Must-Read: Bill Emmett: Europe’s Confused Attitude to German Leadership

Must-Read: Bill Emmott: Europe’s Confused Attitude to German Leadership: “Why do the other 18 members of the single currency accept Germany’s leadership when it is wrong and yet refuse it when it is right?…

…What I mean by ‘right’ is the view expressed by Wolfgang Schäuble… that Greece should leave the euro, both for its own sake and that of the single currency itself…. The logic of Grexit… comes from the combination of the International Monetary Fund’s analysis of Greece’s sovereign debt burden, which defines it as unsustainable without a big write-off, and the view presented by eurozone countries big and small, rich and poor, which holds that forgiveness of debt by official creditors is incompatible with membership of the single currency….

Having entered the weekend of negotiations of July 11-12 expecting to force Greece out of the euro, neither Chancellor Angela Merkel nor Mr Schäuble can now think that Germany in any sense ‘dominates’ Europe. And yet they have been successful for more than three years now in holding the eurozone to an economic stance that has left the 19 countries’ level of unemployment more than twice as high as that of America. It is hard to find a better definition of ‘wrong’ than the fiscal pact of 2012, which mandates a universally tight fiscal stance… and which simultaneously rejects any idea that countries with large current-account surpluses bear any responsibility for adjustment…. This is… a policy under whose logic America must be seen as having been fiscally reckless in recent years, with its gross public debt exceeding 102 per cent of gross domestic product, and which is shown by its current-account deficit of 2.6 per cent of GDP to be suffering a severe lack of competitiveness that evidently requires urgent structural reform and fiscal austerity…. It is this strange combination, of a right policy that is rejected and a wrong policy that is unchallenged, that is… breeding nationalism all across Europe… a rebellion against the mainstream parties in each country which have colluded with this bizarre situation.

This very combination offers, however, a way forward. Germany can be given its way on Grexit, in exchange for altering its attitude to the fiscal rules that are throttling the European economy. The funny thing is, this is what the IMF has been arguing for several years, at least in its economic analysis. One day, it might even be listened to.

July 21, 2015

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