A European summit being held tonight in Brussels offers another opportunity for new French President Francois Hollande to offer a different manner of thinking on the euro crisis, away from austerity and toward integration through eurobonds, fiscal transfers and economic growth. On the first part, however, Germany has all but ruled out eurobonds, which would create collective credit risk across the Eurozone, and smooth out the bond spikes that have occasioned the crisis in the peripheral countries like Spain, Italy, Greece and Portugal.
Officials from Germany, the continent’s industrial powerhouse, say that they remain implacably opposed to a proposal to allow euro-zone countries to borrow money with the backing of all 17 countries that use the currency — an idea that has been pushed by French President Francois Hollande and others — but that they are open to the possibility of smaller measures. Emphasizing the stakes, a major economic organization said Tuesday that Europe is teetering, as it forecast recession for the euro zone and growth for the United States […]
“You can wake me up in the middle of the night, at 3 a.m., and I will tell you our position. Or 5 a.m., it doesn’t matter. We think that euro bonds are not the right path for many reasons,” a senior German government official told reporters in Berlin, under a customary ground rule of anonymity.
The idea that there are “smaller” measures that can be agreed upon neglects the fact that eurobonds are in and of themselves a smaller measure than, say, European Central Bank accommodation or a higher inflation target or straight current account transfers from Germany and the northern states to the southern periphery. Germany, which stands to risk the most in the near term from eurobonds, since they’d be at risk for defaults on bonds issued for weaker economies, wants the kind of austerity measures they feel will reduce budget deficits to go into effect first. If in fact that did reduce deficits, they feel this would smooth out the credit spreads and make eurobonds less of a risk to Germany. But this assumes, contrary to all evidence, that more austerity would even reduce deficits. All it has done so far is to send the Eurozone into recession, reducing revenue intake and keeping the deficits in the same place or worse.
So Germany remains implacable. And on the other end of the spectrum, far-left Greek leader Alexis Tsipras has basically gotten nowhere in his efforts to build a wall of opposition to German-led policies. He has no actual power at the moment, however, so his trips to Paris and Berlin never quite made sense to me.
Perhaps Hollande can muster that coalition. But it looks to me like it will take an escalation of the crisis to get any change in direction from Germany.