Merkel faces dissent over European bailouts
MARSEILLE, France - There is little doubt Germany calls the shots in Europe, but these days the question is whether they are the right ones.
Financial markets are expected to hit another rough patch this week as the eurozone’s debt crisis gets messier, and Germany, the euro’s self-styled guardian, is playing a large role in magnifying the uncertainty.
Despite repeated pledges by Chancellor Angela Merkel to keep Europe together, the cacophony of dissent within Germany is becoming almost deafening. That is creating fresh doubt - justified or not - about the nation’s commitment to the euro.
“The German electorate is not in the mindset to undertake actions it sees as subsidizing less worthy nations,’’ said Carl B. Weinberg, chief economist of High Frequency Economics in Valhalla, N.Y. “As a result, the government is moving in a very isolationist way to try to establish a fortress Germany that’s economically secure, despite the risks in its European Union partners.’’
Since the euro was established, Germany has held an outsize influence over its fate, having pushed for a single currency as an answer to German reunification. Should Germany falter in its will to shore up the euro’s foundation, the union could risk breaking apart.
This weekend, Der Spiegel reported the German government was devising contingency plans to handle a potential Greek default, including allowing Greece to abandon the euro. Berlin would not comment.
On Friday, a German member of the European Central Bank, Juergen Stark, abruptly resigned - news that would have barely merited more than a few lines in the financial pages a few years ago. Today, it is considered a sign of frustration within Germany of the extraordinary measures being pursued to maintain stability in the eurozone.
Stark’s departure could be seen “as another indication of growing disenchantment in Germany towards the euro,’’ wrote Julian Callow, chief European economist at Barclays.
All this has generated severe discomfort in Washington.
Treasury Secretary Timothy F. Geithner has been in regular contact with his European counterparts, repeatedly advising them to speak with a single voice to help reduce confusion in financial markets. After discussions Friday at a meeting of Group of Seven finance ministers, he declared that “European officials fully understand the gravity of the situation there.’’
Fears over Greece are likely to intensify after Merkel’s finance minister, Wolfgang Schaeuble, warned that Germany would not approve new financial aid to help Athens continue to pay its bills unless the Greek government fulfilled conditions of its first bailout.
Prime Minister George A. Papandreou on Saturday vowed to meet tough new austerity targets, despite a recession that could cause the Greek economy to contract more than 5 percent this year.
Merkel urged Germans to be patient with Greece.
“What hasn’t been done in years cannot be done overnight,’’ she said. “Remember the reunification process,’’ she added, a reference to the amount of time it took for East and West Germany to reunite. Still, Merkel must contend with a stark divide between her support for European unity and a German public that sees no reason to pour good money after bad to aid indebted southern Europe countries.
Electoral losses could also make it harder for Merkel to get the votes needed to bolster the emergency bailout fund designed to keep the problems that began in Greece from infecting larger countries like Spain and Italy.