Without Germany on board, Italy and Spain are likely to keep languishing, with little change in the fundamental contours of the crisis and the constant risk that an economic shock could set off a chain reaction that would be difficult for Europe to control, many analysts say. Germany says the risks are manageable.
“I am confident that Europe can solve its problems,” German Chancellor Angela Merkel told reporters recently. “That doesn’t happen from one day to the next.”
Others are not so sure.
Access to affordable cash is crucial for governments to function, since borrowed money pays for many basic services and quickly reverberates into the private sector. If borrowing costs spike — Spain is at euro-era highs, and Italy is close — the fiscal benefits of tough austerity measures can quickly be wiped out by crushing debt payments. If borrowing costs are low, as are Germany’s and those of its northern European allies, governments can focus on other problems with their economies.
The German approach to fixing the crisis has remained slow-paced even as its neighbors grow more frantic about their economic future. Germany’s constitutional court could take months to review the legality of Europe’s new bailout fund, which guarantees troubled countries’ access to aid. A long list of German economists published a letter this month condemning Merkel for handing too many concessions to her European neighbors. German leaders say they have ample time to implement grand plans for economic integration.
Those German officials also say that Spain and Italy’s borrowing costs are not high by historic standards and that the countries can withstand a temporary rise in interest for quite some time. Some of the cries for help are negotiating tactics, they say, meant simply to scare Germans into acting.
“After writing Germany down as the sick man of Europe about 10 years ago, now Germany is expected to be the leader. We just want to be realistic,” said a senior German diplomat, speaking on the condition of anonymity to candidly discuss sensitive policy. “The bond rates of these countries were similar to what they were before the euro.”
But many analysts say that Germany’s focus on what could work in an ideal scenario ignores what might happen if things go wrong.
“Europe is extremely fragile, and any small trigger could be enough to set things worse,” said Sebastian Dullien, a senior fellow at the European Council on Foreign Relations.
German officials say that if the situation significantly deteriorates, Europe has further resources to commit to calming the crisis. And on Thursday, the German Parliament voted overwhelmingly to approve aid for Spain to bail out its banks, one sign that it is still willing to help its neighbors.