This week, the euro fell to its lowest level against
the dollar in ten months, and its lowest level ever against the Swiss franc.
The crisis over the euro, triggered by the budgetary problems of Greece, one of
the 16 countries which use the common European Union currency, is causing political
tensions between the countries of the so-called eurozone. Meanwhile, the next
domino seems to be about to fall. Earlier this week the international ratings
agency Fitch lowered the credit rating of Portugal, another eurozone member and
the home country of Jose Manuel Barroso, the president of the European
The leaders of the governments of the 27 EU member
states are meeting in Brussels today for the second day of their spring summit.
British eurosceptics have always considered the euro project an attempt to
foster economic convergence and political union through monetary union a classic
example of hubris; now, they regard themselves lucky that their country did not
adopt the euro ten years ago.
Germany is refusing to bail out Greece. Earlier this
week, Chancellor Merkel told the Bundestag that Greece should
be expelled from the eurozone if its financial problems risk dragging the euro
down. France and the European Commission in Brussels reacted furiously to this
suggestion. Barroso dismissed Merkel’s words as “absurd.” Paris and Brussels insist
that the EU come to the financial rescue of Athens. Since most of the money for
a rescue operation will have to come from Germany, however, such a decision
cannot be taken without Berlin’s approval.
Bullying Berlin does not seem to be a clever move.
Merkel’s Bundestag declaration followed shortly after Greek Deputy Prime
Minister Theodoros Pangalos had accused the Germans of exploiting the Greek
debt crisis for their own financial and economic benefit. “By speculating on
Greek bonds at the expense of your friend and partner, by allowing [German]
credit institutions to participate in this deplorable game, some people are
making money,” the Greek Socialist said. “A cheap euro makes the south of
Europe suffer, while German exports benefit.”
Last month, Pangalos had angered the Germans by
demanding that Berlin pay reparations for Nazi crimes. “The Nazis took away the
Greek gold that was in the Bank of Greece and they never gave it back,” he
said. The German Foreign Ministry responded that in 1960 Germany paid Athens
115m German marks in compensation for the Nazi occupation and that “parallel to
this, since 1960 Germany has paid around 33bn marks in aid to Greece both
bilaterally and in the context of the EU.”
The Germans no longer accept being required to be the
EU’s paymasters to atone for their Nazi past. There is also an increase in
euroscepticism in German public opinion. While Germany introduced austerity measures
and trimmed down its welfare system, countries such as Greece refused to do so,
relying on the fact that the EU (read: Germany) would bail them out when they
got in trouble in order to save the euro.
In Europe, the political rules of the game are
changing. An editorial in Wednesday’s Frankfurter Allgemeine Zeitung
(FAZ), Germany’s most influential newspaper, drew attention to the fact that “The
biggest member state, which has for so long silently been the guarantee of the
EU, has now openly expressed that it is no longer prepared to pay any price for
European unification. The present Euro crisis is more than a monetary matter. …
The image of [Germany as] the paymaster of Europe, the caricature of the
Brussels bureaucracy, and the growing displeasure with the loss of [German] Sovereignty
has shaped a eurosceptic fundamental sentiment, into which the Greek debacle
has landed like a bomb. No German government today can afford to put the
European interest before the German interest, especially not in core issues as
monetary policy. And even if it tried, it can reckon on being opposed in the
German Constitutional Court.”
Since Germany does not want to bail out Greece, it has
suggested bringing in the IMF. The Netherlands agree to this. On Wednesday, the
Dutch Parliament said that aid for Greece should come exclusively from the IMF.
This is unacceptable for France. President Nicolas Sarkozy of France said that
there must be an exclusively EU solution. Most observers expect that the EU
spring summit will present a compromise: a mix of IMF support and bilateral
loans from EU member states.
In its monthly report the Bundesbank pointed out,
however, that it is not the IMF’s job to help countries finance excessive
budget deficits. “The IMF’s mandate stipulates that it may only use its
foreign-currency reserves to bridge short-term balance of payments deficits,”
the report stated.
The pressure on the EU leaders to reach an agreement
is huge. It is the only way to lower the high interest rates which the Greek
government must currently pay when it borrows money. This rate is twice as high
as what the German government pays. An agreement is also needed to prevent a
domino effect, which threatens to affect eurozone members Portugal, Spain and
The lowered credit rating for Portugal means that the
country will pay higher interests when borrowing. Fitch lowered the rating
because the Portuguese budget deficit is much higher than expected.
Meanwhile, with the house on fire, the internal squabbling
about who will represent the EU on the international forum continues. The EU
will be sending three different presidents to the next G20 summit: the
government leader of the country presiding the European Council (currently
Spain), European Commission President Barroso, and the permanent president of
the Council, Herman Van Rompuy.