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Is Germany losing its influence over Europe?

As European leaders strain to hold together the euro zone and prevent it from imploding, there's a real divide among its biggest countries. Germany has long opposed most of the more sweeping integration measures. But there's evidence that Germany is slowly losing its clout.

Alessandra Tarantino/ Associated Press

The basic split goes something like this: France, Italy, and Spain all want closer fiscal integration. For the most part, this means that the euro zone as a whole would help its struggling members deal with issues they can't tackle on their own, from unmanageable government borrowing costs to troubled banks. If Spain's banking sector goes wobbly because of a housing bubble, the rest of Europe would pitch in — in much the same way that the entire United States helped bail out Texas banks after the savings and loan crisis in the 1980s.

Germany, for its part, is resistant to these reforms — in part because these proposals essentially require Europe's richer nations (like, well, Germany) to subsidize poorer countries. German Chancellor Angela Merkel has long insisted that any of these moves need to be preceded by political reforms, in which central European bureaucrats have tighter supervision over countries like Spain and Italy, to make sure they're not spending too much or letting their banks run wild.

But after the last E.U. summit, there's evidence that Germany is losing this battle. A long, fascinating story in Der Spiegel explains how leaders from Italy, France, and Spain managed to convince Merkel to support a bailout of Spanish banks and Italian bonds without tough preconditions:

It was [Italian Prime Minister Mario] Monti, of all people, who dropped the bomb at 7 p.m. last Thursday. At the European Council summit in Brussels, the Italian prime minister announced he would not agree to the growth pact unless the European heads of state and government did something about the high interest rates Italy is being forced to pay on its government bonds. And Monti wasn't the only one. His Spanish counterpart, Mariano Rajoy, stood behind him.

"Are you trying to take us hostage?" Danish Prime Minister Helle Thorning-Schmidt said indignantly. Then the German chancellor spoke up and said: "That's not helpful." It's a sentence Angela Merkel reserves for serious situations.

The Italian prime minister should not believe that escalating the conflict would change anything, Merkel said, and pointed out: "I have to fly to Berlin at noon tomorrow for a vote in the Bundestag." But Monti stood his ground, knowing how much leverage he had. The markets were waiting for a decision. "Go ahead and fly home on Friday, and have them vote in Germany," he told Merkel. "I have until Sunday, and I'll wait until you return."

He didn't have to wait that long. Less than 10 hours later, he had the chancellor where he wanted her. Merkel relented and rubber-stamped what she had previously rejected. "A simple act of solidarity without getting something in return would be absolutely fatal to the overall development of the euro," she had previously insisted. For Merkel, it was the reddest of all red lines, and now she had crossed it.

In the end, the leaders agreed to use the euro zone's rescue fund (which is bankrolled by a variety of countries but particularly by Germany) to help out Spain and Italy, without imposing the tough conditions or austerity measures that countries like Greece and Portugal got when they were bailed out. Granted, there's still plenty of crucial fine print — Germany didn't relinquish all of its vetoes. But, as Der Spiegel notes, "the balance of power in Europe has shifted." Now whether that means the euro zone can repair itself is, of course, another question.



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Suzy Khimm · July 3, 2012

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