Tuesday, November 29, 2011

Why Won't the Germans Come to the Rescue?

“The problem in politics is this: You don’t get any credit for disaster averted. Going to the voters and saying, ‘Boy, things really suck. But you know what? If it wasn’t for me, they would suck worse.’ That is not a platform on which anybody has ever gotten elected in the history of the world.”

-Rep. Barney Frank, quoted in this morning's New York Times, to the CBS “60 Minutes” correspondent Leslie Stahl

Pity the poor Germans.

After years of prosperity and fiscal probity, the Germans are now being blamed for bringing the eurozone - and possibly the world's economy - to the brink of disaster.

Poland's foreign minister Radoslaw Sikorski gave a speech in Berlin yesterday which was reprinted in this morning's Financial Times. Here's an excerpt:

I demand of Germany that, for its own sake and for ours, it help the eurozone survive and prosper. Nobody else can do it. I will probably be the first Polish foreign minister in history to say this, but here it is: I fear German power less that I am beginning to fear its inactivity. You have become Europe's indispensable nation. You may not fail to lead: not dominate, but to lead in reform.

Then there's columnist Joe Nocera writing in this morning's New York Times:

Today, it is Germany that is making policy moves that seem insane. Locked into their modern-day orthodoxies, German politicians look at Greece with something akin to contempt. Aid to Greece — aid that is given grudgingly, when it is given at all — must be accompanied by severe austerity measures, the Germans believe, because the Greeks need to learn how to live within their means, the way Germans do.


But harkening back to Rep. Frank's quote, would the world really be so grateful if the Germans came up with a few spare trillion euro to bail out its neighbors?

And what would the verdict of German voters be on Chancellor Merkel's government if she orchestrates a bailout?

Then there's the small matter of German constitutional law.

Last September, the German Constitutional Court ruled that while it would reluctantly accede to allowing German participation in the European Financial Stability Facility, any permanent financial commitment to the eurozone by the German government could potentially be in violation of German law.

For example, there have been several proposals that the European Central Bank issue eurobonds which would carry the joint credit backing of all of the euro community, most importantly Germany.

However, it's not clear that the German government could even make such a commitment even if it wanted to, according to the on-line magazine Der Spiegel:

But euro bonds would be an entirely different case. Wolfgang Münchau, the Financial Times columnist... points out that they would be everything that the German Constitutional Court finds questionable about bailout programs thus far. They would have the potential to make Germany liable for debts incurred by other countries in the euro zone, the program would be huge (otherwise there would be no point in introducing them in the first place) and German guarantees could be triggered by the actions of foreign governments. "The court's verdict leaves me no alternative but to conclude that (euro bonds) are indeed unconstitutional,"


U.S. stocks soared yesterday on rumors that the euro crisis was nearing a resolution. However, this optimism seems premature, at least based on the news from Europe today.

Time will tell.