The next domino seems to be about to fall. Earlier this week the international ratings agency Fitch lowered the credit rating of Portugal, another eurozone member and the home country of Jose Manuel Barroso, the president of the European Commission.
There is also an increase in euroscepticism in German public opinion. While Germany introduced austerity measures and trimmed down its welfare system, countries such as Greece refused to do so, relying on the fact that the EU (read: Germany) would bail them out when they got in trouble in order to save the euro. But the Germans no longer accept being required to be the EU’s paymasters to atone for their Nazi past.
At its spring summit currently being held in Brussels, the European Union is
to present a rescue package for Greece, consisting of a joint EU-IMF solution. However, even if the EU succeeds in finding a solution, the crisis surrounding the euro has revealed that Germany is no longer willing to put EU interests before its own.
This week, the euro fell to its lowest level against the dollar in ten months, and its lowest level ever against the Swiss franc. The crisis over the euro, triggered by the budgetary problems of Greece, one of the sixteen countries which use the common European Union currency, is causing political tensions between the countries of the so-called eurozone.
The leaders of the governments of the 27 EU member states are meeting in Brussels today for the second day of their spring summit. British eurosceptics have always considered the euro project an attempt to foster economic convergence and political union through monetary union a classic example of hubris; now they sonsider themselves lucky that their country did not adopt the euro ten years ago.
Germany is refusing to bail out Greece. Earlier this week, Chancellor Merkel told the Bundestag that Greece should be expelled from the eurozone if its financial problems risk dragging the euro down. France and the European Commission in Brussels reacted furiously: Barroso dismissed Merkel’s words as “absurd;” Paris and Brussels insist that the EU come to the financial rescue of Athens. As most of the money for a rescue operation will have to come from Germany, however, such a decision cannot be taken without Berlin’s approval.
Bullying Berlin does not seem to be a clever move. Merkel’s Bundestag declaration followed shortly after Greek Deputy Prime Minister Theodoros Pangalos accused the Germans of exploiting the Greek debt crisis for their own financial and economic benefit. “By speculating on Greek bonds at the expense of your friend and partner, by allowing [German] credit institutions to participate in this deplorable game, some people are making money,” the Greek Socialist said. “A cheap euro makes the south of Europe suffer, while German exports benefit.”
Last month, Pangalos had angered the Germans by demanding that Berlin pay reparations for Nazi crimes. “The Nazis took away the Greek gold that was in the Bank of Greece and they never gave it back,” he said. The German Foreign Ministry responded that in 1960 Germany paid Athens 115m German marks in compensation for the Nazi occupation and that “parallel to this, since 1960 Germany has paid around 33bn marks in aid to Greece both bilaterally and in the context of the EU.”
In Europe, the political rules of the game are changing. An editorial in Wednesday’s Frankfurter Allgemeine Zeitung (FAZ), Germany’s most influential newspaper, drew attention to the fact that “The biggest member state, which has for so long silently been the guarantee of the EU, has now openly expressed that it is no longer prepared to pay any price for European unification. The present Euro crisis is more than a monetary matter. The image of [Germany as] the paymaster of Europe, the caricature of the Brussels bureaucracy, and the growing displeasure with the loss of [German] Sovereignty has shaped a eurosceptic fundamental sentiment, into which the Greek debacle has landed like a bomb. No German government today can afford to put the European interest before the German interest, especially not in core issues as monetary policy. And even if it tried, it can reckon on being opposed in the German Constitutional Court.”
As Germany does not want to bail out Greece, it has suggested bringing in the IMF. The Netherlands agree. On Wednesday, the Dutch Parliament said that aid for Greece should come exclusively from the IMF. This, however, is unacceptable to France. President Nicolas Sarkozy of France said that there must be an exclusively EU solution. Most observers expect that the EU spring summit will present a compromise: a mix of IMF support and bilateral loans from EU member states.
But in its monthly report, the Bundesbank pointed out that it is not the IMF’s job to help countries finance excessive budget deficits. “The IMF’s mandate,” the report states, “stipulates that it may only use its foreign-currency reserves to bridge short-term balance of payments deficits.”
The pressure on the EU leaders to reach an agreement is huge. It is the only way to lower the high interest rates which the Greek government must currently pay when it borrows money. This rate is twice as high as what the German government pays. An agreement is also needed to prevent a domino effect, which threatens to affect eurozone members Portugal, Spain and Italy.
The lowered credit rating for Portugal means that the country will pay higher interests when borrowing. Fitch lowered the rating because the Portuguese budget deficit is much higher than expected.
Meanwhile, with the house on fire, the internal squabbling about who will represent the EU on the international forum continues. The EU will be sending three different presidents to the next G20 summit: the government leader of the country presiding the European Council (currently Spain), European Commission President Barroso, and the permanent president of the Council, Herman Van Rompuy.