Germans braced for even more turmoil in the Eurozone after a multibillion-dollar rescue package for Ireland failed Monday to satisfy financial markets alarmed at the cost of having to bail out heavily indebted partners that share the common currency.
With indications that not just tiny Portugal but the large economies of Spain and even Italy may also need rescue deals, some German commentators debated whether the time had come to rethink membership in Europe’s single currency.
“What would really happen if the euro collapsed?” Jens Witte of Der Spiegel news magazine wrote. “Would it truly herald a return to the good old days … to the much-revered deutsche mark?” Or might it lead instead, he asked, to an era of “chaos and economic depression?”
Germany was a reluctant participant in the bailout of Greece’s economy in May, when taxpayers here vented their frustration in regional elections at having to throw their weight behind a country perceived to have lived beyond its means for years.
When Ireland’s crisis loomed, Germans again balked at the prospect of having to help a country whose per-capita annual income is more than $5,000 higher than Germany’s $40,000.
But pay it will, agreeing to chip in more than $8 billion of the $113-billion package negotiated over the weekend, according to Finance Minister Wolfgang Schaeuble. And as long as Germany is Europe’s largest economy, it will remain its economic motor and by default the Eurozone’s paymaster, meaning it will have to keep paying up.
Germans were growing increasingly confused and concerned.
“Our economy is currently booming, so the experts tell us, but there’s no room for celebration,” said Christine Fromm, a dressmaker from Potsdam near Berlin. “Unemployment is lower than it’s been for two decades, exports are up, growth is healthy, but our wages have been more or less frozen for years with the promise of increases always ‘round the corner.
“Politicians praise workers for helping to keep Germany competitive,” she added. “Yet if we keep bailing out the rest of Europe, we’ll end up going down with the sinking ship.”
Interest rates have gone up on German government bonds, once seen as a safe harbor for investors, as well as German credit default swaps, the instruments bondholders use to insure themselves against default. They were seen as signs that Germany is paying the price for the actions of Europe’s less fiscally disciplined countries.
And the weekend bailout brought no immediate relief. The euro fell in market trading Monday, while yields on government debt in Portugal, Spain and Italy soared. Germany’s DAX stock index dropped by 2 percentage points before recovering later in the day.
A Frankfurt trader who requested anonymity said, “The fear of further state bankruptcies is outweighing any relief over the rescue package for Ireland.”
German Chancellor Angela Merkel, meanwhile, has faced fierce accusations from her European Union colleagues that she has “spooked” the bond markets and caused even more instability and higher borrowing costs for debt-ridden nations with her repeated insistence that the markets and banks responsible for the debts should shoulder the burden of paying the cost of defaults. The German citizenry is with her on that, with many asking why they should have to work so hard to essentially pay for the mistakes of others.
But her arguments for wanting to keep the euro at all costs — that at stake is nothing more nor less than the peace and stability of a continent that 65 years ago was at war — are starting to wear thin in some quarters.
“The question ‘what now?’ has become the fundamental question at the heart of Europe,” the conservative daily Die Welt wrote in a commentary Monday in which it passionately argued that the government would soon have little choice but to rethink the future of the single currency and its loyalty to the euro.
“The solvency of our own state is finite,” said Jorg Eigendorf, the commentary’s author, predicting that after Portugal and Spain, it would be Italy’s precarious situation that would come to light, followed by that of France. “It’ll be the taxpayer that will directly carry the burden of the rescue as it is already doing … politically the situation will not be sustainable for very long.”
Merkel might have faced much criticism in Dublin over the perception that her comments helped make the debt problem worse, but Germany itself has been held in a strangely sympathetic light by many Irish. That might explain why anger toward Ireland among the German public has not been as great as it was toward Greece earlier this year.
Colm Toibin, one of Ireland’s most revered contemporary writers, swallowed his pride in a chastened guest commentary this week pointing out that Germany had much to teach the rest of Europe.
“Germany has continued to develop its economy … with great feeling and level-headedness, including having lower wages and higher taxes than Ireland,” he wrote in Die Welt, “while during this same period Ireland has slowly lost its competitiveness. We could learn a lot from Germany.”
Germans are certainly hoping that others do before their nation becomes the permanent bedside intravenous drip for a sick Europe.
Connolly is a special correspondent.