Wednesday 13 November 2019

Germany must rise to challenge

His tone may have been courteous but there was no mistaking the underlying message in Greek Prime Minister George Papandreou's speech to German business group BDI prior to his meeting with Chancellor Angela Merkel in Berlin yesterday.

"The eurozone must now take bold steps towards fiscal integration to stabilise the monetary union," Mr Papandreou said.

"Let's not allow those who are betting against the euro to succeed."

The Greek leader then pointed to the "superhuman effort" his country had already made to put its public finances in order, stating that, if the equivalent adjustment had been carried out in Germany, it would have exceeded €100bn and that Greece would be running a primary budget surplus, where tax revenues exceeded day-to-day government spending before interest costs, by 2012.

Though he was far too polite to say so directly, Mr Papandreou was in effect telling his German hosts: we've done our bit, now it's up to you.

Tomorrow the German parliament is due to vote on the July 21 deal between European leaders which expanded the role of the EFSF, AKA the bailout fund.

Europe's largest economy can no longer avoid playing a role commensurate with its stature if the euro crisis, which is now threatening the health of the entire global economy, is to be finally solved.

Mr Papandreou wasn't the only person telling the Germans to get a move on.

US President Barack Obama said that the eurozone crisis was "scaring the world" and the Europeans, i.e. the Germans, were "trying to take responsible actions but that those actions haven't been quite as quick as they need to be".

Which, translated into plain English, means: When are you guys going to do what needs to be done?

While yesterday's rally on global stock markets reflects growing confidence that eurozone leaders are finally inching their way towards a solution, it might not be a good idea to bet on it just yet.

Not only does Ms Merkel face a difficult vote in the Bundestag tomorrow, with several members of the ruling CDU/CSU party adamantly opposed to the July 21 deal, she is also confronted with widespread popular opposition to what German public opinion perceives as spending taxpayers' money bailing out lazy, feckless Greeks.

While the German position isn't entirely without merit, it must realise that it has benefited enormously from the single currency.

While the peripheral economies such as Ireland, Greece and Portugal binged on the cheap credit that the euro brought in its wake, German exporters reaped the rewards of a fixed exchange rate which made their products hyper-competitive.

One man's deficit is another man's surplus.

The enormous deficits being run up by the peripheral eurozone countries were the mirror image of the equally enormous German trade surpluses, about 6pc of GDP.

Ms Merkel's biggest failure has been her inability or unwillingness to explain this simple fact to her people, preferring instead to indulge the populist, tabloid morality of 'Bild' readers.

The time for such grandstanding long has passed.

Only Germany can now rescue the eurozone and prevent the most serious global financial collapse since 1931.

If Ms Merkel fails to rise to the challenge all us, not least Germany itself, will suffer.

Irish Independent

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