Germany must decide what the European Union is for

For the past several decades Germany?s aim for Europe has been to create a wider and deeper union. In this way it sought to advance its economic and national-security interests, to bind itself to ever closer co- operation with its neighbors, and to atone for its history. Today, the system that it designed is in danger of coming apart, and newspapers in Italy and Greece carry digitally altered pictures of Angela Merkel in Nazi uniform.

Gideon Rachman writes in the Financial Times: ?Across southern Europe, the ?ugly German? is back — accused of driving other nations into penury, deposing governments and generally barking orders at all and sundry.? The European Union was intended to bury that caricature once and for all. Instead it has brought the ugly German back to life.

Rachman sympathizes with Berlin: The attacks on Germany are deeply unfair, he says. Germans have done plenty for southern Europe and are reluctant — quite rightly — to do more. True, he admits, Germany co-designed the euro monetary system, which turned out to be flawed. But what?s done is done. Right now the Germans are doing all they reasonably can.

The Nazi caricatures and other anti-German slurs are disgusting and unforgivable. But Germany?s leaders are much more deeply implicated in the causes and mismanagement of the European crisis than Rachman allows. I don?t think it?s unfair to say the plight of the European project is largely Germany?s fault.

Wider and Deeper

Germany didn?t just co-design the European monetary system. It was the main exponent of the view that the European Union could be — indeed, had to be — widened and deepened at the same time. Germany stood against the view that a vastly enlarged European Community should shelve its ambitions for political integration. Eastward expansion of the single European market was an economic and security imperative; building a European government was a political and diplomatic imperative. Neither should give way for the other.

?One thing is certain,? Chancellor Helmut Kohl said in 1991 at the completion of the Maastricht accords on political, economic and monetary union: ?When this Europe in 1997 or 1999 has a common currency from Copenhagen to Madrid and from The Hague to Rome, when more than 350 million people live in a common space without border controls, then no bureaucrat in Europe is going to be able to stop the process of political unification.? He continued: ?The member states of the European Community are now bound in such a way that it is impossible for them to split apart and fall back into the concept of the nation-state, with all of its consequences. That means that we have achieved a key goal of German policy toward Europe.?

Maybe, just maybe, the claim that Europeans were bound so closely together that the nation-state was history helped financial markets to believe the EU would not let countries of the euro zone default on their debts. As long as this was believed — whatever the clauses in the debt contracts might say — Greece and others could borrow very cheaply, and they did.

Canada and the U.S. have a free-trade agreement, but there?s no presumption that if one faced insolvency, the other would bail it out. Europe?s political project is what was believed to guarantee Greek bonds, and Germany was the principal guarantor of Europe?s political project.

Today one wonders, what did Germany think ?political union,? which it both argued for and proclaimed, ever meant? Germany pressed harder than anybody for the end of the nation- state in Europe, yet its policy is guided now by the conviction that German taxpayers should on no account be asked to support their fellow European citizens in Greece.

Extreme Punishment

It?s true that Germany has committed upwards of 200 billion euros to the European Financial Stability Facility. This sum is at risk, but it isn?t a transfer (yet). The scale of taxpayer support for Greece and others has been a matter of obfuscation and controversy throughout. The quasi-default recently negotiated for Greece imposes losses on private creditors but not official creditors. Shielding EU taxpayers from the consequences of Greek profligacy may seem a worthy goal, but it is partly self-defeating. When the EU helps a strapped debtor with loans, the pool of senior official debt grows and private creditors see their investments further subordinated.

Before this thing is over, big fiscal transfers in the form of writedowns of troubled countries? debts (including debts owed to governments), bank recapitalization and absorption of losses by the European Central Bank are almost certain to be necessary. Continuing to deny that reality digs Europe into a deeper hole.

Moreover, the current policy imposes such ferocious punishment on European citizens in Greece, Ireland, Portugal and Spain that it becomes self-defeating. Certainly, in Greece, government spending was out of control, taxes were not being collected and the public accounts were a joke. But the adjustment now being demanded of it — and the demands never seem to end — is extreme.

It?s one thing for Europe?s other governments to demand that Greek politicians do a better job, but quite another to say that the people of Greece — citizens of the post-national Europe that Kohl heralded — should bear the entire burden of their leaders? incompetence. Doesn?t ?political union? imply a bit more borderless solidarity than that?

No, says Merkel, even as she calls for political union as the only real remedy. The answer is more Europe, she says, not less. The catch is that restructuring in Greece and the other overindebted economies has to come first. These positions are not just in tension, they are flatly contradictory. Agreed, restructuring is necessary, but its scale and pace have to be feasible in both political and economic terms. What?s being asked of Greece is neither. And when the restructuring is over, sufficient sense of common purpose and shared sacrifice will be needed for ?more Europe? to have any hope of working. At this rate, fat chance.

In the end Germany, co-architect with France of the European project, is just profoundly confused about the whole enterprise. It wants ?political union? but not a ?transfer union.? Well, I?d like a bigger house that takes up less space. This confusion is no longer merely an intellectual curiosity but has become a force capable of tearing the EU apart. If Germany wants European political union, it needs to recognize its obligations toward EU citizens wherever they live. If it doesn?t want that union, it should stop saying it does.