JUNE 26, 2012
The frustrating, and damaging, thing about Angela Merkel’s leadership in the European economic crisis is that she has consistently preferred incremental steps, even at the risk of exacerbating instability across the continent. Now, in advance of this week’s highly-anticipated EU summit, it seems she’s finally taken a bold leap. The problem is it’s in the completely wrong direction.
First, a quick summary of where things stood until now. Given the rampant speculation against Spanish and Italian debt in recent weeks, most analysts have come to the conclusion that the only way the EU will ever regain equilibrium is if it agrees to issue some form of communally-backed debt in the form of so-called euro bonds. It’s a system that, in effect, would make Germany, as Europe’s strongest economy, liable for the debt accrued by other European countries. The German government, for its part, has never explicitly rejected this proposal; they’ve just demanded that strict conditions—including the establishment of a European finance ministry that could monitor national budgets—be fulfilled first.
Many Europe watchers have hoped that Merkel has been bluffing with her onerous demands, but with the doomsday clock ticking EU leaders had no choice but to relent: This week a group of EU officials released a proposal for this week’s summit that seems explicitly designed to respond to Germany’s demands, charting as it does a path for a speedy fiscal union and banking union to be established, after which euro bonds might be issued.
But it turns out Merkel was bluffing after all—just not in the way everyone thought. According to Der Spiegel [in German], Merkel has already expressed her displeasure with the broad strokes of the EU’s grand bargain. In a closed-door parliamentary meeting with her coalition partners today, she reportedly announced that Europe wouldn’t have euro bonds “as long as I live.” Not when certain conditions have been met, as she had claimed until now. Never.
Of course, one could say this is a rhetorical gesture so out character for Merkel that the only prudent response is to dismiss it. But that’s precisely why I’m inclined not to. Merkel’s hedging until now has been so tactical that it begged the question of what her strategic priorities were. Inadvertently or not, now we know.
Apparently, Merkel’s parliamentary group responded to her line by announcing, “We wish you a long life!” It’s fair to say that the response on the minds of most Europeans is more on the order of “Drop dead.”