The eurocrisis has been festering for well over two years. What initially looked like a small problem, involving relatively small peripheral countries such as Greece, Portugal and Ireland, is now dragging the entire European economy into a recession. During his first three and a half years in the White House, Europe was not high on Barack Obama’s priorities. Belatedly, however, Obama seems to have realized that his own reelection next November might be in jeopardy if the eurocrisis leads to worldwide financial instability and global economic depression. Europe is the world’s largest trading bloc. Thousands of American jobs depend on trade with Europe. Obama’s chances of reelection are bound to diminish as soon as Americans start to lose jobs as a result of a eurocrisis spun out of control.
Nicolas Sarkozy, the former President of France, hoped that he would be reelected by the time that the eurocrisis would begin to affect France. He was wrong. France was hit sooner and deeper than Sarkozy expected, and he lost the elections. Similarly, Obama hopes that the eurocrisis will not begin to affect America before November. Play for time is the only thing he can do. And playing for time means the same for Obama as it meant for Sarkozy: He needs to persuade Germany to buy time by bailing out the bankrupt economies in Southern Europe.
During the past weeks, Obama has spent many hours on the phone with European leaders – and in particular with German Chancellor Angela Merkel — to find a way to contain the eurocrisis. At this week’s G-20 summit in Los Cabos, Mexico, more pressure was exerted on Frau Merkel.
Germany, Europe’s economic powerhouse, is the only country in Europe capable of bailing out insolvent countries such as Greece and providing enough financial backing to prop up Spain’s collapsing banks.
The problem is, however, that even if Britain and the United States join in, the European economies along the Mediterranean such as Greece and Spain keep contracting, making it ever more difficult for them to overcome their debt problems. Consequently, they will keep on needing one bailout after another, without the prospect of improvement in the foreseeable future. In 2010, Greece received a first bailout of €110bn. Germany provided the bulk of the money. Earlier this year, Athens received a second bailout of an even more staggering €130bn. Again, Germany provided the bulk of the money. This summer, Greece will need a third bailout. Meanwhile, last week, the eurozone countries decided to give Spain €100bn to bail out its banks. As usual, Germany will have to pay most of the money. But analysts say that another €200bn might be needed to save the Spanish banking sector.
As long as the Germans believe that it is in their interest to save the euro, the common European currency which ties Germany to countries such as Greece and Spain, they are prepared to keep paying the euro’s rising price tag. But the German people are becoming exasperated and angry.
A growing number of Germans are losing faith in the eurozone. Others feel betrayed. Even ten years ago, when the euro was introduced as the common currency of several European countries, a majority of Germans were reluctant to give up the D-mark for the euro. They were reassured, however, by their politicians’ promise that there would be no bailouts. Bailouts between European countries are, in fact, prohibited by the European treaties. Nevertheless, Europe’s politicians have found legal loopholes to impose them anyhow. Reluctantly, national parliaments have consented to the bailouts out of fear that the bankruptcy of one eurozone country would drag the entire monetary union down.
A poll last week suggested that 69% of the Germans want Greece to leave the euro and return to the drachma, and 29% of the Germans want Germany to leave the euro and return to the D-mark. Either event – a Greek exit or a German exit – is expected to have enormous repercussions and dramatic consequences, not just for Europe but for the entire global economy. The cost would be enormous, but some Germans reckon that ultimately the price tag for Germany might be less than the price of continuing with the present policies of seemingly endless bailouts.
About the Author: Peter Martino is a European affairs columnist for the Gatestone Institute.
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