Thomas Molloy: Smaller EU states should welcome Merkel victory
No country in Western Europe has changed more than Germany over the past two decades and these changes explain why that country approaches the present financial crisis very differently from the rest of us.
Germany has altered in many obvious ways: it is much bigger than it used to be, much older and much more assertive in foreign policy. It is also another generation removed from World War Two.
The country has also changed in subtle ways: it is much more eurosceptic than it used to be, much poorer and much more confident that it has created a country which can teach the rest of us something when it comes to democracy and the protection of human rights.
These changes help to explain why Chancellor Angela Merkel appears to have won agreement from the French for a new kind of Europe which will be much closer to Berlin's way of doing things than the French way.
Mrs Merkel's speech in Berlin yesterday and President Nicolas Sarkozy's speech in Toulon the previous day where he strode on to a stage draped in French flags to announce that he supported the German solution to the crisis -- a long period of austerity rather than debt sharing -- was a pivotal moment in the crisis.
Here in Ireland, where we tend to be influenced by the jaundiced views of our closest neighbour which dislikes France and Germany in almost equal measure, we have subscribed to the lazy view that the France-German alliance is some sort of plot to take over the Continent. This is the wrong way to view the alliance and prevents us from seeing that the alliance papers over many deep cracks.
In fact, the France-German alliance is anything but harmonious and this is why we have had to watch on the sidelines as the two countries engaged in high stakes poker over the past few months.
German officials believe that they were tricked by the French in the 1990s when former Chancellor Helmut Kohl agreed to a single currency with stringent fiscal conditions only to see the French turn around at the last minute and reject the conditions while keeping the currency. Whether this version of history is correct or not does not matter; it is the reason why Germany is now insisting that France jump first when it comes to the necessary changes to the design of the euro. Merkel wants to finish the project her mentor Helmut Kohl began.
The Germans trust the French so little that they needed Sarkozy to make a speech on Thursday that effectively caved into German demands for automatic sanctions for countries that break eurozone rules on debt and borrowing. The Germans, and the French, know strict sanctions are necessary because they broke the rules in the early part of the last decade with impunity -- something that created a damaging precedent for others.
Quite why people here are so opposed to rules which will force big countries to be treated like little countries is difficult to understand. For France to agree to these changes is a big deal because France is powerful enough to flout the rules. Countries such as Ireland must obey the rules anyway so we should be welcoming measures with real teeth that will keep our neighbours in check.
We should also be happy that Mrs Merkel has succeeded in preventing the introduction of eurobonds which would shift the debt burden from the south to the north without solving the underlying problem of western countries which is that we are all living beyond our means.
THAT we are living beyond our means is indisputable. It is not necessarily our fault; the entire planet is still trying to find ways of housing an extra 2 billion people who have been born in the past few decades. This is no easy task and requires entirely new ways of distributing resources. But it is also true that western countries have been voting for governments for decades that promise to improve services while cutting taxes. Most of those governments unfortunately kept their pledges and the result is large deficits. The eurozone has tended to be much more sensible that either the US or the UK but it has still incurred unsustainable debts that must be paid off. The United States and the United Kingdom are printing money to repay their debts which effectively robs the poor and the elderly by hiking inflation which is already running at 5pc in Britain. This is a political decision to impoverish those who cannot move countries to help the financial services industry.
It may make sense in Britain where the economy depends so heavily on big finance but it does not make sense in the eurozone where companies tend to make things. By keeping inflation at an average of 1.9pc since the foundation of the euro, the European Central Bank has done a good job of keeping inflation expectations low which feeds into cheap credit. It will take a generation to regain those benefits if the ECB began to print money. The UK will find it very difficult to shake off inflation.
Countries such as Germany, Austria, Finland and the Netherlands are genuinely opposed to any further form of debt sharing, usually called eurobonds, because they believe it is immoral and because they believe it won't work. This second consideration is very important; most of us would break our word to save a friend but we wouldn't throw ourselves off a cliff.
That only leaves austerity and that is what we must now endure. Yesterday, Mrs Merkel compared austerity to a marathon. She knew what she was talking about.
The Germans know this because salaries have not risen for two-thirds of the population over the past 15 years. Property prices fell every year for two decades before stabilising and rising in the past few years. This is difficult and this is why we need new budgetary systems to ensure that all countries stay on track.
It will be a hard slog but there is something reassuring about the fact that the rest of Europe will soon begin to take the deep measures that are needed.
The speeches by Merkel and Sarkozy this week suggest that Merkel's vision of a long, slow return to growth has won out over Sarkozy's much less convincing attempts to long-finger reform yet again. It will be painful but it will make Europe a better place in the long run. The tortoise has won over the hare.