Is Day X Coming?

The solution to the European debt crisis is near. Or the collapse.

At the moment, Germany is the strangest country in the world, or at least in Europe. Due to the debt crisis, the entire continent is focusing on Germany, yet the country itself isn’t in a crisis. Nonetheless, the Germans too are noticing that these days, everything is accelerating and intensifying; there is a nervous buzz in the air. One almost wishes for the Big Bang. The initiated say it will come, and sooner than Santa Claus.

Thus, heads of states and central bankers have another two weeks to stop what is already underway: Ever more countries are having to pay ever more interest for ever more loans,
although they are doing more and more to contain their debts, passing austerity programmes, toppling prime ministers, and frightening their electorates with increasingly tough speeches. What more do the markets want? Apparently, they want something else; they want the really big solution, the ultimate guarantee. Alternatively, if no solution is found, they will destroy the euro and make a profit from its collapse. That works for the markets, less so for ordinary people.

The Germans aren’t mean – the majority would pay

The dispute now is about what that ultimate guarantee should be. What’s clear is who is going to be the ultimate guarantor: that’s Germany, no matter whether the guarantee is labelled eurobonds, or European Central Bank (ECB), or whatever. That’s why the [German] federal government not only wants debts to be guaranteed, but also an insurance that  excessive new debts won’t be made. A double guarantee.

As such, that would be a good deal: The South changes its ways, the North pays once more. Some think the Germans are egoists, but they aren’t; they would agree to that, perhaps even by a large majority in a plebiscite.

Unfortunately, this is where the two remaining weeks come into play. It may be quite simple and feasible to make cash available at short notice, by printing it or borrowing it. But it is much more difficult and long-winded to make binding agreements about future debt ceilings and sanctions.

In the end, it doesn’t help much if, for instance, the righteous new prime minister Mario Monti ceremoniously promises that Italy won’t allow itself to sink as deeply into debt as before. Because as soon as loans become cheaper again – because Germany is guaranteeing them on the markets – Monti could be toppled by the sinister Berlusconi, who would go on to liberate the Italians from the German diktat and start putting money back into people’s pockets.

So, ideally the European Union agreements would have to be changed – such that no single country could fiddle with them, neither its government, nor its electorate. That would require a change on the constitutional level. Opinions diverge over how long such a move would take, but it would certainly be more than two weeks, or even two months.

The thousand-billion-euro-question is the following: What could a guarantee look like that amounts to more than a statement of intention, but less than a change in the constitution?

Something like that wouldn’t be easy to find even if everybody were looking for it together. But that isn’t the case. Some highly-indebted countries want eurobonds – that is, for liability to be shared between all borrowers – yet without giving anything in return other than their good intentions. In so doing, they are blocking that path while innocently pointing their finger at others, namely the ECB, currently the greatest temptation on the continent. The central bank could buy up all the bonds on the market that nobody else wants. This wouldn’t even require a law, only a decision by the bank.

Yet this option has a couple of minor disadvantages. One of them is inflation, making the man in the street pay for the continent’s debacle. Another disadvantage: Governments would try to compensate for this injustice by paying for more subsidies,  thereby making new debts. And so on, until we reach the next level of catastrophe. This, at least, is the chancellor’s [Angela Merkel] view, making her insist on guarantees.

Germany is in an awkward position, the chancellor no less so. Never has she had greater power than now. But the opposite is also true: In this European struggle, in these intense two weeks, it is not necessarily the negotiator with the most money who has the most bargaining power, but rather the one who has the least to lose; not the most rational, but the one with the necessary touch of madness. The chancellor certainly doesn’t have that touch of madness. […]

No, in this whole game, Germany only has good money, good arguments, and a few good friends, like the Dutch, or the Poles, hopefully also the French.

What can the citizen do in this situation? Nothing. Except cross her fingers and practise being generous. Munificence is the German virtue of the hour. Whether we want it or not. ÷


Bernd Ulrich is deputy editor of the German weekly Die Zeit.
This is a translation of a commentary published in
Die Zeit on 24 Nov. 2011.

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