By John Browne
Tuesday, August 27, 2013
On August 11th, German media got hold of and published an
internal Bundesbank report which maintained that Greece would likely need
further relaxation of the terms of its rescue bailouts. The report contained
revelations that could be deeply embarrassing to the government of Angela
Merkel that has maintained forcefully that German taxpayers would face no
further commitments. The revelations could potentially be a potent weapon for
her political opposition in the upcoming election. More broadly, the revelations
reveal a wide gap between economic reality and the sunny face of EU optimism.
The Bundesbank is widely considered to be the epicenter
of Germany's notoriously conservative banking culture. Unlike central banks in
other countries, such as the Federal Reserve and the Bank of England, the
Bundesbank has been known to operate with actual political autonomy. The leaked
report claims that the Greeks have been "barely satisfactory" in
their compliance to prior commitments. In addition, the Bank harbored
"substantial doubt" that Greece would be able to implement the
required reforms and that Greek approval of the process resulted from
"political necessity".
In late September Germans will go to the polls for a
national election to determine the makeup of their national parliament, the
Bundestag. Some believe that Chancellor Merkel's ruling coalition may be
vulnerable. There is a very strong, and growing, belief among rank and file
Germans that the country should reject open ended financing of southern EU
members who cannot put their fiscal houses in order as the Germans themselves
have managed to do. This sentiment puts
them at odds with the current ruling coalition in Berlin.
The 'dream' of a European Union demands the eventual
yielding of complete sovereignty to the EU by every member nation. But each
nation faces a different cost/benefit. To the southern tier nations access to
the sound euro currency, appeared as a huge opportunity. It most cases EU
membership was well supported on the street.
For the major core 'contributing' nations the rationale was not so
simple. It varied not just between member nations but also between their leaders
and people.
The French leaders and even those of the 'Buffer'
countries saw the EU as hobbling Germany and preventing intra-European war.
German elites have long been the most extreme champions of EU integration,
which would doubtless put the Germans in a position of extreme power across the
entire Continent. However to such a political victory will require sacrifices
that the German "volk" do not appear willing to make.
Having failed three times to secure an empire by force of
arms, German political leaders have seen the EU as the chance of achieving one
through financial muscle. Apparently, they are prepared to pay vast sums of
money to achieve this grand aim. This aim is no doubt supported by domestic
industrialists who are keen to secure captive markets.
Germany's EU dilemma stems from the unwelcome fact that
the chronic debt problem of the so-called 'periphery' nations, occurred before
the EU has secured full sovereignty over its member states.
Greece gained admittance to the EU and remarkably to the
Eurozone by falsifying its financial statements. But, desperate to gain
memberships and credibility, the Eurozone ignored the deception. Most members
felt also that Germany and the ECB would cover any shortfalls.
However, when the Greenspan asset boom collapsed with the
U.S. and EU economies sinking into recession, periphery nations of the Eurozone
were unable to resort to their habitual currency debasement. They financed
their ballooning deficits with massive hard euro currency loans.
As the recession deepened, Eurozone banks were ordered,
and other EU banks 'encouraged' to invest in the euro denominated debt of
periphery Eurozone member nations. As conditions worsened, bailouts were
organized by the so-called Troika of the EU, ECB and IMF. There can be little
doubt that these negotiations were controlled by the Germans, who ended up with
the lion's share of the liability, 122 billion euro to be exact.
The Germans however demanded an Austrian
School-influenced austerity solution to the profligacy of the periphery
Eurozone members. As expected, this policy drove Europe into corrective
recession, which appears to be having some success.
In this light the Bundesbank revelations could not come
at a worse time for Merkel. German citizens, encouraged by opposition
politicians, are becoming increasingly angered by their political leaders
apparent willingness to sacrifice their hard earned wealth to gain European
dominion.
In an attempt to calm the situation, Merkel said,
"We don't have to do everything in Brussels." While many correctly
recognize this shift as a desperate means to shore up electoral support, this
dramatic apparent rebuff of the key EU dream of centralized power could
temporarily weaken international support for the Eurozone. If the Chancellor
retains power, look for such rhetoric to dissipate. However, a rebuff at the
polls could severely reshuffle the current balance of power in the entire
Eurozone, and begin a shift towards decentralization.
A small nation,
Greece continues to threaten the euro, the EU dream and with them the German
drive for empire. This should remind us all how fragile the experiment remains.
No comments:
Post a Comment