Merkel's Increasing Isolation: Germany at Odds with Partners over Euro Crisis

Berlin has been unflinching it its efforts to both increase fiscal discipline in the euro zone and to avoid throwing more money at the European debt crisis. Increasingly, though, Germany's EU partners are unwilling to play along. Chancellor Merkel now finds herself confronted with powerful opponents. By SPIEGEL Staff

Photo Gallery: Germany's Growing Isolation Photos
DPA

Boyko Borisov cuts an imposing figure. The Bulgarian prime minister has the build of a piano mover, and he used to coach his country's national karate team. He towered over German Chancellor Angela Merkel while walking with her through the Chancellery in Berlin.

Indeed, he almost seemed like a Merkel bodyguard during his visit to the German capital last Wednesday, particularly when the subject of the euro crisis came up. For days, Italian Prime Minister Mario Monti has been insisting that Germany needed to do more to save the common currency. But Borisov, in contrast, told his audience that he would like to "thank Germany … on behalf of many countries in the European Union." He said that what was important now was budget consolidation, to only spend as much as is brought in and to save, save, save.

"Everyone has to work as much as the Germans," he added.

Merkel nodded with satisfaction. Finally someone was showing some understanding for once. Then she took her earphones off and addressed Monti's repeated demands. "I'm still searching for what else exactly we are supposed to do," she said. And when she figures that out, she added, she'll actively pursue it.

Monti has been crystal clear about what he thinks is missing in this process. He wants more money from the Germans -- a lot more. And he's not alone in Europe.

'Isolated Measures Here or There'

A large alliance of the finance ministers, heads of government and central bankers from almost all of the 17 euro-zone member states has been calling for the European Stability Mechanism (ESM) to be enlarged -- significantly. The permanent euro backstop fund, which will go into effect this year and will ultimately replace the temporary European Financial Stability Facility (EFSF), needs to encompass fully €1 trillion ($1.3 billion) instead of the planned €500 billion, Italian government officials have told their German counterparts.

At the same time, widespread resistance in Brussels to German plans for a new system of financial regulation within the EU is becoming more assertive. Merkel's proposal for all EU member states to pass balanced budget initiatives -- known in Germany as a "debt brake" -- has been torpedoed as has the idea to allow the European Commission to bring countries that stubbornly violate deficit rules before the European Court of Justice.

Belgium Prime Minister Elio di Rupo says that politicians are currently trying to "solve the problems of each country and of Europe with slogans." But, he adds, "one can't solve the euro zone's most important problems with isolated measures here or there."

Just a week before the next EU summit will be held in Brussels, Merkel is facing yet another test of her power. She has pledged to Germans that she won't invest another euro in efforts to rescue the currency. But, in the rest of Europe, the grumbling of those who claim that Germany is trying to dictate economic and financial policies to the rest of the EU is growing louder.

"The split is dramatic," Danish Prime Minister Helle Thorning-Schmidt complained last week before a small group in Strasbourg. "That is being massively underestimated in Berlin."

Expert Support for Monti

Indeed, the balance of power in Europe has shifted. As long as Italy was ruled by a clown like Silvio Berlusconi, it hardly had any voice in efforts to save the euro. But ever since Monti, a respected financial expert, took over, the front of Merkel opponents is stronger than ever, all the more so because quite a few experts endorse Monti's position.

Monti, too, would like to see additional money be used to bolster the euro bailout fund, to send a calming signal to the capital markets. A professor of economics, Monti insists that Italy has no intention of asking for help. But bolstering the bailout fund would create confidence, he believes, which in turn would lower the risk premiums on his country's sovereign bonds. Yields on the bonds of other cash-strapped countries would also fall, he says.

The governments of Spain and Portugal agree. In confidential crisis meetings, they have long argued that financially healthy euro-zone countries should make larger contributions. It was a point they pushed at the most recent European Council meeting on Dec. 9 in Brussels, and nothing has changed since.

Southern European countries have yet another advocate, one who is generally considered to be an ally of Merkel's. French President Nicolas Sarkozy has repeatedly urged Merkel to be more generous. Germany must leverage its economic and financial power to assist the common currency, Sarkozy insists. If Merkel refuses, he warns, then Germany will be held responsible should the euro collapse.

Sarkozy is now getting the support of prominent economists from around the world. Christine Lagarde, the head of the International Monetary Fund (IWF) is calling for more money for the euro backstop fund as is Mario Draghi, the president of the European Central Bank (ECB), who has been in regular contact with his compatriot Monti. In a Monday appearance in Berlin, Lagarde said "we need a bigger firewall."

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