Germans can't keep paying for Europe

stefan-auer-thumb Dr Stefan Auer


First published in The Australian on 30 January, 2012.

The chorus is getting louder: Germans should pay more! Why? Because they can. Well, the bad news is they can’t.

Italy’s Prime Minister, Mario Monti, is insinuating it; the great American financier and philanthropist George Soros is saying it; the former French finance minister currently leading the International Monetary Fund, Christine Lagarde, is urging it.

Yet, however respected (Monti), rich (Soros) or influential (Lagarde) they might be, they are wrong.

To be sure, the German economy seems to be doing well right now, benefiting from the low euro exchange rate and extremely low borrowing costs. But for how much longer? Germany’s economic model, too, has its limitations and any further expansion of its liabilities towards the rest of Europe may prove fatal.

Just because the German state is better capable than any other country in Europe to extract revenue from its taxpayers, it doesn’t mean that it can do so indefinitely and without consequences for its own political legitimacy and economic viability.

Imposing more on German people might backfire.

Bringing down Germany won’t solve the European crisis; it will simply bring down Europe.

What tends to be forgotten, owing to the endless bad news from Europe, is the fact that even Germany’s debt, which is about 80 per cent of its GDP, is unsustainable, particularly when one considers hidden liabilities and the dire demographic situation.

As Oliver Hartwich from the Centre for Independent Studies argues, the hidden liabilities of the German state are at least four times the official debt. The demographic development is such that Germans simply don’t produce enough children to service these obligations in the future.

The fate of European nations is interconnected - always one of the key aims of European integration - but there are limits to what can be reasonably expected in terms of the transfer of wealth acruss Europe’s national boundaries without risking severe electoral backlash.

Not that it cannot be done. The history of European integration is full of great bargains that have amounted to a massive transfer of resources from one member state to the other.

One of the founding deals of the EU was the creation of the common agricultural policy, which was the way in which Germany enlisted French support for the common market.

This policy later disadvantaged Britain, too, before prime minister Margaret Thatcher succeeded in negotiating a rebate in the 1980s. What Thatcher didn’t succeed in doing was to prevent the creation of the common currency, which has linked European nation states more than their peoples wished.

One of the most bizarre claims in the looming French presidential elections is the promise made by the French socialist candidate, Francois Hollande, that he will introduce eurobonds - a simple instrument that would Europeanise the debt, making borrowing cheaper for all struggling nations in the eurozone (and more expensive for Germany).

He can do no such thing, of course. Only Europeans can issue eurobonds, and since there are very few European nations left with enough fiscal credibility to underwrite such an instrument the simple truth of the matter is that only Germans can do so.

They are emphatically against it. Hollande is unperturbed. His vision for a thriving, reinvigorated France in a thriving and socially just Europe contains - among other statist solutions to an overblown state - lowering the French retirement age to 60.

Who shall pay for it, you might ask? Why, the Germans.

Stefan Auer is Jean Monnet chair in EU interdisciplinary studies and senior lecturer in history and politics at La Trobe University.