WITH 60 per cent of Germans believing Greece should leave the euro, the Chancellor will not be swayed from her dogmatic attachment to budgetary rigour.
To grasp how Germans feel about being the focus of expectation in the maelstrom of the euro crisis, Der Spiegel’s bestseller list might serve as a guide. A polemic entitled Europe Doesn’t Need the Euro holds the number one slot, written by Thilo Sarrazin, a former board member of the Bundesbank.
Nostalgia for the era when Germany had a sound national currency, immune from the feckless profligacy of other countries and issued by the mightiest central bank in Europe, was once a suppressed emotion. Today, by contrast, this sentiment is widespread.
The advent of bail-outs funded largely by German taxpayers – and the general belief in the chancelleries of Europe that Germany has a unique responsibility to “do something” to save the euro (by which they mean, pay yet more money) – causes ordinary people in Berlin to question the whole enterprise.
“As a citizen, I would say yes, of course we should have kept the Deutschmark,” says Michael Guenter, a 50-year-old television cameraman. “But on the other hand, Germany is the most pro-European country in Europe. Today, a big majority are still pro-European, but they may not be pro-euro, because why should you give up a hard currency?”
That was not supposed to be the consequence of the euro’s birth. Germans were assured that the new currency would be just as sound as the old. “Everybody promised us, 'the euro will be as strong as the Deutschmark; the European Central Bank will be a child of the Bundesbank’. But we didn’t see it happen,” says Wolfgang Nowak, a Deutsche Bank executive who served as economic policy adviser to Gerhard Schröder, the social democratic Chancellor.
Instead, a string of countries used the low interest rates afforded by euro membership to go on spending sprees, with Greece the worst offender. Having run up debts they could not possibly repay, they turned to the European Union (for which, read Germany) to cover their bills. It is often forgotten that Berlin said “yes”. Two bail-outs worth a total of €240 billion have been agreed for Greece, albeit with stringent conditions including big cuts in public spending.
Greece’s response will become clear after the election on Sunday. The country may well choose a new government that will tear up the latest deal and effectively demand that Germany cough up even more money, this time with no strings attached.
If Berlin fails to oblige, Greece could find itself with no option but to leave the euro. The prospect of the single currency fracturing means that Germany will have to cave in, or so Alexis Tsipras, the leader of Greece’s hard-Left Syriza coalition, has convinced himself. This 37-year-old former Communist, who has a real chance of winning the election and becoming Greece’s new prime minister, is staking everything on one roll of the dice.
If Angela Merkel, the German Chancellor, is confronted with a stark choice between allowing the euro to break up or handing more money to Greece, Mr Tsipras thinks she will swallow hard and write another cheque.
In Germany, however, that brazen assumption meets blank incomprehension from officials, commentators and the public alike. The probable loser in any head-to-head battle between Mr Tsipras and the German Chancellor can already be identified – and it will not be Mrs Merkel.
Seen from Berlin, every calculation points in one direction: she must and will hold firm. “The poker game was started by Greece, not by Germany,” says Mr Nowak. “The difficulty is that to win the poker game, Greece needs German money. I don’t think that German politicians can explain to their taxpayers that they must give Greece more money.”
He adds: “Germany is dogmatic. You can’t explain to the German taxpayer and to German young people that they have to pay for nonsense proposed in an election in another country.”
Privately, Mrs Merkel is understood to be exasperated with countries that live beyond their means for year after year and then try to shift their liabilities on to German shoulders. An official in Berlin says that if Greece’s next government has new ideas for how to restore the country’s solvency within the euro, then Germany will be happy to look at them. But there will be no more money. The terms of the bail-out agreed in March must be honoured.
Mrs Merkel’s stance has won her plaudits at home. She is the most popular politician in her country, with 69 per cent approving of her handling of the euro crisis (60 per cent of Germans, incidentally, think that Greece should simply leave the euro). National elections are due by September next year and Mrs Merkel’s chances look good. Her centre-Right Christian Democratic Union has a five-point lead over the opposition Social Democrats. Why place that in jeopardy by giving way?
But what if standing firm really would mean forcing Greece out of the euro, with the risk that Spain and Italy might be next? Officials in Berlin think that leaving the single currency would be far more painful for Greece than any alternative course.
Quietly, Germany has laid a huge bet of its own: Berlin thinks that Mr Tsipras is bluffing. If he – or any other Greek leader – is forced to choose between abandoning the euro or accepting the terms of the bail-out, Germany thinks he will grit his teeth and choose the latter option.
What makes this looming confrontation so extraordinary is that both parties appear genuinely convinced that the other is a paper tiger. The danger is that they could both be wrong. If Mr Tsipras wins on Sunday and it turns out that he and Mrs Merkel have fundamentally misread each other, the scenario that neither wants – the break-up of the euro – could happen by default.
Where does that leave Germany? A devotion to the European ideal is woven into the fabric of the country. Helmut Kohl, the chancellor who conceived the euro in partnership with François Mitterrand, then French president, spoke of a “European Germany” as a way of laying to rest the ghosts of the past.
Mrs Merkel, who began her ministerial career under Mr Kohl, does not want to be the German leader who presides over the fracturing of the euro. If it does come to that, she would be damaging an ideal that her generation of politicians, not to mention her old patron, cling to with fervour.
If modern Germany has a religion, it amounts to a belief in the virtues of Europe and in fiscal discipline. The first arises from the horrors of the Third Reich, the latter from folk memories of Weimar hyperinflation. Today, however, these two articles of faith find themselves in conflict.
For Sebastian Dullien, senior policy fellow at the European Council on Foreign Relations in Berlin, the preservation of the euro is essential and casual talk of a Greek exit is “dangerous”. “When you talk about a possible Greek exit, the narrative here is that that wouldn’t harm Germany very much. The view is that Greece would be harmed, but Germany would not be – which is completely wrong.”
Expert opinion differs on this question. “Firewalls” have been installed to contain the consequences of Greece refloating the drachma and defaulting on its euro-denominated debts. But Mr Dullien says: “Even if you have a car with decent airbags, you don’t want to accelerate to 100 kilometres per hour and collide with a wall.”
But he still warns that Mr Tsipras is “misreading how the Germans are going to react” to his demand for scrapping the bail-out terms. Mrs Merkel would “risk a revolution within her own party” if she ever agreed to that, he says.
The Chancellor is now doing her utmost to unite the ideals of Europe and budgetary rigour. Her chosen solution is the “Fiscal Compact”, designed to bind all members of the euro to reduce their deficits. But she now faces a French president, François Hollande, who fundamentally disagrees and has big spending commitments of his own.
Instead of imposing discipline on his national budget, Mr Hollande’s favoured solution is to carry on spending beyond France’s means – and have Germany guarantee the resulting debts.
As Germany wrestles with these multiple dilemmas, the nation is turning to a book that simply asks: can’t we have Europe without the euro? Or, in other words, how did we ever get into this.