Rising Debt in Europe Puts Germany’s Leadership to the Task

On June 29, the Greek government took a step back from defaulting on its debt by passing a new austerity package. Public anger manifested in marches and protests outside the parliament did not stop politicians from voting in favor of $40 billion in budget cuts and tax increases for the next few years.

Greece’s situation is not an anomaly; 14 of the 27 European Union countries face debt greater than or equal to 60% of their GDP, the ceiling set by the European Commission. This group includes some of Europe’s biggest economies, such as France, Great Britain, and Germany. Germany, as Europe’s most powerful economy, is instrumental in securing the common currency for most of the European continent — the euro. However, with its current debt levels at 83% of its GDP, Germany should relinquish these efforts. In order to keep the EU from falling apart, Germany must give up its role as “defender of the euro” and push for decentralization of Europe’s monetary police.

Germany’s efforts to stop the euro-zone debt crisis from spreading have put German Chancellor Angela Merkel under enormous pressure, as she is left with little margin for error. Additionally, Merkel is already skating on thin ice: Her recent approval ratings do not suggest high chances for reelection in 2013.

The German public is not willing to accept Germany’s role as the defender of the euro, and Germany is not capable of bankrolling Europe as it has in the past. This became clear after the German unification in 1990, when the former states of West Germany transferred billions of dollars into the poor states of the former communist East.

West Germany has spent more than $2.8 trillion in an effort to turn a communist economy into to a social market economy. 21 years later, this transition remains incomplete. Despite those domestic struggles, Germany has continually provided loans and guidance to other European countries for their economic problems. For Greece, German Finance Minister Wolfgang Schäuble issued an urgent appeal in April 2010 to back a loan to the country, justifying it as essential to defend the stability of the euro.

As the crisis intensifies, European leaders and policymakers have raised fears that Greece will effectively default on its debt burden. If this happens, it will put renewed pressure on other heavily indebted countries, such as Portugal and Ireland, who have previously been bailed out. In a worst-case scenario, countries like Spain and Italy might even get dragged into the mix.

If each country, instead, determined its own monetary policy, Europe as a whole might become more economically stabilized and competitive. The European Central Bank would function as a supervising organ without possessing actual power to interfere with each country’s individual policy.

It is unlikely that Europe will ever admit to the euro’s failure, but Germany does not have the resources to keep Europe liquid. It therefore cannot continue its role as the defender of the euro. Decentralizing Europe’s monetary policy may be the only solution to save the idea of a united Europe in which each country has a unique and distinctive economy. 

Photo CreditWikimedia Commons

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HJ Mai

I'm very interested in domestic and international politics, especially US foreign politics. I'm currently a senior at the University of Oregon majoring in journalism and minoring in political science. I write for various publications as a free lancer. Oh, and before I forget it, I'm from Munich, Germany!

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