Although Merkel has said that she wants to take unprecedented steps to hand over long-guarded sovereign rights of budget-making and taxation to the European Union, her timeline is nowhere near fast enough to get ahead of a crisis that wiped 3.4 percent off the value of Germany’s DAX stock index on Friday alone.
The head of the European Central Bank, the leaders of France, Italy, Spain and Britain, and even President Obama have all called in recent days for steps that would dwarf everything tried so far. Most of them directed their appeals straight at Germany. The E.U. official in charge of the economy, Olli Rehn, was the latest to warn that the 17-country euro zone was at risk of falling apart.
“The way things are going and under the current structures, the euro area has a significant risk of breaking up,” Rehn said in a speech in Helsinki, Bloomberg News reported.
But Merkel has remained mum on committing to bigger steps. Meanwhile, European Central Bank President Mario Draghi — whose inflation-hawk approach is far more sympathetic to Germany than to its more-profligate neighbors — issued a plea this week for European leaders to take quick action, calling the euro zone’s current setup “unsustainable.”
Merkel said there are “no taboos” in discussing what Europe could do. But many Germany taxpayers feel that some proposals amount to writing a blank check to countries whose fiscal behavior has been less disciplined than Germany’s.
“I don’t think there is any movement to be expected from Berlin very soon,” said Clemens Fuest, an Oxford economist who advises the German finance ministry.
And with a glum U.S. jobs report adding to worries that the U.S. economic recovery is stalling, the cold winds blowing from Europe could now, more than ever, put a chill on Obama’s reelection hopes, which will hinge in large part on economic performance. Obama held a late-night teleconference last week with Merkel, French President Francois Hollande and Italian Prime Minister Mario Monti. He also dispatched a top Treasury official on a whirlwind tour of European capitals to convey American concern about the euro-zone situation.
In Germany, the crisis still feels like thunder in a faraway land. In May, German unemployment hit a two-decade low of 6.7 percent, according to figures released this week, even though overall euro-zone unemployment stayed at an all-time high of 11 percent in April.
Last week, fearful investors for the first time paid Germany to hold on to their money, with the country issuing negative-interest-rate two-year bonds. Meanwhile, Spain’s borrowing costs are hitting the same unsustainable levels that forced Greece, Ireland and Portugal to seek bailouts.