WORLD VIEW:Merkel tries to play to the markets while keeping the German voter reassured
AFTER THE week we’ve just had, it might come as a surprise to learn that Ireland is not weighing as heavily on German minds as one might think.
Finance ministry officials here have other things to consider, namely how to reform the euro zone as a whole. Put simply, Berlin wants a crisis-proof euro zone 2.0 with greater mutual oversight of member states’ financial and fiscal affairs.
For Berlin, the Irish bailout came independently of these preparations. Ask government officials here their feelings towards Ireland’s bailout and the answer is consistent: it’s unfortunate, but Ireland shouldn’t take it personally.
Of course, they add, Ireland’s problems are home-made. The view from Germany is that Dublin created a low-tax regime and attracted more financial institutions than it could handle. Either by amateur accident or political design – German opinion is divided – the Irish Government created a weak financial regulator that allowed banks to operate unchecked. When the shock came, the State had no option but to announce a general bank guarantee worth six times the country’s annual worth.
That annoyed Berlin: not just because it caught them off guard but because, like few others in Europe, German finance officials had a very good idea of the disaster lurking in Ireland’s financial sector.
German auditors had spent months poking through the embers of German banking subsidiaries that had caught fire in Dublin. They assumed, rightly, similar problems lay elsewhere and that the banking guarantee was like a sticking plaster on Dublin’s Achilles’ heel.
That is one reason why Angela Merkel, ignoring Irish concerns, has repeatedly called for bond holder haircuts from 2013. While she is cast in Ireland as the villain of the piece, her officials reject the idea that it was her loose talk eventually forced Ireland into a bailout.
As far as German officials are concerned, it’s the Irish who were short-sighted. Dr Merkel’s haircut remarks were intended to shore up dwindling domestic support in Germany for euro zone bailout. Lose German voters and, Merkel’s team argue, they have no chance of helping Ireland or anyone else in Europe.
They are in such a rush in case the Bildtabloid – read by one in 10 Germans daily – calls on Dr Merkel to pull the plug on errant euro zone members. "Ireland bankrupt: Will we have to pay for all of Europe?" it asked this week. That was a warning salvo by Bildstandards and it has held off on an all-out campaign – so far.
German taxpayers are suspicious enough as it is of euro zone bailouts, coming hot on the heels of the bank bailouts. It’s a suspicion rooted in the decade-old conviction that the euro is a bad deal for German taxpayers. Compared to the hard Deutschmark, the only thing propping up the euro is the “no bailout” promise that is getting more hollow by the day.
Combine these underlying fears with a Bildwar on euro zone bailouts: it won't be pretty.
So Chancellor Merkel is fighting on two fronts: around Europe, she has to promise ailing euro zone allies the carrot in order to calm markets; at home she has to promise suspicious voters to use more stick on what Germans call “euro zone sinners”.
Irish officials see all this, but they still wonder if there wasn’t something deliberate about Angela Merkel unsettling the markets with her talk of haircuts. Is Germany perhaps stirring up market uncertainty to force countries like Ireland into taking emergency aid, thus sidelining would-be opposition to Germany’s euro zone 2.0 blueprint? That feeds into a concern expressed best by Luxembourg prime minister Jean-Claude Juncker, a long-standing friend of Germany, that Berlin is “slowly losing sight of the European common good”.
Is he right? It depends on who is defining the common good. Earlier this month finance minister Wolfgang Schäuble suggested the common good lay in the euro zone stabilising the world economy as its “Führungsnation” or leading nation.
Speaking at the Sorbonne in Paris, he added: “Particularly in challenging times, it’s more necessary than ever for countries to take on a leadership role within Europe.” And should that country be Germany? Berlin officials rubbish such talk, saying their only priority is to get euro zone reform before the German public runs out of patience on bailouts.
The fact remains that Berlin’s strong budgetary situation leaves it in a strong position to demand a new rules-based euro zone. The pragmatic, case-by-case approach to euro zone problems as favoured by many EU partners is, in German eyes, precisely what got us into this mess.