It is a sad fact that the wrong leader at the wrong time can massively exacerbate a difficult situation. The German Chancellor Angela Merkel is a past master at postponing decisions and substituting fudges for decisive action. In some circumstances this can work, since by doing nothing politicians often do better than if they had done the wrong thing with great determination. However, this is not one of those times.
At Davos – which in 2012 turned out to be remarkably unremarkable – Merkel made a passionate call for greater European integration.
“Do we dare more Europe? Are we ready to be more European? Yes, we are ready,” she told delegates. Fine sounding, but ineffectual stuff. It would have been more to the point had the German Chancellor posed a question not to the delegates, but to German votors, which went something like: “Do we as Germans dare square up to our responsibilities and to the logic of our position in Europe?”
The Telegraph’s Louis Armitstead quotes a telling comment from an unnamed “high profile industrialist” at Davos.
“As part of the euro, Germany has had a decade of being artificially competitive. The country has gained at the expense of others – including the UK – and it’s now time they put their hands in their pockets and paid out instead.”
The point here is that had Germany still possessed the Deutsche Mark, the Bundesbank would by now have been in an even more embattled position than the Swiss Central Bank. The Mark would have been seen as one of the premier safe havens on the planet and funds would be pouring into it, pumping it up and up and up, just as they are doing to the Swiss franc. Germany’s exporters would have been crushed by a hugely appreciating Deutsche Mark and the German economy would now be in dire straits. This would, over time, have a chilling effect on the funds pouring in to Germany and would impose an outer limit on the onward and upward climb of the Deutsche Mark, but by then the damage to Germany’s export industry would in all probability, be profound. Tucked safely inside the euro, the value of which is being dragged down persistently by the troubles of the peripheral eurozone countries, Germany’s exporters are having themselves a party.
This can’t be a free lunch for the Germans. If they want the comfort the euro brings them, it has to come with all its attendant costs. Sure, impose German rectitude on profligate free spending socialist states who promise outlandishly extravagant social benefits to their citizenry. This has to be done. But absolutely do not encourage German voters to think that slagging off Greeks and Spaniards, and now Italians, is a substitute for responsible action. Germany benefited hugely from the fact that the euro membership of the peripheral states enabled these countries to access far more cheap credit than their economic status actually warranted. That state of affairs enabled those countries to buy vast amounts of German goods, boosting the German economy. They are still, albeit to a somewhat lesser extent, buying those goods. Now is the time for funds to flow in the other direction. That’s just ying yang, or quid pro quo.
The problem is, Merkel is not, by nature, a politician who likes to grasp the nettle. As Armitstead notes:
In contrast to almost everyone’s pleas for urgency, Merkel (at Davos) asked for patience from markets and business leaders: “Things do take a very long time… please take the long drawn-out process with a degree of acceptance.” She added that the weaknesses “arose over years – so they can’t be overcome at one fell swoop”.
Merkel’s approach is all about kicking the can down the road, muddling on in the hope that somehow moribund economies – crushed by a newfound state love of austerity – will rejuvenate and that eventually soaring growth will solve every problem. In fact, as economists love to point out, the problem is getting worse, not better. Austerity squeezes tax revenues. Debts keep increasing. Interest payments take up ever larger chunks of such revenues as are available, and the citizens smoulder. Time is something Europe’s politicians are running out of. It really is time that this message got home, because it certainly didn’t at Davos, this go round. Maybe next year… a la Merkel…