November 29, 2011

THE FUTURE OF the world is not supposed to hinge on Germany’s decisions. In fact, preventing that was a consistent theme of great-power politics in the 20th century. Yet, here we are, a decade into the 21st century, and all eyes are on Berlin as the world searches for signs that the Germans will use their economic might to rescue Europe’s currency and, with it, the world economy.

The irony is that this is not the role Germany would have chosen for itself. If the Federal Republic’s postwar politicians had their druthers, they would probably remain subsumed in the bland collective identity of the European Union. But that is not an option anymore; even the foreign minister of Poland — Poland! — has publicly declared that he “fear[s] German power less than I am beginning to fear its inactivity.”

Exactly how, though, should German Chancellor Angela Merkel wield that power? Her country’s taxpayers are understandably resistant to bailing out mismanaged Southern European governments. The German constitutional court may not let Berlin participate in some proposed solutions, such as jointly guaranteed “euro bonds.” And, as Ms. Merkel and her officials have argued endlessly, there is no point bailing out insolvent countries merely to enable continued overspending. No doubt they are right that permitting the European Central Bank (ECB) to buy unlimited quantities of distressed sovereign bonds is a gamble that would put Germany’s wealth disproportionately at risk.

YetGermany’s exporters profited from the very Southern European spending spree that German politicians now condemn. And there is a tension between the country’s rhetoric about saving the euro and Europe and its hesitation to pay for those lofty goals.

The world’s patience has worn thin as one limited rescue plan after another has failed, bringing Europe to the brink of financial collapse. Analysts at UBS Investment Research have written of a worst-case-scenario recession that could shrink the continent’s weaker economies by half, and Germany’s by 20 percent or more. Bank lending is evaporating, and interest rates on government debt are spiking to unsustainable levels. For the United States, the threats include bank losses and diminished exports.

Ms. Merkel wants to change the 27-nation European Union treaty to impose the collective fiscal discipline that was absent at the euro’s creation. But there is no time for that now; the most that can be hoped for, perhaps, are guarantees by the 17 countries that use the euro to ensure that bailed-out countries will control their debts. Such a commitment would give Ms. Merkel the political cover she needs to countenance ECB action. One hopes the chancellor’s resistance to radical measures so far has been tactical — a politically necessary effort to show her people that she drove a hard bargain in return for their money.

Even if Europe manages to stave off short-term disaster, its troubles may be only beginning. There is no lasting solution to Europe’s multiple sovereign debt crises unless and until countries rekindle economic growth, but austerity works also in the opposite direction. The crisis has illuminated once again the “democratic deficit” at the heart of the European project; if the euro is to be saved, it will require sacrifices, in both prosperity and sovereignty, that the continent’s peoples probably would reject if they could. Adding to that is the reciprocal resentment building between Germans and the recipients of their grudging largess.

Of course, all of those long-term issues will be even more difficult for Europe to address if the continent cannot prevent short-term collapse. The choice is between a truly desperate future and a merely bleak one. It’s up to Germany.

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