On November 21 Ireland formally applied for a rescue package worth $90 billion, having failed to control its financial crisis with austerity measures and strict budgetary planning. European Union officials quickly agreed to the request, which follows an agreement negotiated last week in Dublin by a joint EU and IMF team. They hope that the Irish rescue will reassure investors and prevent the crisis from spreading to Portugal and perhaps even Spain.
Not for the first time, Germany will bear the disproportionate share of the burden of the rescue package. But can it be counted upon to continue acting as an emergency paymaster whenever a troubled member of the euro-zone slides into crisis? As I wrote here a few days ago, the future of the euro, and of the EU itself, hinges on the continued will of the German political and financial establishments to foot the bill for wider geopolitical and ideological reasons. That will suddenly appears to be wearing thin. Today’s Spiegel magazine thus reports (“Can the Euro Still Be Saved?”) that Chancellor Angela Merkel is under increasing pressure from Germany’s public opinion and from the parties forming her ruling coalition to stop equating the survival of the euro with the future of the EU itself.
In addition, the Federal Constitutional Court in Karlsruhe is currently reviewing several complaints that tens of billions of euros in aid for Greece, and the subsequent establishment of the European stabilization fund, have violated Germany’s constitution. According to the Center for European Politics in Freiburg, the use of EU money to support rescue packages is also illegal under Article 122 of the Lisbon Treaty which says that “the Union shall not be liable for or assume the commitments of central governments… or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.” As Ambrose Evans Pritchard explained at the time, this does not necessarily prohibit EU states joining together voluntarily to rescue a country in trouble—but it is another matter to use EU money itself for this purpose.
One of the suits was filed by five venerable legal and financial experts, including the hugely influential former CEO of Thyssen, Dieter Spethmann. They maintain that the erosion of German state finances “strikes a blow at the constitutional foundations of our state and our society.” It is contrary to the true spirit of Europe, with its diverse roots and cultures, and “trifles with the future of our children and grandchildren.” To fight this travesty does not signal a return to outdated nationalism, they wrote; “As citizens we have a right to demand that our government abides by its sworn oath to protect the German nation against threats.”
Last Friday the five published a full-page advertisement in the Handelsblatt in the form of an open letter to the ruling Christian Democratic Union, which had just completed its annual congress. The financial burden of Germany’s own debt and that of its insolvent partners, they warned, is forcing the German economy to its knees—yet the CDU is complacently acting under the slogan “business as usual”:
The major concerns of the citizens have not been addressed: our rising debt burden, the financial obligations for insolvent member states of the Euro-zone, and the future of our currency. The government owes us an answer to the question of how they will fund our pensions, after it has been obliged to cover the debts of insolvent governments. Chancellor Merkel has stifled any debate by declaring that her policy has no alternative.
It is time that the CDU took note of our citizens’ concerns seriously, Spethmann and others went on, and listed seven fundamental falsehoods (“life lies,” Lebenslügen) perpetrated by the leadership:
First Lie: “One-time actions” (rescues) do not jeopardize the sustainability of the eurozone. In reality, the level of debt in all countries has increased significantly, in some so dramatically that they are facing bankruptcy. The Irish budget deficit in 2010 is 32% (!) of the gross domestic product. According to the IMF calculations in 2015 the Greek debt will rise to 158% of the GDP, sinking the country into the swamp of debt.
Second Lie: The euro gives an impetus to competition and accelerates the reform process. The truth: The so-called PIIGS countries—Portugal, Ireland, Italy, Greece and Spain—have taken advantage of the euro dividend in the form of low interest rates inherited by Germany, not to modernize their economies but to indulge in excessive public and private consumption. They remain internationally uncompetitive; a crack runs through the euro-zone.
Third Lie: When the euro was being introduced, the German people had been promised a stable community backed by the no-bail out clause: neither the EU nor any Member State would be liable for the debts of other Member States. The truth: The provisions in the Lisbon Treaty have been broken in Greece, are about to be violated in Ireland, with Portugal and Spain coming next, ensuring the use of public funds to cover private debts. Temporary rescues are made institutionalized.
Fourth Lie: The Chancellor is taking resolute action in dealing with government budget deficits. The truth: profligate violators will remain unpunished.
Fifth Delusion: Without monetary union the exchange rates would run amok and the European Union would be broken apart. The truth: Without monetary union we would have a better balanced exchange rate mechanism which would reflect different countries’ economic efficiencies and fiscal policies. What we have instead is the euro-zone divided into a strong and a weak bloc. The choice is clear: either the euro area will follow the economic reality and split up, or the surplus countries will have to go on funding the permanent deficits of the PIIGS.
Sixth Delusion: The German economy will profit from the euro, because our export-led growth had been slowed down by Deutschmark appreciation. In reality, the more often this delusion is repeated, the louder is the response from the deficit countries: “If the Germans benefit from the euro, then they should also pay accordingly!” The strength of our currency had always been an expression of our economic power and a major source of our prosperity. We are now burdened by the currency union, and this source of strength has dried up.
Seventh Delusion: We must save the euro so that the European Union survives, and this policy of the Federal Government has no alternative. In reality, however, no currency reflects Europe’s highest values: freedom, justice, democracy, civil society, monetary stability and social market economy. Europe lives by these values, the five signatories concluded, and the goal of European integration should be to preserve and enhance them—a task no longer compatible with the maintenance of the euro-zone.
This is the clearest statement to date of a rising sentiment within Germany. More than half of its people want the Deutsche Mark back. It was a real currency, like the Swiss franc still is today, and unlike the fiat currencies controlled by the Federal government here and the Federalists across the Atlantic.