Sunday 21 January 2018

Germany all set to kick the can down the road -- yet again

Donal O'Donovan

IN the early, dark days of World War Two, Winston Churchill reassured the British that help from the US was on its way.

Churchill was always good for a line. "America always does the right thing," he said, adding: "Once it has exhausted all of the alternatives."

Until last night, most observers thought that after exhausting the alternatives Germany would "do the right thing" and draw a line under the euro crisis.

Alone in Europe, Germany can open its vast wallet and buy the euro's way out of the debt crisis. It can do that by giving the go-ahead for one of the alphabet soup of euro institutions -- the EFSF, the ECB or the ESM -- to write a cheque big enough to ensure markets stop worrying about losses lurking on the balance sheets of European banks and countries.

Germany understandably isn't pleased at being asked to give what it sees as a free ride to less disciplined neighbours, but the failure to take action has become a crisis in its own right.

What Europe needs is leadership and a sense of urgency.

Instead, its most important politician -- German Chancellor Merkel -- is the procrastinator in chief.

Even France eventually had to compromise in yesterday's talks, but at least it has a good excuse for its concerns.

France is worried that it may not be able to bear the financial costs of bailing out its banks -- one of the options on the table yesterday.

Germany has the funds, so Angela Merkel's unwillingness to act is nakedly political.

On the European stage, her efforts to pander to domestic political prejudice have led to paralysis.

But her decision to drag her heels to help local politics didn't work. Two years after she was swept back into power in Berlin she has already lost the support of her own coalition.

Instead of getting bolder since then, Merkel has become more cautious.

While Europe is convulsed by the debt crisis the Merkel response is to do nothing -- or as close to nothing -- as she can get away with.

Because Germany is the dominant euro economy, that attitude has become the defining feature of the effort to fight the crisis: too little, too late, every time.

Yesterday, just hours before her self-imposed deadline for a deal to end the crisis expired, Merkel was already making efforts to kick the can down the road, once more.

Even with the world economy on the brink of recession, taking decisive action is a bridge too far for the German chancellor.

In part, it is because the crisis seems far away for many Germans. Economically, the country is on a high.

Unemployment is close to a record low, while export-fuelled growth is surging.

But that is largely thanks to the euro, which is much weaker than Germany's old Deutschmark and gives German manufacturers a huge boost selling heavy goods into the US and Asia.

Yesterday, with Italy on the verge of being forced out of the debt markets Merkel and French President Nicolas Sarkozy managed to agree on one thing: they came together to lecture Italy's prime minister Berlusconi about the need for radical reform in his country.

Lectures might have been tolerable as long as the German engine was capable of drawing all of the euro area behind it.

They could even be accepted if German support was playing a decisive act in ending the crisis. But neither is the case and patience with Berlin is running out.

Swingeing austerity measures being adapted across the euro area threaten to kill off domestic economic life.

And last night's missed deadline means the euro crisis has entered a new phase.

As things stand, even if a deal is cobbled together on the debt crisis later this week it may be too late for confidence in the euro to ever fully recover.

The alternatives may have been exhausted, but Germany remains undaunted. It is still Germany's way or not at all. We may all yet pay for that righteousness.

Irish Independent

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