.

Greece, Ireland and some European Commission and European Central Bank officials accuse Germany of causing a sell-off in peripheral euro zone bonds by insisting, with French support, that investors must in future share the sovereign default risk.

“Taken out of context there is obviously merit to the Franco-German proposal. But the timing could not have been more damaging,” wrote Simon Tilford, chief economist of the Center for European Reform in Brussels.

According to German logic, European Union leaders already accepted at their October summit Berlin’s proposal to replace the European Financial Stability Facility, which was set up in May and expires in mid-2013, with a new mechanism making private holders of euro zone debt accept some exposure to risk.

So when the same leaders like Greece’s George Papandreou say Germany could “break backs” and prompt bankruptcies by insisting investors face the risk of default, or a haircut, the German conclusion is that they are just playing to domestic audiences.

Merkel said on Thursday she was “completely convinced” this would happen. A day earlier, Sueddeutsche Zeitung wrote in an editorial “the chancellor should not sacrifice her principles.”

“The indebted countries are attacking their chief financier, Germany, and the main attackers innuin the blame game are the most indebted countries,” said the newspaper.

Apart from a few isolated editorials, though, the criticisms have largely fallen on deaf ears in the German media.

“I’m not sure anyone in Germany is really taking a lot of notice,” said Gero Neugebauer, political scientist at Berlin’s Free University, when asked about the anti-German sentiment.


The response from Merkel has so far been characteristically moderate despite the heated tone of criticism heaped on Germany.

“We have resisted the pressure at home and in Europe,” she told a party conference this week, where she was reelected by 90 percent of delegates as leader of the Christian Democrats (CDU) despite a decline in popularity since she won a second election in 2009.

“We made clear that a good European is not always the one who acts quickly, but the one who acts wisely,” said Merkel, who was pilloried this year for dragging her feet on a Greek rescue package as she demanded greater fiscal sacrifices from Athens.

Critics say her delays pushed up Greece’s borrowing costs until the crisis threatened to engulf other southern European countries and she ceded in May — signing up to a much bigger bailout mechanism to stabilize the common currency days later.

Germany argues the austerity measures it insisted upon for Greece — now being painfully implemented — led to a rethink of budget discipline across Europe that helped underpin the euro.

Six months later, fiscally-disciplined German taxpayers’ resentment at having to bankroll the rescue of more profligate EU partners has been tempered by Germany’s recovery, though this in turn causes mutterings abroad about its reliance on exports.

Germany is unapologetic, with Merkel taking out a newspaper advert this week thanking citizens for making Germany “the country that came through the world economic crisis best.”

This is not intended to transmit any disconnect from the euro zone’s problems, with Merkel repeating this week that the fate of the joint currency is of “intrinsic interest” to her country and that “if the euro fails, Europe fails.”


Officials in Berlin say the crisis mechanism must be settled now, before deficits climb even higher.

“This step is very important and we have to stick to it,” said Michael Meister, a finance expert and senior member of parliament for Merkel’s CDU.

One official compared Germany’s current role in Europe’s finances to the U.S. role in global military affairs, saying that, like Washington, Germany has to exercise leadership, even at the cost of being liked.

“Germans feel like the paymaster for the EU and have a sense of entitlement,” said Neugebauer, adding that Merkel “tends to act like a schoolmistress at times.”

Merkel also has a very compelling reason for taking a hard line on euro zone crisis management in the form of a pending decision from Germany’s constitutional court on whether the existing bailout mechanism is legal. A “no” would block aid and probably provoke an even deeper crisis in Europe.

But, like the foreign leaders criticizing her, Merkel also plays to her domestic audience, mindful of the six regional elections she faces in Germany next year, said Neugebauer.

While Germany would be the chief contributor to any bailout for Ireland within a rescue scheme already agreed on by European leaders, it can be difficult convincing the public the largesse shown to deficit sinners like Greece should be repeated.

“I don’t think Germany should help Ireland because it’s all so pointless,” said Joachim Bayer, a 53-year-old carpenter in Berlin. “We saw with Greece there was only bad blood and an ugly back and forth after we helped out. Why bother?”

(Additional reporting by Erik Kirschbaum; editing by Ralph Boulton)

Analysis: Eurozone rescue row doesn’t shake German view