Germany has key role to play

The Irish Times – Tuesday, June 29, 2010

http://www.irishtimes.com/newspaper/opinion/2010/0629/1224273552781.html

AT HOME and abroad German policies are coming under unprecedented scrutiny from critics concerned that Europe’s leading state is not taking proper account of how its actions affect other Europeans. This coincides with Angela Merkel’s most difficult time as chancellor: her government comes under major pressure tomorrow as a new president is elected. Her European policy is foolish, according to former German chancellor Helmut Schmidt, for its disregard of good relations with France and its failure to recognise that strict budgetary balances at home can contribute to a dangerous pan-European deflation. This latter criticism was also heard at the G20 summit.

Mr Schmidt’s criticism is echoed by the financier George Soros, who has a shrewd insight into the macroeconomics of European integration. Speaking in Berlin he warned that pro-cyclical policies of severe budget consolidation, if universalised, will endanger the EU because it will be driven into deflation and even depression. “When all countries are reducing deficits at a time of high unemployment they set in motion a downward spiral. Reductions in employment, tax receipts, and exports reinforce each other, ensuring that the targets will not be met and further reductions will be required.” The situation is “eerily reminiscent of the 1930s”, he said. A prolonged stagnation unrelieved by growth would generate discontent and social unrest.

Mr Schmidt discerns a “pompous Wilhelmine slant” in contemporary German foreign policy, referring to an arrogant disregard of how its actions affect others, recalling pre first World War attitudes. A similar point has been made by the philosopher Jürgen Habermas who says Mrs Merkel has “squandered much of the capital of trust accumulated by her predecessors over four decades”. All three men call for the development of a more complete euro zone regime including deeper economic guidance and fiscal capacity if the single market and the single currency are to be preserved. That demands greater leadership from Germany in its own interests.

Such criticisms should be taken seriously by Mrs Merkel and her colleagues. They should not be dismissed as historically misjudged, or politically motivated from the centre left. If Mrs Merkel’s coalition survives by winning tomorrow’s presidential election contest it needs time to reflect over the holiday period on how best to match its own economic and political interests with other Europeans. “Normality” finds Germany exhausted, disoriented and reactive rather than developing any new master plan, according to other commentators. If this is correct, the political energy needed to drive a more integrated and balanced European economic policy will have to come from elsewhere as well.

It has been a really bruising year for Mrs Merkel’s government. This inevitably affects its performance and makes it more difficult for her to take domestic risks for Europe. But now the basic decisions have been taken to defend the euro zone, everyone has a responsibility to say how it should develop in the best interests of all.

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