02/04/2011 04:07 PM

The World from Berlin

'Europe Doesn't Need More Germany'

German Chancellor Angela Merkel and French President Nicolas Sarkozy have presented their vision for saving the euro zone to EU leaders at a summit in Brussels. The bold plan foresees countries taking radical steps to sort out their finances and reduce debt -- in short, to become more German. And therein, argue German commentators, lies the rub.

Until now, German Chancellor Angela Merkel's approach to tackling the euro crisis could best be described as one of dithering. She was heavily criticized for not taking action sooner on a bailout for Greece, which observers said massively pushed up the cost of the final rescue package.

Now that hesitancy appears to be a thing of the past. As of Friday at the latest, Merkel is officially a leader on saving the euro, not a follower. Together with French President Nicolas Sarkozy, she presented her plan for saving the common currency at a meeting of European Union leaders in Brussels.

Dubbed the "pact for competitiveness," the strategy foresees having the 17 members of the euro zone take far-reaching steps to harmonize their economic and social policies. As an initial step, Merkel has drawn up a "six-point program" that includes measures such as adapting retirement ages to a country's average life expectancy, abolishing automatic wage increases linked to inflation and harmonizing corporate tax rates. Merkel also wants other countries to follow Germany's example by adopting so-called "debt brakes." (The German debt brake is an amendment to the country's constitution that requires the government to virtually eliminate the structural deficit by 2016.) Other EU members who are not in the euro zone would also be invited to join the initiative.

At a joint news conference with Sarkozy on Friday, Merkel said that the euro-zone members would work together with European Council President Herman Van Rompuy to decide which points to include in the pact by the end of March. They also called a summit of euro-zone leaders in March to discuss the pact, but without setting a date. The meeting would presumably take place ahead of the scheduled EU summit on March 24-25 so that the pact could be agreed upon at the latter meeting.

"Germany and France are firmly committed to having 2011 be the year of new confidence for the euro," Merkel said. "We want to ensure the convergence of different European economies, and we have further strengthened our discussions on this matter over the past few weeks," Sarkozy commented at the news conference. "We therefore agree on a structural plan that is designed to respond to the challenges Europe faces."

Banking on Germany

In terms of getting her plan approved, Merkel is in a strong bargaining position because the other euro-zone countries rely on Germany, as Europe's biggest economy, to help fund rescue packages. The chancellor seems determined to get her proposal for harmonizing national economies approved in return for Germany's agreeing to proposed amendments to the EU's euro rescue fund.

Merkel's proposal, which was presented to other EU leaders in a closed-door lunch session on Friday, is likely to split the bloc, however. On Thursday, Spanish Prime Minister José Luis Rodríguez Zapatero expressed his support for the pact after a meeting with Merkel in Madrid. But the European Commission is opposed to the move as it would mean the euro-zone members going it alone, rather than including all 27 EU states, according to a report Friday in the Frankfurter Allgemeine Zeitung. The Commission is also reportedly against steps toward greater cooperation being taken outside the existing framework of EU treaties.

Merkel's plan has also been criticized as unrealistic. Raising the retirement age, for example, has proven to be a hot-button issue in several countries and is unlikely to be doable without significant political conflict -- something that may make other EU leaders wary of adopting Merkel's pact.

On Friday, commentators in German newspapers take a look at Merkel's strategy and are divided over its merits.

The left-leaning Berliner Zeitung writes:

"Europe supposedly needs to become more German. Until recently, Merkel's suggestion would have caused a storm of protest in Madrid, Athens and Paris. But after a year of the euro crisis, anything seems possible. … Merkel sees her 'pact for competitiveness' as part of a huge European barter deal, exchanging solidarity for stability, and German money for German-style reforms."

"But the monetary union can't be saved this way. What the chancellor is proposing is a pact of insanity. Europe doesn't need more Germany -- rather it needs more cooperation and community. No matter how proud the German government may be about the recovery of the domestic economy, its deficiencies are obvious. The German model, which relies on a permanent trade surplus, is neither sustainable nor transferable. It works as a model for a selfish nation that floods the neighborhood with its goods and services and exports unemployment at the expense of others. But an approach that can work for an individual country will lead to disaster when everyone copies it."

The center-right Frankfurter Allgemeine Zeitung writes:

"There is already disagreement between French President Nicolas Sarkozy and Merkel on the first point of Merkel's 'six point program,' which aims to abolish index-linked wage increases. If that's the situation at the beginning, how will it end? In the bid to reduce discrepancies between countries, should Germany re-introduce the 35-hour week, France raise its pension age to 67, the Greeks introduce a debt brake and the Irish increase their rate of corporate tax? But a centralized and interventionist economic government will not enable Europe to compete on the global level. Only competition between countries can achieve that -- including competition to see who has the best economic policies."

The center-left Süddeutsche Zeitung writes:

"For many governments, Merkel's plans sounds like the Germans want to dictate (what other countries do). But why should the Europeans follow Berlin, of all governments? The answer is simple: Merkel wants to exploit the current situation. At the moment, Germany, as a prosperous country, has a chance to set the rules. Everyone knows that the monetary union would be finished without Germany. Without it, there would be no bailout packages for cash-strapped euro-zone countries and no confidence on the financial markets."

"Nevertheless, the chancellor is playing a dangerous game. She wants all or nothing. She wants to get the whole package approved, or nothing at all. According to Merkel's plan, other European countries must adopt the German culture of stability. They must reform their labor markets, health systems, taxes and wages as well as reduce their debt levels. If they refuse, Merkel will refuse to provide German guarantees for bailout packages. To some leaders, that might seem to show a lack of solidarity. But, actually, (Merkel's approach) is very clever. Berlin needs to exploit the pressure created by the crisis to push through the necessary reforms that will allow the monetary union to survive."

-- David Gordon Smith


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