The Financial Crisis: Five Years Later

Is Germany Responsible for the Euro Crisis?


Is Germany Responsible for the Euro Crisis?

Photograph by Torsten Silz/AFP/Getty images

May 9, 2010: Euro zone countries establish a line of credit to buy the bonds of struggling members

Not long ago, two giant hands appeared on a billboard the size of a building outside of Berlin’s main train station. They are placed together in thoughtful distraction, fingertip to fingertip. “Germany’s future in good hands,” the billboard reads. No German will wonder who the hands belong to. Angela Merkel, Germany’s chancellor, is so trusted and familiar to the voters who will likely reelect her this month that she can be summoned with only a gesture.

During the last three years of the euro crisis, she has appeared to be an obstinate negotiator, first on bailouts for euro area countries, then on the details of a banking union. But she has been precisely as uncooperative as her own country wanted her to be. She has been dragging Germany behind her, step by reluctant step. Germans don’t think they should have to fix what they didn’t break, and they’ve never recognized their own complicity in the euro crisis. There’s only so much Merkel can make them do.

On May 9, 2010, euro zone leaders agreed to the structure of the European Financial Stability Facility, a vehicle underwritten by European countries that would buy sovereign debt. That day the front page of Bild, Germany’s best-selling newspaper, shouted “We Are the Schmucks of Europe Once Again!” In the German crisis narrative, Greece borrowed too much money, spent it all, and came begging. Germans enjoy consistently high savings rates, their government taxes and spends wisely, and so Germany, the strongest economy on the continent, had to contribute €211 billion ($278 billion) of credit to the facility, almost 30 percent of its total funding.

This narrative ignores one critical fact: Every irresponsible borrower is enabled by an irresponsible lender. In a 2013 speech in Berlin, Andreas Dombret, a member of the executive board of Germany’s Bundesbank, summed up the causes of the crisis. “Following the introduction of the euro,” he said, “a large amount of capital flowed into the countries which are now at the center of the crisis, such as Greece, Ireland, Portugal, Spain, and Cyprus.” What he didn’t say was how much of that capital flowed from Germany. In the second quarter of 2010, German banks had more assets in Greece than banks from any other country except France. They had more assets in Ireland than banks from any other country except the U.K. And they had more assets in Spain than banks from any other country, period.

Before the euro, when Germans saved, their current account balance rose, and with it, the value of the deutsche mark. After 2002 you could save in euros in Dortmund, and without currency risk your bank would invest in euros abroad—a commercial development in the Dublin Docklands, a vacation property on the Mediterranean. Daniel Gros, the Chicago-trained director of the Centre for European Policy Studies in Brussels, explains that Germans aren’t ready to “think in general equilibrium terms.”

There’s no recognition in Germany, then, that the euro is a closed system in which money moves from country to country, sometimes causing problems when it arrives. Germans believe, simply, that some countries are profligate.

“He who fails to offer Greece support … fails the world”

That same May week in 2010, Helmut Kohl published an essay in Die Welt, another daily. “He who fails to offer Greece support and help,” wrote Kohl, a former chancellor and Merkel’s political mentor, “fails the world and the generations to come, because he endangers the house of Europe, down to its foundations.” In his own time, Kohl had willed the euro into being, shepherding the treaty that created it. In 2010 he urged action out of pity and self-preservation, the emotions that have driven German negotiations during the crisis. Then, as now, Germany could have used more of a feeling it’s worked very hard to escape: shame.

Greeley-brendan-190
Greeley is a staff writer for Bloomberg Businessweek in New York.

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