What Should Germany Have Done?
WASHINGTON, DC (September 20, 2012) - Chancellor Angela Merkel’s performance in the euro crisis was the focus of a debate on September 19 between Bertelsmann Foundation Executive Director Annette Heuser and economist Jacob Kirkegaard of the Peterson Institute for International Economics. Johns Hopkins University’s Michael Haltzel, formerly chief foreign-policy aide to now-Vice President Joe Biden moderated the discussion, which was held at the university’s School of Advanced International Studies (SAIS) in Washington, DC. The debate, organized by the World Affairs Council, focused on the question: “The Euro Crisis – Should Germany Keep the Belt Tight or Loosen the Purse Strings?”
Both debaters expressed hope that Europe would succeed in its efforts to stabilize the currency and continue the unification process. Their main disagreement centered on the speed with which Chancellor Merkel reacted to the continent’s challenges. Heuser supported Merkel’s pressuring peripheral countries to implement far-reaching economic reforms but criticized her initial responses to pan-European approaches, such as bailouts and European Central Bank (ECB) bond-buying programs. Heuser said crucial time was wasted due to Berlin’s hesitancy about playing any role as a rescuer and, later, public resistance to action that was really required. “[Merkel] should not have said ‘no’ all the time,” Heuser noted, adding that the chancellor’s position has finally – although belatedly – changed. “We should have been here two years ago.” Now, she added, the chancellor supports austerity with growth, although European Central Bank Mario Draghi is really driving the policy. Merkel’s initial reluctance to act has resulted in her playing second fiddle.
Kirkegaard countered that Merkel diagnosed the problem accurately from the beginning, achieved what was politically feasible and could not have acted faster. In addition, by holding out she gained leverage to pursue reforms in countries that required – or will require – assistance. Kirkegaard also argued that the main challenge was not a currency crisis but – as Merkel recognized – an institutional crisis. He said fundamental reform of European institutions is needed to ensure European stability and prosperity, and he noted that that demands significant time. The chancellor all along wanted states to hand over sovereignty to Brussels, and she knew that a political crisis was the only way to accomplish this.
The debaters agreed that the crisis provides Europe with opportunities. Heuser noted that it has served as a catalyst for the needed reforms in eurozone member states, especially Italy. These reforms would have been impossible to implement under less urgent circumstances. “The crisis has served Italy well,” she said.
Kirkegaard commented on the positive electoral response to the crisis. With the exception of this year’s first Greek election, he pointed out, “populism is not a viable platform”. For that reason he predicted that former Italian Prime Minister Silvio Berlusconi would not make a comeback.
Heuser closed her comments by addressing the passivity of Germany’s corporate leaders. Since German business has gained so much from a common currency, it should be at the forefront of promoting Europe’s image and benefits. Unfortunately, Heuser stated, representatives of the sector have never spoken up for the euro.