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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.

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Because the EU is mainly an economic union, a new ordering of rules is significant. It has historic implications for Europe's values, civic health, geopolitics, and security.

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When Mr. Sarkozy and Merkel decide the future, other nations feel left out. “Spain had to go along with the German project ... that wasn’t debated and in which [Spain didn’t] have a voice,” says Jose Ignacio Torreblanca of the European Council of Foreign Relations in Madrid. “That has a psychological effect. Either the markets or Germany dictate and … there is no common political project in which you have a buy-in.”

If Europe were a political union, a United States of Europe, the problem would not exist, New York Times columnist Paul Krugman argues. New York does not revolt against federal funds used to help Arizona. Debt is common and there's a Federal Reserve. But a "USE" is a nonstarter for Germany, and in a battle of weak and strong, Germany has the upper hand.

Spain's new conservative prime minister Mariano Rajoy got little sympathy from Brussels when he said that Spain would be unable to meet its EU deficit goal of 4.4 percent of GDP for 2012. Although he was eventually granted some leeway – the EU adjusted Spain's deficit target to 5.3 percent – the new target is still less than the 5.8 percent he requested.  

In normal times, in good economic weather, austerity would be OK, critics say. But there’s a severe demand problem. Austerity without growth, when Europe has 40 percent youth unemployment in some states, a credit crunch, and heavy debt repayment, may be too much. 

“German policymakers talk about discipline, about the Swabian housewife who [saves] ... and this is very sensible if the government is running a surplus,” Mr. Whyte says. “But even if Greece had delivered on all its reforms, it would still be in a terrible mess. Even if every EU government never violated fiscal rules, we’d still have a banking and debt crisis.”

Asian and South American debtor nations in the 1990s had the advantage of devaluing their currency, and thus could grow out of debt. Greece, Italy, Spain, Portugal, and other members of the single currency eurozone cannot devalue.

Jean Paul Fitoussi, a prominent political economist in Paris, says the treatment of Greece is so severe it raises questions about the underlying values of the eurozone enterprise. Asian states in the late 1990s, under severe International Monetary Fund (IMF) loan rules, were treated better.


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