Philip Stephens: Is Merkel the New Thatcher?
[Philip Stephens is a columnist at the Financial Times.]
Angela Merkel has begun to sound awfully like Margaret Thatcher. Germany has caught the British disease. If the affliction keeps hold, Europe is doomed. The European Union has learnt to live with Britain’s bean-counting. It will not survive a German decision to play the same zero-sum game.
The international investors who have put the eurozone under siege are placing two mutually supportive bets. One is about economics – the hard numbers of budget deficits, debt-to-GDP ratios and subprime sovereign debt. The other is about politics – intangible, but ultimately more important things like leadership and political will.
The first of the bets says that on any reasonable assumptions Greece will not be able to pay down its debts; and that Spain and Portugal could well find themselves in the same predicament. One or more of these countries will see the effort to put their economic houses in order tip them into deflation traps where austerity becomes self-defeating.
That certainly seems to be the case with Greece, where the numbers suggest that it will be impossible to avoid restructuring its debt. On the other hand, the impact of a default on the global financial system looks pretty scary. A banking-turned-sovereign debt crisis could yet end up as another banking crisis.
The second bet speaks to the absence of leadership in the continent’s capitals. Crudely speaking, the markets are calculating that governments lack the shared political commitment to underwrite the stability of the single currency.
Sure, eurozone leaders have agreed to set up a €750bn liquidity fund to prop up the weaker members; and the European Central Bank has sacrificed ideological purity in an effort to reassure bond investors. Each step in the euro’s defence, however, had been preceded by prevarication and followed by recriminations. The effect has been to leave a question mark over the long-term future of monetary union.
On one level, the argument now is about whether governments are ready to accept much tighter co-ordination of economic policies within the eurozone. Some call this political, others economic union. Some (mostly Germany) want a tough new regime to punish the profligate. Others retort that the countries that have accumulated large external surpluses (mostly Germany again) must do their share to rebalance the European economy.
It seems obvious enough that effective management of the euro will in future require greater mutual interference in national economic policymaking. The precise nature and balance of these measures, however, will be irrelevant unless they reflect a more fundamental presumption of shared interest. The euro has a future only for as long as investors believe the commitment of governments is unassailable.
Here we come to the British disease...
Read entire article at Financial Times (UK)
Angela Merkel has begun to sound awfully like Margaret Thatcher. Germany has caught the British disease. If the affliction keeps hold, Europe is doomed. The European Union has learnt to live with Britain’s bean-counting. It will not survive a German decision to play the same zero-sum game.
The international investors who have put the eurozone under siege are placing two mutually supportive bets. One is about economics – the hard numbers of budget deficits, debt-to-GDP ratios and subprime sovereign debt. The other is about politics – intangible, but ultimately more important things like leadership and political will.
The first of the bets says that on any reasonable assumptions Greece will not be able to pay down its debts; and that Spain and Portugal could well find themselves in the same predicament. One or more of these countries will see the effort to put their economic houses in order tip them into deflation traps where austerity becomes self-defeating.
That certainly seems to be the case with Greece, where the numbers suggest that it will be impossible to avoid restructuring its debt. On the other hand, the impact of a default on the global financial system looks pretty scary. A banking-turned-sovereign debt crisis could yet end up as another banking crisis.
The second bet speaks to the absence of leadership in the continent’s capitals. Crudely speaking, the markets are calculating that governments lack the shared political commitment to underwrite the stability of the single currency.
Sure, eurozone leaders have agreed to set up a €750bn liquidity fund to prop up the weaker members; and the European Central Bank has sacrificed ideological purity in an effort to reassure bond investors. Each step in the euro’s defence, however, had been preceded by prevarication and followed by recriminations. The effect has been to leave a question mark over the long-term future of monetary union.
On one level, the argument now is about whether governments are ready to accept much tighter co-ordination of economic policies within the eurozone. Some call this political, others economic union. Some (mostly Germany) want a tough new regime to punish the profligate. Others retort that the countries that have accumulated large external surpluses (mostly Germany again) must do their share to rebalance the European economy.
It seems obvious enough that effective management of the euro will in future require greater mutual interference in national economic policymaking. The precise nature and balance of these measures, however, will be irrelevant unless they reflect a more fundamental presumption of shared interest. The euro has a future only for as long as investors believe the commitment of governments is unassailable.
Here we come to the British disease...