Chancellor Angela Merkel says her country is a lot of things, including “the economic engine and … the anchor of stability in Europe.” But what Germany is not, she said, is Superman, sweeping in with euro zone deposit guarantees and debt underwriting to single-handedly save its struggling neighbors.
“We … know Germany’s strength is not infinite,” Merkel said Thursday before parliament.
As the European debt crisis deepens, world leaders have increasingly looked to Merkel for help. Spain’s borrowing costs were spiking Thursday, with its 10-year bond yield reaching a high above 7% -- the same level at which Greece, Ireland and Portugal began asking for their bailouts.
Spain, which this weekend asked for a rescue package worth up to 100 billion euros, also had its credit rating downgraded by Moody’s to Baa3 – one notch above junk. Last week, Fitch also slashed its rating for the country.
But “miracle solutions,” such as the euro zone-wide banking union backed by officials from Spain, Italy and France, are “counterproductive,” Merkel said. Germany, as the continent’s largest and strongest economy, would end up shouldering much of the burden if debts were to be shared across several countries.
Instead, the chancellor called for deeper political integration across the continent.
“I know that it’s arduous, that it’s painful, that it’s drawn-out,” she said. “It’s a Herculean task but it is unavoidable.”
Whether it comes to pass is another matter. Merkel is headed for a faceoff next week during the G20 summit in Los Cabos, Mexico, a day after an election in Greece may determine whether the country stays with the euro currency or defects to the drachma.
Other topics at the confab “will all be overshadowed” by the malaise in Europe, Merkel said.
“It will dominate the discussions,” she said. “And therefore there is no doubt that we, that Germany, will be the center of attention.”
Is this how the “German empire” – predicted recently by financier George Soros – begins?