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Europe to Germany: your eurocrisis 'answers' don't work for us

As prosperous Germany reshapes Europe's fiscal operating system to fit the German doctrine of austerity, questions and warnings are on the rise.

By Staff writer / March 14, 2012

Greek anti-austerity protesters prepare to burn German and Nazi flags in front of the Athens Parliament. Trade unions there say austerity will only harm the economy further.

Yannis Behrakis/Reuters

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Berlin, London, and Paris

The euro crisis: It sounds like an arcane finance story. But as Germany sets the tone and the rules, the crisis has great meaning for Europe's future. Germany's foreign minister calls it a "defining moment for the image of the European Union." Critics say Germany is a bully, twisting Europe's arm with an austerity regime that will bring subservience. Is it a new era of the strong versus the weak? Below is the case made against a "German doctrine." To read a case made for it, read here.

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A Nordic official sent to a top euro crisis meeting last fall came out complaining: When questions started percolating, German Chancellor Angela Merkel and French President Nicolas Sarkozy disappeared into a room and emerged later with "answers," the official said, that were the final word.

As Germany takes the lead and refigures Europe's fiscal operating system into its doctrine of austerity, questions and warnings are on the rise.

A new EU “fiscal compact” limiting debt does show the German idea is starting to take hold politically. Yet support for it in Europe is thin and often agreed to in lockstep, without an alternative. Germany is often depicted in this scenario as Henry Higgins in My Fair Lady, oblivious to his impact, and asking why women can’t be more like men.

The immediate question is whether the EU can grow under a model of "living within means," as budgets are cut for the foreseeable future.

Core criticisms of German tenets include:

  • Germany's export success is a German thing; Europe cannot quickly become another Germany.
  • The doctrine of austerity is a long-term reform that ignores short-term pain and possible chaos.
  • Despite a new nod to growth, there's no realistic growth plan for drastically shrinking economies.
  • The German doctrine will inherently force changes in the eurozone, perhaps even pushing Greece out, or creating a two-track system.

"The German answer so far is to revise previous rules to make stricter rules," says Philip Whyte of the Center for European Reform in London. "Rules may help in the long term, but there's an immediate crisis in households and nations. Germans are sincere in the belief that Italy and Spain will benefit from reform. But austerity without growth reminds me of policies in the '30s: slashing spending as economies contract."

A common complaint is that Germany seems blithely unaware of the effect of its policies. Ms. Merkel is criticized often for treating her own domestic political problems as cataclysmic hurdles to surmount, but brushes off the problems of other European leaders – even as five governments have fallen. As Stephen King, chief economist of HSBC, recently noted, “the eurozone is in danger of shifting towards a Ptolemaic system with Germany at its center…. It requires economic adjustment by others to protect the interests of German taxpayers and voters… [making] the system as a whole increasingly unstable.”

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