AS FINANCIAL financial markets slide towards disaster,
scarcely pausing to celebrate the "success" of the Greek election or
the deal to recapitalise Spanish banks, the euro project is finally revealing
its fatal flaw.
One country poses an existential threat to Europe – and it
is not Greece, Italy or Spain.
Every serious proposal to resolve the euro crisis since 2009
– haircuts for bank bondholders, more realistic fiscal consolidation targets,
jointly guaranteed eurobonds, a pan-European bailout fund, quantitative easing
by the European Central Bank (ECB) – has been vetoed by Germany, and this
pattern looks likely to be repeated next week.
Nobody should be surprised that Germany has become the
greatest threat to Europe.
After all, this has happened twice before since 1914. To
state this unmentionable fact is not to impugn Germans with original sin, but
merely to note Germany's unusual geopolitical situation. Germany is too big and
powerful to coexist comfortably with its European neighbours in any political
structure ruled purely by national interests.
Yet it isn't big and powerful enough to dominate its
neighbours decisively, as the US dominates North America or China will dominate
the Far East.
Wise German politicians recognised this inherent instability
after 1945 and abandoned the realpolitik of national interest in favour of the
idealism of European unification.
Instead of trying to create a "German Europe" the
new national goal was to build a "European Germany". Unfortunately,
this lesson seems to have been forgotten by Angela Merkel.
Whatever the intellectual arguments for or against
German-imposed austerity or the German-designed fiscal compact, there can be no
dispute about their political import.
Merkel's stated goal is now to create a "German
Europe", with every nation living, working and running its government
according to German rules.
Merkel doubtless believes that she is helping Europe when
she maternally instructs the Greeks, Italians and Spaniards to "do their
homework" and so become good little Germans.
But like its less benign predecessors, this effort to impose
German hegemony is guaranteed to fail. Europe's leaders must therefore sart
considering a previously unmentionable question, perhaps as soon as the current
summit, if the euro crisis intensifies.
This question is not whether Europe will agree to live under
German leadership, but whether Germany will agree to live under EU leadership –
or whether the other nations must form a united front against Germany to
prevent the destruction of Europe, as they have repeatedly in the past.
To be specific, the euro's only chance of survival now
depends on a decisive move towards political and fiscal union.
Angela Merkel plays lip service to such political union,
even claiming that democratic accountability is her main condition for
financial rescues; but what she means is accountability to German voters,
German newspapers and German constitutional judges.
She promises to "do whatever it takes to save the
euro" but vetoes anything that might actually work, claiming deference to
German public opinion or national interests.
Europe must now call this bluff. At the summit, France,
Italy and Spain can turn the tables on Merkel by presenting her with an
Led by President Hollande, who has abandoned president
Sarkozy's Gaullist pretensions of parity with Germany, the big three
Mediterranean countries could agree on a programme that really might save the
euro: a banking union, followed by jointly issued eurobonds and backed by ECB
If Merkel tried to block these policies, the others could
politely invite her to leave the euro, since Germany's political pressures
evidently made membership impossible on terms its partners could accept –
essentially the proposition Merkel put last month to Greece.
Without Germany, the eurozone would have much smaller internal
imbalances and much more political coherence, with a much weaker currency and
higher inflation, both of which would make debts easier to resolve.
Merkel would probably insist on Germany's legal right to
remain within the euro, ironically echoing the Greek position. At this point
the other nations could play their trump card: to reduce interest rates and
make their economies more competitive by weakening the euro, the debtor nations
could vote for unlimited bond purchases by the ECB.
The Germans on the ECB council would doubtless oppose this,
but even with support from Finland, Slovakia, and perhaps Austria and Holland,
Germany could command no more than seven votes out of 23.
Germany would then face the very same existential choice
about its relations with Europe that Merkel has inflicted on Greece and other
Germans will almost certainly support the political
concessions that might give the euro a chance of survival, including fiscal
transfers and some mutualisation of debts, once they realise that their only
alternative is isolation from the rest of Europe.
But before they agree to a European Germany, voters may need
to be reminded that trying to create a German Europe always leads to disaster.