We haven’t had a lot to say about the European financial Gotterdammerung for a while because it’s like watching a super-slow motion car wreck in a Michael Bay movie: the technical wizardry of the spectacle doesn’t change the prosaic and predictable result at the end of the scene. But there might be a surprise ending on the way—a nasty surprise in which the supposedly sturdy central bankers of Europe turn out to be shape-shifting Transformers of doom—not just for the economies of Europe, but perhaps some democracies as well.
Right now Greece is playing chicken with the rest of Europe, thinking that the fear of a crackup of the Euro will force the Europeans Germany to back down from the austerity measures imposed as a condition of bailing out Greek debt. It is already evident that Greece is inclined to call what it sees as a bluff—that Europe will cave and bail out Greece in toto rather than see Greece exit the Euro and threaten a contagion that will rile global financial markets. Greece is seen as the Lehman Brothers of Europe. But if Greece is bailed out, then what lesson will Spain, Portugal, and Italy take from this? If the profligate nations of Europe are going to clean up their act, they have to believe that the threat of being cut off from the Eurozone’s banking system is real. Beyond the mere act of defiance by a left-right coalition in Greece, there is always the prospect that unrest in Greece will cause its government to collapse completely. It was not that long ago that Greece, like Turkey, alternated between weak democratic governments and rule by military coup. I’m sure there are some retired Greek generals who still know the playbook.
So far the stolid Germans, with long memories of the hyperinflation of the 1920s and how it helped destroy democratic institutions, have been holding the line, which it can do because it holds the high cards as the dominant economic power in Europe. But even before the election of France’s new socialist president, Francois Hollande, France had been tacitly undermining the German position. With Hollande, France’s double game has come more fully into the open. German Chancellor Angela Merkel’s political position at home has been steadily eroding, as her party coalition continues to hemorrhage in provincial bi-elections.
Germany might be able to resist the French, but what happens when the United States throws in its lot with everyone against Germany? That’s the message of today’s New York Times story of the dynamics of the G-8 summit currently under way: “World Leaders Urge Growth, Not Austerity.” Translation: Germany, back off and let us borrow and spend more money. If you have any doubt, just check the lede:
CAMP DAVID, Md. — Leaders of the world’s richest countries banded together on Saturday to press Germany to back more pro-growth policies to halt the deepening debt crisis in Europe, as President Obama for the first time gained widespread support for his argument that Europe, and the United States by extension, cannot afford Chancellor Angela Merkel’s one-size-fits-all approach emphasizing austerity.
Of course, Obama’s interest in this is clear: he cannot be re-elected if a European meltdown between now and November causes a new financial crisis here in the U.S. I wish Merkel would say to Obama, “Say—all those American troops still based on Germany—why don’t you bring them all home by the end of the summer?”
Victor Davis Hanson reminds us of how seriously shortsighted this German-bashing could be:
All over Europe, the gospel is that tight-fisted Germans are at the root of the European Union meltdown: They worked too hard, saved too much, bought too little, and borrowed not at all. All that may be true, in theory. But, in fact, faulting thrift and industry is a prescription for incurring anger and guaranteeing backlash — especially in the case of the Germans, who are now being asked to provide even more capital to help other European economies recover.
There is one general rule about the history of the modern state of Germany since its inception in 1871: Anytime Germany has been both unified and isolated, armed conflict has followed.
It would be the height of irony if the capstone of the architecture of post-war European unity–the Euro currency–turns out to be the instrument of a return to the 1,000-year pattern of European strife.
And of course, if Obama were really interested in growth, might we suggest his administration simply get out of the way?