This week the focus of attention in the unending Eurozone crisis has been Germany. Chancellor Angela Merkel’s right wing coalition was facing a crucial parliamentary vote on the Eurozone’s multi-billion euro rescue fund that needs approval from the Single Currency’s 17 governments.
As it happened, Merkel got the vote through on Thursday without need for support from the opposition Social Democrats, which was just as well: they have been giving Merkel a run for her money in string of recent local elections this year and depending on her main rivals in the Bundestag would have left her government dead in the water.
But Merkel had to do much arm twisting among allies and in particular the increasingly Euro-skeptic ultra-free market FDP party whose poll ratings are in free fall. In the end, just 15 members of her coalition voted against.
But each new call on the German public’s purse – the changes to the rescue fund hike Germany’s contribution to €211 billion, up from €123 billion – costs Merkel much political capital. Germans don’t want to sign any more blank cheques and many will now be getting a pretty clear picture of the complete failure of the attached austerity strings in Greece.
Despite the nonsense about feckless southern Europeans, it is becoming increasingly clear to German public that they are really bailing out some now very troubled French banks (as well as, to a lesser extent, helping their own financial capitalists) who for years lent to Eurozone ‘peripheral’ countries for a handsome profit. Hence the talk of upping bondholder (holders of Greek government debt) losses, or increasing the size of “haircut”, as pundits like to say, from 15% agreed in July by Eurozone Governments as part of the ‘rescue’ fund increase.
The nod in Berlin’s lower parliament and that of sceptical Finland on Wednesday guarantees the increases in size of the ‘rescue’ fund, but already it is widely accepted as too little too late. Athens is reaching the limits of strategy of squeezing its own people to line the pockets of foreign capitalists. It is just a question of when and how, not if Greece will default.
But conscious of the near impossibility of asking for another round of parliamentary approvals from Eurozone states for a larger rescue facility, European officials are working on a plan that would “leverage” the existing fund to eye-watering Euros 2 trillion (£1.75 trillion). That takes the great European banker bonus to a new level. For the pleasure of being robbed blind, it seems, the general public in 17 Eurozone states will not be asked.
Merkel, for her part, is caught between a rock and a hard place. Germany and German businesses in particular has been the main beneficiary of the Euro. Since the Euro was launched in 1999, Germany pursued an aggressive exports- based strategy, keeping prices keen by holding down German wages and relying on a urrency weaker than the Deutchmark would otherwise have been. Deutschland Inc’s competitive advantage was locked in at Berlin’s insistence by deflationary Euro-wide monetary (interest rates) and fiscal policies (cap on deficits).
Its own highly productive industry boomed but other Euroland states were unable to compete with Germany or countries outside Europe, thanks in part to a currency whose value made their relatively underdeveloped economies uncompetitive and in part because public spending to boost investment in jobs and skills was strictly restrained.
Now the chickens are coming home to roost: the entire continent is on the edge and Germany risks falling off with it. The beggar-thy-neighbour induced boom appears to be over. Business sentiment, a future indicator of investment trends, has been slipping for a number of months. The latest German retail sales figures showed consumer spending had dropped at the steepest pace in more than four years.
What is needed is a new Marshall Plan, argues Germany’s Social Democrats who are portraying themselves as the saviours of the European project. To save European integration, they voted for the latest bankers’ “rescue” package. But unlike the radical Left Party, which voted against, the Social Democrats are very fuzzy on how to sell to the German people a deal whereby they dig deep for a (much needed) investment plan for jobs and growth in Europe.
For the Left Party, co-founded by former Social Democrat Oskar Lafontaine and now also gaining in popularity, the other side of the bargain must be that banks and financial speculators are brought to heel. It’s time, they say, for an end to “control by corporations and financial lobby groups” and the beginning of a European project “founded on solidarity, not on competition and exclusion”. Central to “a fresh start” is the “nationalisation of the large private banks and financial corporations”.