Once upon a time Germany tried to unite Europe by conquering it. Now Germany is trying to unite Europe by paying for it. The lower house of the German Bundestag has just signed off on a 110 billion euro aid package for Greece, 30 billion of which is supposed to come from the International Monetary Fund. The hope is that the aid will rescue Germany’s poor relations down south, who have been borrowing from their wealthy northern patrons in order to consume their goods. Sound familiar? In some ways, it resembles the United States and China, which has been buying up T-bills while Americans gobble up cheap Chinese wares.
But Europe is in a much bigger mess than America. Just as the 1989 revolutions swept through Eastern Europe, so, a little over two decades later, Western Europe is experiencing a systemic shock. For all the doom and gloom about Europe’s future, however, this crisis could actually have a silver lining. Instead of dividing Europe, it may force it together even more closely.
The more money that Europe pumps into Greece, the more it will have invested in avoiding a total collapse. The next few weeks will demonstrate whether Spain, Portugal, and Ireland can hold out. Great Britain may not be immune either. The pound is sinking in value against the dollar. At the moment, Europe has every incentive to let the euro sink to try and increase the competitiveness of its exports. American exports will decline, but it the rising dollar means that Washington will be able to finance its staggering deficits more easily—another incentive for Congress to push off the spending cuts that are essential to safeguard future prosperity?
If Greece were to leave the Euro and reintroduce the drachma, it would probably be worth about as much as a Polish zloty in communist times. But radical devaluation of the Greek currency would be bad for Germany as well. Germany has been battening off its neighbors by exporting goods to them, something that had French Finance Minister Christine Lagarde up in arms a few weeks ago, accusing the Teutons of following a beggar thy neighbor policy and urging it to increase domestic consumption.
For now, the Germans are trying to hold the rickety European contraption together. German Finance Minister Wolfgang Schaeuble told parliament that “the entire Euro-zone—as we’ve seen in recent days—is at risk.” The German public hates the bailout. But it doesn’t matter. The push to European unity has always been an elite project that viewed the views of the populace with disdain and contempt.
Don’t look for the Germans to pursue inflationary policies that might help pull Europe out of its slump. They remember Weimar acutely. But Berlin’s tight-fisted policies already have its neighbors grumbling. Only a year ago Europe was partying on and cocking a collective snoot at America for being in the dumps economically. Now that America has (slightly) recovered, Europe is gazing enviously across the Atlantic.
Still, it was America that originally triggered the Great Recession. Now it’s Europe’s turn for payback. It could waylay America’s halting recovery.
But one thing is clear: Washington is no longer in the driver’s seat when it comes to determining economic growth. Right now, it’s Europe that has to make the big decisions. It is German chancellor’s Angela Merkel’s economic Dunkirk. Either she unites the continent further or it retreats back into its squabbling past. As the Rolling Stones once put it,
Angie, Angie, when will those clouds all disappear?
Angie, Angie, where will it lead us from here?
Jacob Heilbrunn is a senior editor at The National Interest.