Have the Germans, long regarded as architects of European construction, switched sides and joined the demolition gang? Throughout the euro crisis, officials in Brussels complained bitterly about Berlin, first about foot-dragging during efforts to save the single currency, then about comments that destabilised the markets. Journalists who criticised the EU economy have been warned darkly about being used by the Germans to push the weaker, southern economies out of monetary union.
But it is hard to see why Berlin should want to take the bulldozers to the euro, or to create a “neuro” made up of northern nations. Germany’s economic success is based on exports and the eurozone accounts for more than 40 per cent of those. If the euro broke up, Germany would see its exchange rate soar and sales to southern European nations plummet.
What is going on in Berlin appears to be a mix of calculation and domestic politics. Logic may tell Angela Merkel, the German chancellor, that she needs to bail out weaker nations because German and French banks would take a loss if they defaulted. But public opinion has taken a Eurosceptic turn in a country where wages have been kept low during the slow, painful, process of economic reunification.
Hence Merkel’s brutal plan to remould the euro in Germany’s image. She argues the single currency was partly undermined by uncertainty over its future regime and it is therefore essential to set out the detail of the system that will operate after 2013. Behind this lies a determination to improve on the stability and growth pact, the toothless eurozone rulebook. If it is made clear that private bondholders run the risk of losses—or haircuts—during future debt crises, investors will demand higher returns on bonds issued by nations that do not run a tight fiscal ship. This will force errant finance ministries to change their ways—or see the cost of borrowing rise substantially. In short, no one will be able to buck the markets with impunity in the way they have ignored eurozone rules. The question is whether these conditions will ultimately prove too tough for struggling smaller nations on the periphery.