Berlin should be careful what it wishes for

By Mark Mazower – May 11, 2016

Financial Times

Greece’s parliament this week approved reforms to the country’s creaking pensions and tax system by a larger margin than had been anticipated. But significant differences remain, notably on how large a primary budget surplus should be targeted over the next few years, and above all on the question of debt relief. The disagreement between the International Monetary Fund and European governments on the latter point has come into the open. On this, the IMF is right and those Europeans who oppose relief are wrong: there can be no solution to the Greek crisis without it.

Germany, driven by Wolfgang Schäuble, its finance minister, remains doggedly opposed, but even within the German government, open opposition to Mr Schäuble’s hard line has come recently from Sigmar Gabriel, economics minister. Chancellor Angela Merkel may be tempted to ignore Mr Gabriel, whose Social Democratic party is polling poorly and whose own future as its leader is in question. German public opinion sees relief as a favour the Greeks have done little or nothing to deserve, and asks whether it will stop with Greece. The issue is not a winning one for a chancellor already under siege. Nevertheless, she would be wise to recognise the stakes for Europe as a whole.

Berlin’s tenacious enforcement of austerity across the eurozone mistakes a symptom — the continued difficulties of countries like Greece — for a disease whose main cause is now Germany’s own current account surplus. The Germans have been able to persist in this illusion because without the low interest rates that Germany’s affluent voters now complain about it is doubtful whether the eurozone would have weathered the last six years at all. Mr Schäuble might believe that the eurozone is safe come what may, even if his hard line leads to Grexit, but saving the euro will count for little if the cost is massive damage to the EU itself.

Is this putting it too strongly? Perhaps it was two or three years ago but things have moved on since then. The refugee crisis has mushroomed and openly authoritarian Eurosceptic parties have profited and threaten some of the EU’s core values and principles.

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