Of course, when a country has run out of options, it will play along to gain access to official bailout funds. But, as Greece’s experience has demonstrated, this does not always work out as planned. Indeed, the Greek bailout – jointly funded by the EU and the International Monetary Fund – began disastrously as it delayed a much-needed debt-restructuring and demanded strict austerity. As a result, the influence of extremist political forces has grown, and a public-health tragedy is brewing. Yet Schäuble, in a seemingly interminable quest for more austerity, views Greece as a model for an even more hapless Ukraine.
Europe is in a muddle. With debt restructuring essentially ruled out and without a sizeable, politically-sanctioned central budget to relieve countries in distress, Europeans have anointed Germany as their presumptive hegemon. Germany relishes that role, but is not able to play the part.
Simply put, Germany is unwilling to spend its taxpayers’ euros to bolster Europe. The robust German economy is little more than a memory at this point. Annual GDP grew by more than 3% in 2010 and 2011, because a still-booming Chinese economy was sustaining high demand for German machines and cars; but, as China’s GDP growth has slowed, so has Germany’s, to an annual rate of less than 1%. This is likely to improve slightly, but Germany’s aging population means that its economy faces low potential growth in the long term.
With Germany lacking the economic dynamism to support Europe financially, its leaders have been unwilling to take political risks. The country’s two major political parties – the Christian Democrats and the Social Democrats – sidestepped a public dialogue on Europe in the September 2013 election that produced their governing coalition.
More revealing is Schäuble’s defense of the European Central Bank’s “outright monetary transactions” scheme (which would permit the ECB to purchase unlimited amounts of weaker eurozone countries’ government bonds). Even as Germany’s Bundesbank fiercely (and rightly) opposed the OMT program for its focus on countries’ solvency, rather than liquidity risk – thus creating a backdoor fiscal union – the government was relieved that the German Constitutional Court, assessing the scheme’s legality, ultimately passed the buck to the European Court of Justice. After all, establishing a genuine fiscal union would require strong political commitment – and considerable legwork.
The EU is an inspiring political structure that seeks to break the mold of the nineteenth-century nation-state. But progress toward that idealistic vision cannot continue to depend on shopworn symbolism.