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Next comes the question of Germany’s ‘European’ identity, which has rested on a Franco-German alliance since the end of the war. That alliance is in many respects an unnatural one, a mésalliance par excellence — temperamentally, economically, politically. The French ruling class, according to the political sociologist Larry Siedentop, favours EU integration as a means of furthering French interests, and above all to contain (and weaken) Germany. When Hans-Olaf Henkel, former president of the Federation of German Industries, suggested it was time for an amicable Franco-German divorce. He earned a chorus of cross-party indignation.
The euro crisis no longer affords Germany any cost-free options. Had she refused to bail out eurozone countries, citing the ‘no bailout’ principle of the EU treaties, she would have been punished by the contraction of some export markets. Germany could leave the euro, but if she does her currency would rapidly appreciate — making her goods a lot more expensive to the outside buyers who have done so much to keep German unemployment down. But contrary to official propaganda, the eurozone is a declining market for Germany. The costs of a euro collapse would be significant but manageable, and they would be short- rather than long-term. The problem is they would be immediate.
By contrast, if Germany finally agrees to full burden-sharing of all eurozone debt and jointly financed banking bailouts, the losses to the German taxpayer can be spread out, obfuscated and paid via inflation, which shifts the costs to Europe’s savers. The German public would see their savings devalued over time, but this seems the softer option compared to a sudden write-off and euro collapse.
Merkel may change tack. She is a clever politician and not beyond a political volte-face — yet she knows that after pledging all these guarantees and unrecoverable Bundesbank loans, a sudden policy reversal would be one U-turn too many. She would have to explain a trillion-euro mistake.
If Merkel pulled out now, it would be like Hitler making peace with Stalin before the battle of Kursk — the only rational course of action, but would also the admission of a colossal error. For this reason alone it will not happen.
And then for once, the reputation of German’s political system is better than the reality. Only half of Germany’s MPs have a constituency, the other half enter the Bundestag through a party list. If an MP votes against the government, he is unlikely to be offered a list place at the next election, and if he does so more often he may face -deselection. Little wonder then, that for the past three decades there has been no noteworthy parliamentary rebellion against a German government.
The German Constitutional Court likewise is only nominally independent. Its members are appointed on the recommendation of the established political parties. That may explain why the court has consistently dismissed constitutional challenges to the government’s euro rescue policy, most recently when it held that even unlimited liability for the debts of other eurozone countries was perfectly compatible with the German parliament’s budgetary ‘autonomy’.
Sixth, Germany, like most other western states except perhaps Ireland, Austria, Switzerland and Iceland, suffers from an oppressive climate of political correctness. In Germany, ever closer EU integration is part of the agenda of political correctness — that package of bien pensant beliefs which is not to be confused with majority opinion but propagated by governments, the media, and right-thinking interest groups.
These facts of Germany’s political culture have nothing to do with economics, and they certainly do not indicate that Germany or indeed anyone else profits from the euro. They are bad, not good reasons to save the euro. For they sustain a political climate within the German political establishment in which it is taken for granted that, 70 years after the war, Germany still has a special responsibility.
Political leaders in Western Europe nowadays spend much more time with each other than with anyone else (except, perhaps, influential lobbyists). It creates an incestuous climate where politicians will do almost anything to reach agreement. Politicians often seem more accountable to each other and lobbyists than to their electorates. It does little to promote good government and undermines democratic accountability. German politicians, who so desperately want to be liked abroad, are famous in Brussels for being more ready to sacrifice national interest to the ‘common good’ of the euro than anyone else. Their pathological fear of being seen as nationalistic will ensure that German leaders will reluctantly sanction quantitative easing, further Greek haircuts and, eventually, a relaxation of the conditions for ECB bond buying.
If the integrationist incantations of Brussels do not force Merkel into full fiscal union, the unholy alliance between the world’s leading central banks, debt-ridden governments and powerful financial institutions will. There is a consensus among all this oligarchic triumvirate that no serious attempt be made to tame international casino capitalism. Government and banking sector debts must be ‘socialised’ and paid for not by write-offs, bonus cuts or losses by private investors, but by taxpayers and small savers.
Merkel may have been a superb domestic political operator and judge of German character, but she is a far less assured judge of character abroad. In June last year she was outwitted by Monti and Hollande, who forced her to open up the euro rescue fund to support ailing banks. A little later she submitted to the weasel words of ECB President Mario Draghi, who persuaded her to support his bond-buying programme in defiance of the EU treaties as it would neither increase the money supply nor inflation, while budgetary discipline could still be enforced even once the ECB has become southern Europe’s largest creditor.
When Germany’s leading financial daily, the Handelsblatt, started serious investigations into Draghi’s involvement in the Goldman Sachs-managed Titlos currency swaps, which allowed Greece to hide billions of euros worth of debt at the time of her euro entry, and Draghi’s 1990s alleged below-value sell-off of state Italian state assets, the editor soon received a decidedly unfriendly phone call to say this must stop at once. With his Goldman Sachs affiliation, his background in Rome’s intrigue-ridden corridors of power, his sardonic smile and his ‘cheap money’ policies, Draghi is the antithesis of the solidity and conservative integrity postwar Germans came to expect from a central banker. The fact that the German government is secretly in bed with ‘Draghiavelli’ symbolises, perhaps more than anything, that there remain at least two constants of German policy — bad judgment of character and political naivety.
Seventy years after the war, Germany has not yet regained her sovereignty — i.e., freedom to pursue her own national interests in accordance with majority opinion and subject to international law. Nor has Germany become properly democratic, insofar as the government does not trust the German people to decide the very basic questions governing their economic and political future.
This is well understood by well-connected observers like Tony Blair, who reportedly advises his banking clients that ‘the German government assure him they will do whatever it takes to save the euro’, even if the German people may wish otherwise. Even if it means more euro banking union and joint debt liability, Merkel will relent — not immediately, but over time. She will do it for all the ‘right’ reasons but to everyone’s detriment, except that of Goldman Sachs and their faithful trustee at the helm of the ECB.
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