In a speech to lawmakers, German Chancellor Angela Merkel reiterated her stance on the debt crisis. Has she run out of ideas, DW's Bernd Riegert wonders, or does she sense Germany may have to dig deeper in its pockets?
This is probably the beginning of two of the most important weeks in Angel Merkel's chancellorship. At crucial summit meetings in Mexico, Rome and Brussels, world leaders will be discussing how to save the eurozone, as well as solutions to the debt crisis and its global repercussions.
In a speech to lawmakers Thursday in Berlin, Merkel was careful to warn of putting too much of a burden on Germany; she knows expectations are enormous, not just in Europe but around the world. "If the euro fails, Europe fails," the chancellor has said time and again. If Greece sinks into chaos after Sunday's election, if Spain needs a full-scale bailout over the next few days and if Italy continues to lurch, the common currency could fail much faster than anyone could imagine.
Germany expected to take on risks
Then, at the very latest, the government will have to give up its stringent attitude. In other words, Angela Merkel would have to open German pursestrings to take on debt accrued by southern eurozone nations, ensuring their continued solvency. This is what the U.S. and emerging markets expect as they gather for the G20 summit in Mexico next week.
Since economic growth in the debt-stricken U.S. is extremely weak, Europe is a welcome scapegoat. The American recipe: print more money and lend it to the needy. Angela Merkel has long fought that attitude. If the euro crisis continues to worsen, she won't be able to cling to her position any longer - particularly as she already stands nearly isolated in Europe.
Too late for long-term plans
International investors on the markets expect Germany to approve loosening of monetary policies by the European Central Bank (ECB), and to agree to take on greater risks. That's also evidenced by the fact that a major U.S. investor is selling off safe-haven German government bonds. In addition, the credit default swap for German bonds has increased considerably - an indicator that the country's credit rating may drop due to future high costs triggered by the euro crisis.
The Chancellor is banking on future budget discipline and the creation of a real political union that will one day be in a position to collect and shoulder debt, united. But this really quite good vision is years from coming true, and we need solutions now - better yet, as of yesterday. It's important to discuss joint debt, eurobonds or common debt reduction via amortization funds, but these instruments won't be available short-term, either. At least the chancellor indicated that she is open to joint banking regulation in Europe. That would be a first step toward a bank union in which all European banks can safeguard their deposits.
Central Bank as last hope
The only institution with financial clout that can take action at short notice is the European Central Bank. Presently, it is providing massive support to Spain. Over the coming weeks, it will have to keep Greece afloat by supplying banks there with cheap loans. The ECB accrues risks the shareholders have to answer for in the end, and Germany bears the greatest share. Whichever way you look at it: in the end, someone will have to pay the bill. Taxpayers in Europe and Germany clearly face new burdens.
Perhaps there will have to be a solidarity surcharge for Europe, a special tax to fight the debt crisis. What is alarming is that Europe has yet to put the permanent bailout fund, the European Stability Mechanism into place. Scheduled for implementation in July, it was delayed because of domestic political bickering in Germany; now, the upper house of parliament is expected to approve its ratification at the end of June.
Over the next two weeks, Europe - led by Chancellor Merkel - must find answers that can convince financial markets and investors alike. Otherwise, the euro fails - and with it, Europe as we know it.
Author: Bernd Riegert / db
Editor: Sonya Diehn