Angela Merkel and the Eurobonds debate

(C)World Economic Forum

By Andrea Masini

During a recent European Union summit in Brussels, Angela Merkel ruled out the idea of joint Eurobonds by saying that Europe will not share the debt burden “as long as I live”. Using such a strong expression, she aimed at firmly rejecting the proposal put forward by the French president François Hollande of a resolution of the Euro crisis through shared debt liability.

More generally, the German chancellor’s words sounded like a way to keep Germany’s distance from the source of the Euro crisis, namely Southern European countries. The message seems to be exclusively addressed to Merkel’s audience back home. Germans do not need to worry: they will not have to pay the debt of Greece, Portugal, Spain or Italy.

In Northern European countries, positions of this kind are becoming more and more common amid politicians. The Dutch finance minister De Jager has said more than once that Eurobonds are not the right solution for the Euro crisis. Geert Wilders, leader of the right-wing populist “Party for the freedom”, has based the new electoral programme on the idea that the Netherlands has to leave the Eurozone if it does not want to pay off the debts of corrupted and fraudulent Southern European lands.

Now, these stances entail an idea that Southern European countries are somehow sinners. Blame is put on the Southern PIGS for the Euro crisis. Their lazy, corrupted and fraudulent habits are condemned as the intrinsic reason of the economic troubles in Europe. On the other side of the Alps, this hostility is barely accepted. In the countries of the South, anti-German positions are steadily rising amongst the people as an answer to this blame.

In this context, Angela Merkel’s statement that Europe will not share the debt “as long as I live” may be seen as adding fuel to the fire, exacerbating the contrast between the North and the South of Europe. Nevertheless, the German chancellor’s words have to be considered not just in relation to their negative meaning. There is a purposeful view in Mrs Merkel’s statement that has to be taken into account. I argue that Angela Merkel’s use of such a hyperbolic expression reveals how she considers the crisis of the Euro zone as an opportunity to smooth out differences between Northern and Southern European countries in terms of economic competitiveness.

First of all, the analysis of the language used by Merkel reveals that the tone she used was not entirely caustic. “As long as I live” does not mean “forever”. Plus, the German chancellor’s political life is the one that has to be considered. A lapse of time that may be of just one more year, if she loses the elections, or four if her coalition wins. Hence, from a mere examination of the wording, there appear to be an open door in the fortress of German intransigence. Seen in this light, Angela Merkel’s sentence has a “pedagogical” purpose, addressed to Southern European countries. If things remain the way they are – if no economic reforms are taken by leaders in Greece, Portugal, Spain and Italy – Europe will never share debt liability. In other words, in the short term, “as long as Angela Merkel lives”, the differences between European countries in terms of economic competitiveness and legislation are too big to allow for the issuing of Eurobonds. In the long run, if Southern Europe proceeds in the path of economic and social reforms, the North and the South of Europe may be able to share the debt burden.

The road Greece, Portugal, Spain and Italy have to climb to reach the level of competitiveness of Northern Europe is long and arduous. Labour market reforms especially are painful and highly unpopular. That is why a change of mentality by the side of both the leaders and the people is also needed. For example, Italian workers will have to accept to retire as late as their Dutch peers. Moreover, in order to support competitiveness, Southern European governments must increase the level of investment in education and research. A vigorous brake has to be put on corruption. Nevertheless, this path of reforms is the only possible way to achieve economic unity, allowing for the creation of common European bonds.

In conclusion, I argue that Angela Merkel’s statement that Eurobonds will not be issued “as long as I live” has to be appreciated in that it fosters the debate on the Euro crisis. In this sense, the election of François Hollande as the new French president has played a key role. Breaking the Merkozy axis, Hollande has brought crucial new themes to the centre of the stage, in particular that of the shared debt liability. The answer by the German side, however resolute it can be, may indeed serve as a spur for the resolution of long-standing problems, like the differences between Northern and Southern Europe in terms of economic competitiveness. This is a first, necessary step to guarantee a future to the European Union.

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