Gordon Brown: Germany must drop blame game and save the euro
Germany has blamed others for the global financial crisis, but German loans funded much of the reckless spending. It must now agree to a common mechanism for Europe to pay its way out of crises. Refusing this responsibility endangers Germany and the entire euro project.
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Over the last 10 years, while Spain, Ireland, Portugal, and others partied on low interest rates, the German people cut their wages, endured punishing structural reforms, and accepted the pain of 5 million unemployed in a drive to modernize their own industries. Their sacrifices have brought them a large trade surplus and an 80 percent rise in German exports to China.
No other country could have simultaneously borne the costs of bringing 16 million people from Eastern Europe into a unified state, or joined the euro at such an uncompetitive rate and yet still rebuilt their country’s exporting strength.
Germany now has Europe’s strongest economy, and Chancellor Angela Merkel and the German people deserve praise for the German export achievement. But if that were the only story to tell, then the cure for the current crisis would be simple: Follow the German example of austerity, and, if that fails, even more austerity.
Three years ago, when the financial crisis first hit, the German government, like the rest of Europe, quickly defined the problem as an Anglo-Saxon one, and blamed America and Britain. A year later, as the financial crisis widened into a general economic crisis, the Germans retreated into even safer, more familiar territory, redefining the world crisis not as financial but as fiscal – one of deficits and debt.
As a result, Germany has denied any culpability for what has gone wrong. Indeed as long as it can argue that it is not a source of the problem, it can justify resisting costly measures to resolve it.
Yet according to the Bank for International Settlements, Germany lent almost $1.5 trillion to Greece, Spain, Portugal, Ireland, and Italy. At the start of the crisis German banks had 30 percent of all loans made to these countries’ private and public sectors. Even today this one category of loans is equivalent to 15 percent of the size of the German economy.
Add to that heavy German involvement in the credit binge in American real estate (half of America’s subprime assets were sold on to Europe), and in property speculation across Europe, and it is clear that wherever parties were taking place, German banks were supplying the drinks. The only party the German banks missed out on, one commentator has joked, was Bernie Madoff’s Ponzi scheme.