In Defense of Germany

Gideon Rachman's op-ed piece in today's Financial Times offers support for Germany's approach to the euro crisis.  He cites the newest Economist, in which it is argued that an international consensus on what Angela Merkel should do--shift from austerity, develop a banking union with euro-wide deposit insurance, and a type of debt mutualization (like euro bonds).  President Obama is among the world leaders pushing Germany to do something.

But Rachman argues otherwise. He thinks the demands are politically dangerous as well as unrealistic. Take a Europe-wide bank deposit system like the FDIC in the U.S. Rachman quotes a senior Dutch politician, "'We cannot push through a banking union when the French have just cut thier retirement age to 60 and we have raised ours to 67.'"

I have argued numerous times that the euro was a political decision, designed to force more political integration in the EU. But, as Rachman notes, the necessary integration cannot happen that quickly.  Among things needed would be to have a European government that could override the current national governments. They would need to harmonize the various European social security systems.

Rachman also claims that Merkel has had a political success that is little noted as yet.  She has been able to keep the far-right and far-left parites on the sidelines.  Meanwhile, in the last French election one-third of the voters supported either a far left or a far right party. Currently, the extremist parties are leading in the polls in the Netherlands.  The political center is holding in Germany and this is no small accomplishment.