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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As a result, Germany’s banks are today the most highly leveraged of any of the major advanced economies, a massive two and a half times more leveraged than their US banking peers, according to the International Monetary Fund.Skip to next paragraph
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Indeed, worried about the impact of stress tests on their credibility, German bank regulators have been hostile to the same disclosure and capital accounting requirements agreed on by every other euro zone country, and one Landesbank – the state-owned regional banks in Germany – went so far as to pull out of the tests the day before the results were released.
But why should this concern Germany, which is competitive, fiscally sound, and economically robust? Because all across Europe the poor condition of the banking sector is becoming a risk to recovery and stability. German banks, like other European banks, rely on raising short term funds, and in the next three years these already weakly capitalized and poorly profitable banks have to raise 400 billion euros from the markets, an amount that is nearly one-third of the entire euro zone’s €1.4 trillion in wholesale debt.
A few days ago, it was the turn of France – like Germany, rated AAA by credit rating agencies – to face market pressure because of its high levels of exposure to the euro periphery. Each country’s problems are unique, but, as the epicenter of the crisis moves closer to Europe’s core, Germany too may find its once unchallengeable image as a financial bastion called into question.
In the short term, Germany would be right to push for Europe-wide bank recapitalization, from which it would itself benefit. But it is also time for Germany to acknowledge that it must be integral to solving the problem because it is has been integral to the problem itself.
Of course, no one should expect Germany to transfer a large percentage of its wealth to the European Union’s poorer countries on the same scale as other federal states – the United States, Australia, and others – but it must be persuaded that the crisis cannot be solved without a common Euro-bond facility, legislation for greater fiscal and monetary coordination, and a role for the European Central Bank that takes it one step beyond being the guardian of low inflation by adding a second role as lender of last resort.
In the end, Germany will have to agree to a common mechanism for Europe to pay its way out of crises. Germany’s recent failure to act from a position of strength endangers not only the country itself, but the entire euro project that Germany has spent decades developing.