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Tuesday, March 26, 2013

No backing down: Germany comes out swinging over claims it is the neighbourhood bully

Given all the Germany-bashing over the last week, in the wake of the Cyprus bailout deal (some of it completely ridiculous), it's easy to forget that the Germans themselves are remarkably united over the agreement. In fact, the feeling is that Germany, collectively, just got a fair bit more assertive over its eurozone policy.

On Friday, before a new agreement was finally reached and with Cyprus’ euro membership on the line, German Chancellor Angela Merkel – reportedly in an angry mood - told MPs from her coalition parties that it was wrong for Cyprus to "test" Europe and that while she preferred to see to see Cyprus stay in the single currency but was prepared for an exit.

And with respect to anti-German sentiments, speaking to ZDF this morning, Finance Minister Wolfgang Schäuble bluntly stated that:
“It is always the case, also in the classroom: When you sometimes have better results, the others, who have difficulties, can be a bit jealous.” 
German Justice Minister Sabine Leutheusser-Schnarrenberger (FDP) called on EU leaders to show more solidarity with Germany, claiming that:
"I wish that that the individuals at the highest levels of the EU including the President of the Commission and the President of the Council also display solidarity with us and defend the Germans against unjust accusations".
Meanwhile the opposition SPD and Greens have said they will both vote to approve the deal. It is not just German politicians who are being increasingly assertive. In our daily monitoring of the German press, we've sensed a hardening of tone and rhetoric throughout the crisis, not least in response to the overtly anti-German tone of many of the anti-austerity protests in the south. Referring specifically to the Nazi-themed nature of the protests, Ulrich Clauß argues in Die Welt that:
“In terms of the endemic prevalence of corruption in government and administration and in close to all parties in their respective parliamentary spectrums, these countries rank alongside third-world dictatorships. On the whole we are talking about countries in which ‘good governance’ seems to be an alien concept… in terms of political culture, there is an extreme divide between North and South in Europe.”
Writing in FAZ, Klaus-Dieter Frankenberger argues that:
“The Cypriots like to see themselves as the victims. It is not however their European partners who are responsible for the mess they are in… In the crisis countries many blame their plight less on corrupt elites and bad policies but on the alleged lack of solidarity in the North for which read: neo-hegemonic Germany.”
Last week, following the Cypriot parliament’s rejection of the original bailout agreement, Bild columnist Hugo Müller-Vogg argued in a piece entitled “We’re the scapegoats” that:
“Politicians there have acted extremely irresponsibly. Now they are extremely brazen in their demands from those who have solidly managed their economies. Moreover, they insult those who are supposed to help them. Without German guarantees there would be no bailout fund. But of all things we Germans are being hit in the crisis countries not only criticism but even open hatred… If it was not an issue of Europe’s future, there would only be one appropriate response: deal with your own mess”.
Writing in Die Welt, Director of the Hamburg Institute of International Economics Thomas Straubhaar describes the Cypriot bailout deal as a “turning-point” in the eurozone crisis, arguing that:
“Up until now, the bankrupt countries have been able to use fear of a domino effect to extort Europe. That is now over because the strong eurozone countries have the better hand – and they should not be afraid to play it”.
The implications of a Germany more prepared to assert its viewpoint has huge implications for the future of the eurozone and the EU as a whole. Remember who holds the cheque book...


jon livesey said...

After being invaded by Belgium in 1914 and Poland in 1939, one has to feel some sympathy for the Germans.

However, how they feel about things isn't the point. The big point, which frequently gets missed in the details, is that it is becoming more and more clear with each crisis that we can no longer ascribe the euro-zone's problems to anything external.

The divergences in competitiveness between the core and the periphery was due to the non-enforcement of the 60%/3% solidarity pact, which even Germany violated. Spain's house bubble was caused by too loose credit, due to the one size fits all interest rate policy. The Greek problems came down to inaccurate fiscal reporting and lax regulation. The Cyprus Banks became insolvent partly due to the way the Greek default was structured. If there are runs of euro-zone Banks in the future, it will be due to the way the Cyprus bailout was structured.

The euro-zone seems to be trapped in a spiral of problems, each caused by the resolution of the one before.

perdix said...

So the Germans are beginning to realise that the cultures of the North and the South are incompatible in a currency union. Why did they not realise or wish to realise this before?

Anonymous said...

Just because they act as being offended that doesn't mean they are right.
The Euro without the proper tools to support the differentiations of economic policies of SOVEREIGN countries is by default controlled by those who have the means to enforce their fiscal policies.
The weak fabric of EU is starting to tear. After Cyprus my eye is on Malta, Luxemburg and Netherlands to name a few.

Rik said...

The Germans in all honesty did realise that. Guess whose idea it was? Hints: eat a lot of garlic, seldom use soap and are great with white flags (and it are not the Belgians).

Rik said...

All those Southern countries have nobody but themselves to blame.
They took the loans, they let bubbles happen, they were supposed to regulate their banks.

Greek bonds would have been worth nothing without the EU/EZ intervention. You should as a bank and as a national CB simply not put all your eggs in one basket (resp allow banks to do that).

The Germans and the French broke the rules but got away with it and cause no other country harm. Well France uptil now. The PIIGS messed the whole thing up for everybody that is a huge difference.

Average Englishman said...

@Rik. Yes; as I recall, the Euro was Germany's price for M. Mitterand reluctantly accepting German re-unification at the end of the cold war.

Rollo said...

As I have been saying for years, the Germans love the Euro because it is too low for their econmomy; so they export a lot, import little and are sucking the rest of the continent dry. The Euro is too high for every one else in the eurozone. It si not the German's fault for working hard and being successful, though; it is the fault of every idiot politician who joined the Euro.

Rollo said...

"Luxembourg’s Foreign Minister Jean Asselborn has accused Germany of trying to dominate Europe and warned that small countries like Luxembourg, Ireland and Cyprus should be free to develop as financial hubs". Surely this is a misunderstanding of the idea of a hub? These countries are spokes, not hubs.

Anonymous said...

Didnt I read somewhere , last year I think, that German oficials warned Helmut Kohl that Italy wasn't 'ready' for the Euro at it's launch ?
But it seems the priority was getting as many countries as possible to join euroland rather than observing any criteria that had been set.

christina speight said...

The Cypriot disaster was entirely caused by Germany's adamant refusal even to contemplate the obvious solution beneficial to ALL - that Cyprus leave the eurozone (alright via leaving the EU and being readmitted ..if they wanted to ... after Art 50's obligatory negotiations reached such an agreed conclusion).

I want to know why nobody mentions that the treaty establishing the Euro EXPRESSLY forbids the EU to bail out other countries. WHY can this law be broken with impunity? And while thinking about the law and democracy, WHY was the Cypriot parliament not allowed to vote on the initialled package forced upon them? Where is the people's voice now ? - NOWHERE for this the EU.

But it is all or nothing with the Germans raking it in from fugitive deposits being accepted at virtually no interest! Not only that but they have prospered mightily at the expense of their southern neighbours by having an exchange rate beautifully low for them while cripplingly high for their unfortunate "partners". They've got richer and richer every day on the backs of the destitute in the EU's periphery.

They have bullied everyone else into doing what Germany tells them to do and then whining that nobody loves them. I remember when the Germans (in their Nazi period) continually moaned that they were being encircled and their patience was becoming exhausted. The Germans have a persecution complex and I told them that IN GERMAN in the Aula at Goettingen University in 1948 as one of the first British students after the war. Of course THEN they were being submissive but it didn't take very long for normal aggressiveness to return.

It feels like 1914 must have felt and 1938 definitely was.

Jesper said...

Two main themes in the press:

1. Cyprus is being punished. No officials supporting that theory but lots of people inferring it by interpreting official statements to corraborate one unofficial anonymous source. A situation like that has the hint of spin to it.

2. Some Cypriotic banks and the Cypriotic state are insolvent. Insolvency means that someone has lost money and creditors will suffer losses. Nothing new and nothing special.

Anyone not believing that Cyprus is being punished is seen as have fallen prey to propaganda. I suppose it comes down to where people get their news and how they interpret them. My personal reading of the situation has been that the propaganda is 'Cyprus is being punished' and the reality is that Cyprus is insolvent.

It is indeed remarkable that so many have fallen for the propaganda that the situation is about something else than insolvency and who'll have to pay for the insolvency.

Anonymous said...

How dare Germany force Cyprus to change their business model because it is 'broken'.

Germany your business model is broken too. Why do you have to use an artificially low exchange rate via Euro membership? Can't you stand up alone and compete fairly?

The EU and Germans are playground bullies. Where's our Referendum?

Denis Cooper said...

I've just finished re-reading "The Goebbels Diaries 1939 -1941".

When I first read it in the early 1980's I was prepared to take it as being nothing more than history; all the Germans I met were pleasant enough, modest and and even self-effacing, and in some cases unnecessarily and embarrassingly apologetic about the catastrophes that their country had visited on the world earlier in the century.

I didn't hold it against one lady that she had been in the female branch of the Hitler Youth, and I didn't hold it against another man that his father had bombed English cities.

Why should I? That was all in the past.

However when I re-read that book now I do see it differently, because since the reunification of Germany it has indeed gradually turned back into being the bully-boy of Europe.

And when I read these complaints about Germany being unfairly attacked I do see that as part of a wider return to the kind of propaganda campaigns that Goebbels described and celebrated in his private diary.

Here is a striking extract from his entry for January 22nd 1940:

"The Fuhrer has set his mind on a great war against England. As soon as the weather is good. England must be chased out of Europe, and France must be destroyed as a great power. Then Germany will have hegemony and Europe will have peace. This is our great, eternal goal."

And I'm afraid that for the German political elite that is still the "great, eternal goal", and what we have been seeing since reunification is the gradual but systematic pursuit of that goal, German hegemony, with or without the previous illusion that then "Europe will have peace".

I certainly don't assume that all Germans support the resurrection of this dangerous ambition for German hegemony; indeed those who contribute to this website:


have been warning against it for years.

johnniK said...

JohnniK. The problem as I see it with the eurozone is that taxpayers throughout were never informed of the huge fiscal transfers rfequired to balance the economies between the rich and poor, and the efficient and inefficient. Now it has hit them and their treasuries and none are very happy about it. Is it too trite to say we told you so!

Denis Cooper said...

Anonymous -

Yes, Kohl was warned that Italy should not be allowed into the first wave of the euro:


"Newly revealed German government documents reveal that many in Helmut Kohl's Chancellery had deep doubts about a European common currency when it was introduced in 1998. First and foremost, experts pointed to Italy as being the euro's weak link. The early shortcomings have yet to be corrected."

But Kohl insisted that Italy must be allowed to join, and Spain and Portugal as well, and that made it more difficult to keep Greece out a few years later - even though it's inconceivable that the German government didn't know at the time that Greek politicians were lying through their teeth to get Greece into the euro - and then others including Cyprus.

What can one say about German politicians allowing countries to join the euro while knowing full well that they should not be allowed to join?

That they were being hopelessly over-optimistic, or that they were deliberately setting those countries up for a fall which would enable them to impose German control?

It's always been said that if there was a euro crisis it would be a "beneficial crisis", creating the opportunity to transfer more powers to the EU, and who controls the EU?

David Barneby said...

I read some excellent posts here and have little to add . I lived in Italy at the time the single currency was introduced . It was common knowledge that Italy was burdened with insurmountable debts ; that only by adjustment of accounting to hide the truth were they able to adopt the Euro . Dare I say that Italy joined and was permitted to join on fraudulent terms . I warned many friends who favoured the single currency , for being the same value as Germany and France , that it would cost them very dearly at home . Their cost of living rose 30% in the first year and to 100% in the second year .
The EU was intended to create a national block to defend agaist soviet encroachment , but principally it was to tie Germany into a European group of neighbours , to prevent them ever becoming the power they were that triggered WWII . The EU has 27 heads of state , of whom all but a few seem to be YESMEN to Germany .
It would seem that Germany is achieving the very thing that the EU was set up to prevent .

Twarr1 said...

While everyone is looking at the possibility of one or more of the periphery countries leaving the Euro, it may be in the best interest of Germany to exit first.
See http://twarr1.blogspot.com/2013/03/crisis-in-cyprus-part-3.html

Twarr1 said...

Crisis In Cyprus

While everyone is looking at the possibility of one or more of the periphery countries leaving the Euro, it may be in the best interest of Germany to leave first.

Anonymous said...

This has always, ever only been, a war of currencies, and negating the threat the Euro poses to the almighty US petrodollar is by any and all means, fair or foul, always an option.
Powerful forces are bent on destroying the Euro, thereby removing an alternative to the US petrodollar