The Euro crisis has been a common theme on this blog, and we've been pretty emphatic in placing Germany, not the PIIGS, at the center of controversy. Germany is the largest economy in the region. It controls the eurozone's monetary policy. And it will be the one to pay the largest share of bailouts in the periphery of the monetary union. If the Euro is to survive beyond the crisis, it will require a lot of leadership and sacrifice from Germany, not just the countries enacting austerity.
At times we've wondered if Germany was up for it. A recent Der Spiegel article indicates that growing numbers of Germans are not:
In a survey conducted in early December by the polling firm Infratest dimap, 57 percent of respondents agreed with the statement that Germany would have been better off keeping the mark than introducing the euro. Germans, it seems, are gripped once again by their historic fear of inflation: According to the Forschungsgruppe Wahlen polling institute, 82 percent of the population is worried about the stability of their currency.
Of course, the fact that 57% of Germans think they'd be better off having never joined the EMU is not the same as wanting to leave it now. But the movement is growing, and there is now a constitutional challenge opposing fiscal transfers from Germany to Greece:
In the spring, [Rolf Hochhuth] joined a group led by Berlin-based professor Markus Kerber that has filed a constitutional complaint against the billions in aid to Greece and the establishment of the European stabilization fund, which was set up in May 2010. Hochhuth wants the deutsche mark back. "I don't know if this is possible. I only know that Germany lived very well with the mark."
The article also argues that a Tea Party-style movement may be brewing:
"The return of the mark? I can imagine that we could see the rise of a German Tea Party focusing on precisely this issue," says Thomas Mayer, chief economist at Deutsche Bank, referring to the conservative American political movement. ...
Pollsters like Matthias Jung from Forschungsgruppe Wahlen say that they can imagine the formation of a protest movement coalescing around euro-related fears. "The government has to prove that the bailouts for Greece and Ireland serve our own needs in Germany," says Jung. "If the billions in aid are not convincingly justified, it will lead to a legitimation crisis." ...
On a Thursday evening in early December, boisterous beer-drinking visitors were loudly enjoying themselves at Christmas parties throughout Munich's famous Paulaner Bräuhaus beer hall. Meanwhile, in a separate conference room, Schäffler was giving a dry presentation to the Hayek Society on the sins that led to the euro crisis.
The name of the society is very fitting. Friedrich August von Hayek, who received the Nobel Prize in Economics in 1974, was of the opinion that currencies should be a product like any other. Just as companies sell radios, private banks could circulate their own money -- the idea being that the most stable currency would rule out in the end.
The euro, as the presenter and audience quickly agreed, is bad money. It should be abolished. Since the introduction of the European common currency, Schäffler has counted over 70 violations of the Stability Pact, which limits the annual budget deficits of euro-zone countries to 3 percent of GDP. He has also vehemently criticized the European Central Bank, which has been purchasing government bonds from cash-strapped countries, even though EU rules forbid it from buying debt directly from governments. "We buy everything except animal feed," said the FDP politician to general applause.
I guess retrenchment following crisis is not a U.S.-only sentiment. Nor is rediscovering Hayak. Also like the U.S., this puts Germany's government in a difficult position:
German Chancellor Angela Merkel of the conservative Christian Democratic Union (CDU) faces a dilemma as to how to deal with ordinary Germans' concerns about the euro. If she takes their fears seriously, she will have to assume a hard-line stance toward countries that are drowning in debt like Greece and Portugal. But if she plays the iron chancellor, she will have no choice but to break with the Europe-friendly traditions of former CDU chancellors like Konrad Adenauer and Helmut Kohl.
It's more complicated than that, because a retrenchment from the Euro will have drastic consequences for both German exporters and the German banking sector:
Henkel has a mission: He wants to divide the euro. All of the "olive countries" -- as Henkel dubs the Greeks, the Italians and the French -- should pay in southern euros in the future, he says. The north -- in other words, primarily Germany -- would pay with the northern euro.
Economists oppose the idea: German exports would become more expensive and German banks would lose billions in southern Europe.
In other words, the choice isn't between bailouts or no bailouts. It's bail out the PIIGS -- thus saving the Euro, and German banks and exporters -- or scrap the Euro as currently constituted, bail out the banks, and let the German exporters suffer. The former is current policy, and I expect that to continue unless a critical mass of German citizens forces the government to change course. I don't expect that to happen, just as I don't expect the Tea Party in the U.S. to have any lasting effect on policy, but it's within the range of possibilities.
I don't know anything about German constitutional law so I have no idea if the lawsuits have merit. I tend to doubt it. And I'm not sure how the German political climate will shift over the coming years. But I do know that further European political and economic integration -- which seemed inevitable only a few years ago -- is DOA for now, and maybe permanently.