The trouble with Merkel
The New York Times said the following in an editorial:
After their meeting Tuesday, the leaders of the Group of 20 top economies managed to say some of the right things. Focusing on the eurozone debt crisis — clearly, the largest threat to the global economy — they pledged to do more to spur growth, ensure financial stability and support a stronger European fiscal union.
The question now is whether these words will ever translate into effective action. If the past two years of the euro crisis is any guide, the likely answer is no. As recession and banking crises have enveloped Greece, Ireland, Portugal, Spain and Italy, the crisis response, led by Germany, has been dominated by a relentless insistence on self-defeating austerity and piecemeal rescue plans.
The result has been deeper recession, social unrest and political upheaval in Europe’s weaker economies and increasing mistrust between the strong and weak nations of Europe — precisely the wrong conditions for integrating the banks, budgets and politics of Europe in a way that is needed for the long-term survival of the euro.
Will this time be different?
There are mounting reasons for Germany to alter its stance. For one, the stakes are higher. No sooner did the elections in Greece on Sunday ease fears of a disorderly Greek exit from the euro then borrowing costs spiked in Spain and Italy. Both countries must sell government bonds to refinance heavy debt loads, but investors, spooked by recession and financial instability, are instead pulling money out of the countries. That presages far bigger challenges than Europe has faced thus far and underscores the failure of policies to stem the crisis.
Against that backdrop, the world leaders had a chance to press Angela Merkel, Germany’s chancellor, to provide stronger and more flexible bailout support — for example, by allowing Greece more time to meet the backbreaking terms of its bailout package or injecting capital from the euro zone directly into Spain’s banks or seeking more aggressive ways to lower interest rates for vulnerable borrowers, including issuance of a common euro bond or direct bond purchases by the European Central Bank.
Merkel has long rejected such steps. But next week, when the leaders of the European Union meet for a planned summit, the discussions from the G-20 could provide a foundation and political cover for her to begin to take bolder action.
Then again, she could hold firm to her current stance. She has repeatedly insisted on austerity for hard-pressed countries, even when it has been a demonstrable failure. And while she has correctly asserted that more aid on better terms should be accompanied by greater European unity, the lack of unity appears to be an excuse to delay steps to ensure that adequate aid is available on workable terms. Under current policies, the eurozone and the global economy have been put at high risk.
By next week, we will find out whether world leaders at the G-20 got through to Merkel.