The Wall Street Journal
Sometimes the really bad news
is good.
Jürgen Stark's decision to
resign from the board of the European Central Bank, not too long after Axel
Weber quit as Bundesbank president, just might put paid to the dithering that
has characterized euro-zone policy making for too long. And the equally
disturbing news that the Greek economy is in virtual collapse, shrinking by
7.3% in the last quarter, puts more than a little pressure on euro-zone politicians
to abandon the notion that press releases are synonymous with action, and
austerity with prudence.
Messrs. Stark and Weber have,
in effect, put it to German Chancellor Angela Merkel, who has attempted to do
enough, but only just enough, to keep the troubled euro-zone countries afloat,
while playing for time that might ensure she can bring her party and coalition
partners along with her to a more permanent fix of the euro-zone problem. She
knows full well that Germany is heading towards a role most Germans despise:
lender of last resort to countries that have failed to get their fiscal houses
in order.
She knows, too, that her
countrymen had been promised that the euro zone would never, ever, become a
transfer union, with hard-working Germans dipping into their pockets to pay for
the relaxed lifestyles of the sun-drenched co-inhabitants of the euro-zone.
Fear not the surrender of your beloved deutschemark; the euro will be equally
solid and, in addition, will bring perpetual peace to a Europe that will see
Germany as a benign force and valued partner.
Policy making in Germany is
always more about history than about economics. Ms. Merkel's predecessor,
Helmut Kohl, believed that setting the bedraggled East German mark equal to the
strong West German mark was essential to make reunification work, objections of
small-minded economists notwithstanding.
So, too, with Ms. Merkel. She
believes, as she told her Parliament last week, that "The euro is much,
much more than a currency. The euro is the guarantee of a united Europe. If the
euro fails, then Europe fails." Remove that guarantee, and Germany will be
left alone in Europe, the dominant economic power by far, once again feared by
its neighbours.
It is this remembrance of wars
past that still dominates thinking in elite political circles in Europe, and
not only in Germany. Finland, for example, is the victim or beneficiary—take
your pick—of creeping euro skepticism. But push a bit on the idea that Finland,
its finances in good order, might do better outside the euro zone, and you
confront history: The Finns fear Boris more than they do Brussels. They want to
shelter in a united Europe, and live under the NATO umbrella because they
remember the Soviet Union, war, and years of what came to be called
Finlandization—forced subservience to Soviet interests. If living with the euro
and silly directives from Brussels is the price of a good night's sleep when
Vladimir Putin returns to rouse the Russian bear, it is a small price to pay.
The Stark and Weber
resignations have given Ms. Merkel a small problem now, but a gift for her
long-run policy. Yes, there are Germans, and influential ones at that, who do
not agree with the ECB policy of buying up the sovereign bonds of Spain, Italy
and Portugal. And, yes, they have sound economic reasons for their objections.
But for Ms. Merkel the solution is not withdrawal, but faster forward movement
on the road to tighter integration of Germany into a united Europe.
Germany will share its income
and wealth with the profligate nations. But in return it will demand a say in
how they set pensions, how they determine public-sector pay and the structure
of their private sectors. "In the long term," says Ms. Merkel,
"Germany cannot be successful if Europe isn't doing well." Note she
says "successful," rather than merely "prosperous." And if
that requires amending the treaty that stitched the European Union together, so
be it.
The other good news—the
virtual collapse of the Greek economy—is that it might make the eurocracy
question its infatuation with austerity. Spending is cut, taxes are raised, but
the deficits keep rising relative to a shrinking gross domestic product.
Now there is some possibility
that the bad news from Greece, combined with the policy brawl set in motion by
the Stark and Weber resignations, will trigger a genuine policy debate. Imposed
austerity might placate voters in Germany and elsewhere whose capital is being
conscripted for the benefit of the profligate. But it does not seem to be
producing the desired results. And it does shift the burden of excessive
lending by investors from those investors —these are not little old ladies in
tennis shoes, but sophisticated lenders— to taxpayers, whereas default would
impose losses on those who knowingly took the risk of lending to Greece, Italy
and others.
Austerity is no substitute for
structural reforms that might, only might, replace stagnation with
job-producing growth and an increased flow of tax revenues. Politicians in
Rome, to cite one example, would rather face the impotent wrath of fellow
practitioners of their trade in Brussels, than the vote-sapping ire of the
trade unions who want to defend the growth-stifling monopoly privileges of
their workers. Austerity might be unpopular, but fundamental reform is even
more upsetting to many voters who have specific interests to defend.
Messrs. Stark and Weber say
ECB bailouts might produce inflation, another word rich with historic meaning,
and the markets are on the verge of a nervous breakdown. Now just might be Ms.
Merkel's moment.
——Irwin Stelzer is the
director of economic policy studies at the Hudson Institute, Washingto
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