Has Germany the power and money to save the Euro?


          Most commentators on the Euro crisis assume that if Germany wished to save the Euro she can do so. Only the failure of the latest German bond auction has caused any doubt to creep in.

          Commentators are right to think that Germany is now very powerful within the EU. The Euro lacks a sovereign power, an authority who can make the decisions. Mrs Merkel is the closest it has to that. Mr Sarkozhy is trying to stay alongside her, but in practice the main shots are being called by Germany.

           In a way this is  all a confidence trick. If you judge German power by votes in the EU, or by her proportion of population and wealth, she is just the largest minority partner amongst many. If you judge her by the popularity of her view that the EU needs to exert much more budgetary discipline over its members, then she should be significantly outvoted by the south led by France, who favour looser money and borrowing more as the answer. If you judge her by her capacity to pay the bills, again you would have a more circumscribed view of her writ. After all, rich West Germany struggled for several years to meet the substantial bills of Eaastern Germany when they rushed headlong into a monetary union on terms very favourable to the East. Many German voters do not feel like repeating that generosity on a continent wide scale. Germany is not rich enough, and does not have enough borrowing power herself, to do to southern Europe what she did to East Germany.

               So how has Germany emerged as sovereign elect of Euroland?

                 The truth is many countries on the continent are frightened of Germany. They huddle together and seek German protection. They accept the lectures on the need for them to be more Germanic, to adopt the Northern Protestant work ethic, to rein in deficits and earn more money and pay more tax. This they see as the necessary price to bind Germany into the new Europe. This is the necessary letting off steam so that Germany in the end accepts the need to transfer more grants, to allow more bond buying, to accept that integration comes at a price to German taxpayers.

                  The southern petitioner states know that in the end they will get more out than they put in financially. The small northern hard working states that cluster around Germany’s borders know that their economies and societies spill over the common borders. They think they can never be truly independent, so they may as well go along with a scheme which gives them a small voice in common policy making to offset the powerful effect of the German neighbour on their local economies.

                As a result the Euro crisis seems to be an agonising political journey for Mrs Merkel and the German Parliament and electorate. It is a race between the markets and Mrs Merkel’s willingness to say Yes to bond buying and Euro printing on a big enough scale to buy them time. So far she shows she wants to get much more integration and budgetary discipline before allowing any more borrowing. Maybe it’s brilliant brinkmanship. Maybe it’s realism. Maybe she now fears the Euro is too dear and too big to save. After all, she knows the true cost of the DM  East-West amalgamation, and just how difficult that was for Germany.


  1. Kevin Ronald Lohse
    November 29, 2011

    So this a question to which the answer is “No” then?

    1. lifelogic
      November 29, 2011

      Perhaps they do just have the power – but surely not the political will any longer.

      A break up, as soon as possible, is the least worst option.

  2. Patrick
    November 29, 2011

    But it would only be buying time. The siesta zone / GIPSIs / petitioner states, whatever you want to call them, are grossly uncompetitive. They need a 30% to 40% devaluation. Inside the Euro they will have no hope to sustain them. A transfer union would only be a solution in so far as it buys time to deliver a break up of the Euro.

  3. Robert K
    November 29, 2011

    I have just come back from a business trip to Scandinavia and Estonia. In Finland, the True Finns represent the agricultural heartlands – conservative and traditional but not right wing in any perjorative sense. Here, there is clear antipathy to the euro. Amongst the educated elite there is more support for the euro, but the common theme is this: Finns work hard, pay high marginal tax rates and have a balanced budget. Why should they subsidise profligate southern European countries where tax evasion is a national pastime? The Estonians’ enthusiasm for European integration is coloured by their determination to escape the clutches of Russia. Austerity for Estonians is a way of life – under the Soviet thumb, hunger and cold were the norm – so they have coped well with the sharp slump in economic output. Support for the euro is still solid, but there is bewilderment at the political ineptness of the euro elites. (I was also interested to hear that Estonia’s population has shrunk from about 1.5m to around 1m in the past few years, with a big outflux of youngsters in particular seeking jobs elsewhere in Europe). The Swedes, meantime, seem to recognise that the euro is on its last legs.

    1. nicol sinclair
      November 29, 2011

      Interesting observations

    2. nicol sinclair
      November 29, 2011

      I commented on this post but it has disappeared into ‘the ulu’.

      Interesting observations…

    3. De Recardo
      November 29, 2011

      they are all here , picking spuds in Lincolnshire

  4. ian wragg
    November 29, 2011

    The sooner this ill conceived experiment is put to sleep the better.
    Germany will not change the attitudes of the southern EU states or France for that matter.Tax evasion, 35 hour weeks and corruption are endemic in these countries and they can only survive with their own currencies.
    Why should we continue to subsidise them and their lethargic lifestyles.

  5. figurewizard
    November 29, 2011

    Italy is the biggest problem facing the Euro today. Regulations for business there, especially with respect to employment go even further than those demanded by Brussels. This means that in the past, the effect of this on uncompetitive industries and agriculture was mitigated by devaluation. By joining the Euro this option was removed.

    Of all the countries in trouble, Italy has the most compelling argument to return to a floating currency of her own. Even if Germany were to bail her out it could only be a temporary fix.

  6. Mike Stallard
    November 29, 2011

    If it all depends – as did German Unification – on just one person, then it is worthwhile remembering who Angela Merkel actually is.

    Her father was a Lutheran pastor and she was brought up as a Christian Protestant with the Christian Protestant work ethic as you mention. She was confirmed as a young Protestant, not as a young Communist.

    However, she was also a Socialist, brought up in the East Germany of Communism. She is fluent in Russian and got some good deals out of the Communists. She was also deeply involved in spreading Communist propaganda. Her father and mother both had cars under the Communist (Stasi) regime. She knows that realpolitik is the way to get things done.

    Finally, some of her family comes from Poland which means that she has a fierce determination, I guess having met several Poles (and been very impressed).

    So all in all, I don’t think that we can do much business with her.

    1. stred
      November 29, 2011

      Gordon Brown was brought up listening to Protestant work ethics in his father’s sermons. This must have included thrift, honest accounting and avoiding favours. The influence of this on PFI and the building of silly aircraft carriers in his home area seems to be unlikely.

      1. davidb
        November 29, 2011

        I got the impression he didn’t go to Sunday School much. I distinctly remember Joseph telling Pharaoh about the 7 good years and the 7 bad. Yet McDoom is famous for no return to boom and bust…

  7. Peter van Leeuwen
    November 29, 2011

    For someone from he small countries bordering on Germany, this article mitigates some of the accusation that “we’ve rushed too quickly into the euro-project”. We’re fortunate that in Europe Germany is only a reluctant leader and e.g. Frau Merkel and her predecessors aren’t overly nationalistic. The structures of interdependence as in the eurozone and in the EU have to be firmly built, before the German memory of WWII, which have caused this “humble” attitude, have completely faded. For us, “ever closer union” still makes sense.
    If the UK resigned its EU membership, it would be a pity, if Germany were to leave the EU, it would be a disaster.

    1. oldtimer
      November 29, 2011

      …and if Germany ditched the euro and returned to the DMark2 but remained within the EU? What then?

      1. Steve L
        November 29, 2011

        The value of the DM would soar, and they would become much less competitive in the export market. Their success is being effectively subsidised by the high defecit countries!

    2. Mike Stallard
      November 29, 2011

      Handcuffing Germany to Southern Europe by laws and treaties is not the answer.

      Ask any divorced person.

    3. Paul H
      November 29, 2011

      “If the UK resigned its EU membership, it would be a pity,”

      not for us. We (the hoi polloi) never joined the EU. We were told that we were joining a free-trading club. Of course the lie has become apparent over time.

      It would not be resigning from a club. It would be escaping a prison.

      1. sjb
        November 29, 2011

        Did you not receive a copy of the 1975 referendum pamphlet, Paul?

        “The aims of the Common Market are:

        * To bring together the peoples of Europe.

        * To raise living standards and improve working conditions.

        * To promote growth and boost world trade.

        * To help the poorest regions of Europe and the rest of the world.

        * To help maintain peace and freedom.”

        Source: http://www.harvard-digital.co.uk/euro/pamphlet.htm

    4. REPay
      November 29, 2011

      I agree that Germany is a model democracy and that the viewpoint she represents must win out for Europe to thrive. If the southern model prevails with their curious economics it will be a disaster for the world.

  8. Amanda
    November 29, 2011

    But, there was a German demos – there isn’t an European one. East Germany was given the opportunity for democracy it’s people had fought for. The EU is wanting to destroy democracy. Printing money, and bond buying, doesn’t get rid of these fundermental issues.

    On top of this, whilst the Chinese resource strip Africa, the EU wants to give more money too offset the scam of ‘climate change’ !! So there’s more of our money down the drain.

    Truly, the world has gone mad. If the EU was a dog you would shoot it to stop it causing any more harm, to any more people. Alternatively, maybe a move to Asia may be sensible.

    1. Mike Stallard
      November 29, 2011

      Three of my (grown up) children have already moved there.

      They are, all three, richer and better off than they could have dreamed.

      1. outsider
        November 30, 2011

        Bernie Ecclestone, aged 81, says: “I think Europe is finished. It will be a good place for tourism but little else. Europe is a thing of the past.”
        He is not stupid. As so often from this gentleman, I fancy it is a challenge rather than a final verdict. One hopes a few politicians will take him as seriously as the folks at Silverstone did.

  9. Javelin
    November 29, 2011

    It is an agonising psychological journey, even more than a political or economic one.

    I think the EZ is clinging to the implicit rhetoric of Germany “the fatherland” – it can only offer scant protection against the debts run up by it’s “children”. Talk about the “Bank of Mum and Dad”!! – but when we look at the books Germany does not have a big enough balance. Since 2005 it’s debt has gone from 50% to 80% of GDP today. Germany is not in the vanguard of fiscal discipline it is in the wake of fiscal obesity. The markets and the anti Germans in the PIIGS will wake up to this and call Germany out on this.

    last year I predicted a 1% growth in the Uk and only slightly more next year (I writing automated trading software so prediction is my job). Publically I got it wrong. But the reality was based my estimates of the 2.5% splurge before the election giving a 0.1% growth. I didn’t follow through on my maths. Everybody was predicting continued growth. Well following through on my maths – and staying relative to the economic cycle – the UK I’d running a 7% deficit that to me means 7% has to come off GDP (

  10. Robert K
    November 29, 2011

    And now to the nub of it. In this morning’s FT, Gideon Rachman poses this question: “Could things go bad again? I mean really bad – Great Depression bad, world war bad? The kind of cataclysmic event my generation has learned to think belongs only in the history books.” Rachman quotes President Sarkozy of France who cautioned recently: “If the euro explodes, Europe would explode. It’s the guarantee of peace in a continent where there were terrible wars.”
    It’s a stunning conclusion from the euro-elite – that if a currency that never needed to exist – apart from to cement the status of the eurocracracy – fails, then we will plummet into war. I don’t actually disagree with Sarkozy in terms of the dangers the euro has created. Where we part company is this – he sees it as the solution to the problem, whereas to me it is the problem incarnate.

    1. REPay
      November 29, 2011

      there is this lazy idea rgularly trotted out on the continent and the Guardian/BBC that the EU is the guarantor of peace. I think that peace has been achieved by having a genuinely more democratic Europe and Germany having become a model democracy. Democracy is the glue…not the EU which seems to chafe against the state polities that comprise it and which they try to supplant whenever possible.

  11. English Pensioner
    November 29, 2011

    The answer must me “No” to both power and money.
    Any attempt by Germany to wield power will be resented in those European countries which were occupied by Germany during the last World War. Our politicians may want to forgive and forget, but remember, we weren’t occupied, and there is less tendency for the people in other European countries to forgive so easily. Remember, the Irish won’t forget what Cromwell did, and that was some 35o years ago, why should the people of many European countries forgive the Germans for what happened a mere 65 or so years ago?
    On money, as Germany is having to borrow on the money markets to meet its ongoing requirements, and at their last bond auction only just over half was sold. Hardly a good omen.
    We have a problem with our British relationship with the EU, a large part of the population want to get out, but a majority of the politicians want to stay in. One suspects that, similarly, the politicians in many EU countries want to cozy-up to Germany, but the majority of their people want to do the exact opposite.

  12. oldtimer
    November 29, 2011

    You describe the German dilemma very clearly. It seems to me that Gernmany will not bail out the south – because of domestic political and constitutional imperatives. Future treaty change proposals, said to be revealed in early December, presumably will reveal the direction of travel. I do not see how this can credibly exclude an exit from the euro, if not the EU, for one or more member states.

  13. Brian Tomkinson
    November 29, 2011

    There should be some form of severe retribution against those who created this euro monster and those who still refuse to admit that it was ill-conceived and constructed. They are trying a mixture of coercion and blackmail to cling on to their creation which is clearly doomed and in the process wrecking the world economy.

  14. Steve L
    November 29, 2011

    An interesting view of a Greek economist…

    1. Chris
      November 29, 2011

      To follow on from Steve L, worth looking at the Press Watch section of Athens News where it seems there is open acknowledgement of German controlled Brussels, and swearing obeisance to Merkel.
      “The German plan to control the entire eurozone dominated headlines, as the Eurogroup meeting this afternoon was expected to discuss Berlin’s brand of economic governance.

      The European Commission’s proposal is for Germany to back up European debt with a stability bond, and in return eurozone countries will turn over the power of the purse to a German-controlled Brussels. The Eurogroup today is also expected to disburse an eight-billion euro loan tranche to Greece. The “green light” for the loan by all accounts had been given yesterday by the German finance minister and the economy commissioner.

      Doomsday predictions abounded, forming a dark backdrop for the reports in today’s Athens dailies. The Financial Times predicted a collapse of the eurozone within ten days, and the Wall Street Journal predicted that Greece would return to the drachma, the former national currency.
      The meeting between US President Barack Obama and the presidents of the European Commission and the European Council yesterday captured attention, as it underlined the transatlantic tensions heightened by the crisis. The institutional leaders of Europe who were at the White House yesterday have clashed with German Chancellor Angela Merkel over Germany’s reluctance to issue a eurobond until other EU states swear obeisance to Merkel……………”

    2. Steve L
      November 29, 2011

      Grr….. that link should have been


      plus the attached pdf

  15. Viv Evans
    November 29, 2011

    There’s no such thing as ‘the’ Germans, or any other nationality you might care to name. How many would be happy here when being accused by continental Europeans in such fashion? Like saying that ‘the’ Brits have always been hypocrites, or imperialists?

    If we here in the UK demand out politicians to do what is best for our country, we ought at least to concede that German politicians are trying to do the same.

    And then there’s the tiny matter of the law.
    It is against EU law to make the ECB into a lender of last resort.
    So is it ok to force the Germans to disregard that law? Those who think so are overlooking the small fact that doing so means inevitably a constitutional crisis in Germany, thanks to the way that country is governed, thanks to their constitution – something the victorious Allies forced the beaten Germans to set up. Sadly, for the Eurocrats, the Germans are happy with their Verfassungsgericht, and that court has drawn lines in the sand the government cannot cross.

    Europe is right to fear a Germany where disregard for law and constitution were to become entrenched. After all, they suffered the consequences when this happened from 1933 to 1945. So instead of clamouring for Germany to disregard the law so that their debts can be paid by Germany, we should be thankful that we’re not at that point.
    Instead, the EUrocrats ought to work around this, rather than throw tantrums because the bank of Mum and Dad, i.e. Germany, isn’t handing over all the money right now.

    But then, how can we expect Brussels to respect the law when their own accounts have not been checked and verified for over a decade …

    1. Chris
      November 29, 2011

      Worth looking at Der Spiegel article on German Constitutional Court:

      Struggle Over the Euro:German Constitutional Court at Risk of Losing Power
      “Some see Germany’s Federal Constitutional Court as as a guardian of democracy in the euro crisis, others see it as an obstacle to rescuing the currency. Now members of Chancellor Merkel’s ruling conservatives want to lessen its power by amending the constitution — to remove its jurisdiction over European issues……”

  16. Lindsay McDougall
    November 29, 2011

    Germany’s own government debt is 83% of GDP. Germany does not have the money, and therefore does not have the power, to save the Euro. Why should they want to? Financially, it is not in their interest to do so. Only politics is preventing the inevitable.

  17. Neil Craig
    November 29, 2011

    For those worried about Germany (which since they pushed us into illegal wars to hand over much of Yugoslavia to ex-Nazis publicly committed to genocide includes me) the good news is that the Germans are even more enthusiatec about closing down their electricity supply and making themselves a 3rd world state than our own beloved leaders. If they sacrifice their economy in the name of windmillery they simply cannot achieve economic growth long term, as Mr Cameron is busy demonstrating here.

    1. Chris
      November 29, 2011

      Following on from your comment regarding Germany and their change in energy policy, this article in Der Spiegel highlights that there are indeed some real problems:

      Lagging Construction: Demand Pushes Power Grid to the Limit
      “The construction of new power lines in Germany, particularly crucial following Chancellor Angela Merkel’s decision to swiftly abandon much of the country’s nuclear power, has fallen behind schedule. The government network agency warns that the grid is at the limit of its capacity.
      Under German Chancellor Angela Merkel’s energy revolution, four-fifths of all electricity in the country will be derived from renewable energies by 2050, up from around 18 percent today. That program, however, is premised on a massive upgrade of the electrical grid that has fallen well behind schedule.
      Infrastructure projects needed to transport clean wind energy from the Baltic Sea to Germany’s electricity grid are woefully bogged down, according to German financial daily Handelsblatt on Friday. Citing the contents of a yet unreleased report by the German Federal Network Agency, the paper reported that development of the country’s new high-voltage smart grid, dubbed the “energy autobahn,” has been particularly problematic. ….”

  18. Elli Ron
    November 29, 2011

    I’d propose a different slant on the EU – German issue:
    Merkel knows that the Germans are mainly against taking on the Euro debt, but she is patiently herding her people to that goal, by showing them daily how bad the Euro breakdown will be for Germany.
    She is trading one fear (Euro breakup) against another(Inflation) with the hope that soon the Germans will be HAPPY to save the Euro.
    Granting the ECB the right to print (say) 2Tr Euro and buy any Eurozone bonds will solve the problem overnight.
    She has already won the first round, the European sheep are falling over themselves in their race to give up their fiscal and monitory sovereignty.
    The German’s people’s surrender is now nearly a sure thing, bringing this stage of the Euro experiment to an end

    1. Elli Ron
      November 29, 2011

      “They that can give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety.” — Ben Franklin, 1759

  19. Denis Cooper
    November 29, 2011

    “The truth is many countries on the continent are frightened of Germany. They huddle together and seek German protection.”

    You could have written that in the late 1930’s, and in fact a chap called Douglas Reed did write something very similar in the penultimate paragraph of the Postscript to his book “Insanity Fair”.

    I inherited a copy of that book from my father, but amazingly it’s available here:


    “The forces against you will be overwhelming. You have been told that rump Czechoslovakia, after the amputations, will be free and independent, guaranteed by yourselves. You are being fooled again, and perhaps you know it. I confess that I am puzzled about that. By the time you read this Benes will have resigned and all the key posts in that little Czechoslovakia will be in course of transference to men who will do Germany’s bidding. Czechoslovaks, as I told you in this book, will be forging arms to be used against you, if you do not prefer to capitulate; you have forced them to this. The same holds good for Hungary. For Rumania. Bulgaria. Greece. Yugoslavia. Germany’s grasp already reaches to the Black Sea, the Mediterranean and the Adriatic. The small states, seeing the abyss of betrayal yawning before them, are flying like frightened chicklets to the protecting wings of Mother Germany. They have the man-power, food-power, fuel-power, and the raw materials to make Germany invincible, impregnable and invulnerable. You have left them no other choice.

    And as far as I can understand you, you seem to want it like that.”

    Well, “The small states, seeing the abyss of betrayal yawning before them, are flying like frightened chicklets to the protecting wings of Mother Germany”, but today we read the Polish Foreign Minister putting the best face on it:


    “In a startling comment for a senior Polish minister, Mr Sikorski declared that the biggest threat to his nation’s security was not terrorism, or German tanks, or even Russian missiles, but “the collapse of the eurozone”.

    “I demand of Germany that, for your own sake and for ours, you help it survive and prosper,” he said. “You know full well that nobody else can do it. I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity. You have become Europe’s indispensable nation.”

    Yet he backed Germany’s drive for deeper integration in the EU and the eurozone. The member states faced a stark choice between “deeper integration or collapse”, he warned, challenging the UK government to support reform, or “risk a partial dismantling” of the union. “We would prefer you in, but if you cannot join, please allow us to forge ahead,” he said.

    His call for the EU member states to decide whether they wanted to become “a proper federation” is in line with the German government’s insistence that only much closer political integration is essential to underpin the existing rules of the eurozone.”

    Incidentally, Schäuble provided an answer to your headline question:

    “Germany was not big enough to support the rest of the eurozone on its own, Mr Schäuble told foreign correspondents in Berlin. The way to win back the confidence of the markets was to complete monetary union with a “stability union” based on strict budget discipline enshrined in the treaties of the EU.”

    In other words, Germany alone does not have the power and the money, and so it must enlist the power and the money of other smaller states to achieve its objectives, and it has the power to do that unless it is stopped.

  20. uanime5
    November 29, 2011

    Well if the EU needs a country to lead it they may as well choose the richest and most successful one. Hopefully this will help Spain, Portugal, Italy, and Greece get their economies back on track.

  21. Tad Davison
    November 29, 2011

    Britain really MUST now realise, that it’s future lies in trading in surplus with the rest of the world, and with countries that are not financially bankrupt, as well as morally bankrupt.

    I hearken back to what a Chinese finance minister said recently, that ‘China will not support a system that promotes and encourages indolence and sloth.’ I’m afraid those are the very things that European governments, including our own, have been borrowing money hand over fist to pay for, and the day of reckoning is upon us!

    We see it on our streets and in our communities every single day of the week. Not for nothing, do people queue up in their droves to enter Britain – 252,000 in 2010 alone!

    Interestingly, as I type, Digby Jones has just urged the government to do much the same thing, to find new markets elsewhere, and it stands to reason, that we cannot export to people who haven’t the money to pay for our goods and services (but I notice the irrepressible Mr Balls hasn’t quite seen that fact for himself, as he still talks about how important it is that we export to the EU.)

    The EU is a troubled and diminishing market. Britain’s future lies elsewhere, as many of us have said all along, and competitiveness is the key.

    Tad Davison


  22. zorro
    November 29, 2011

    The brinkmanship is certainly part of it and needs careful timing on Germany’s part, but she holds good cards. If she threatens to leave the Euro, Germany could literally buy up parts of what was the Eurozone as they will be forced too monetize their debt and the new DM would appreciate considerably. But as you say other European countries would be fearful of that scenario and it is unlikely to happen but is a useful threat.

    Germany will wait and wait until the right moment so that it can gain the best advantage and terms from the other Eurozone countries (effective German ownership of European economic policy) before bringing about measures to reasonably stabilise the economic situation in Euroland. Once that happens, then there is a danger for the UK as the bond markets will turn on the UK before Japan and the USA. The EU is aware that the UK is in a precarious situation if the Eurozone settles, and once the markets turn on the UK, that is when the EU will step up the pressure on Cameron around Euro entry. How will he react to that scenario?


  23. Bob
    November 29, 2011

    Listening to the phone-in on James Whale’s Drivetime (LBC radio) when John from Wokingham called in. Very sensible chap, hope the Chancellor was listening. Foreign aid must be curbed until we get our deficit sorted.

  24. Rebecca Hanson
    November 30, 2011

    …. or maybe it’s like the logic which prescribes the whether or not a God exists people will create one……. there is a need for a strong leader to exist to Europe has mythologised Angela Merkel as fitting the image of the person they believe they need.

    I’m also concerned. Has anyone really critically assessed the implications of the cancellelation of the German nuclear program on their economic strenght? It’s no small thing…..

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