It is deja vu all over again in Germany; there is even a plague of rats in Hamelin, famous as the location of the original Pied Piper story. As Germans listen to the increasingly anxious cries from the rest of Europe for much more German money to be channeled in various ways into bailout funds, Germans are thinking back to 1989 and the fall of the Berlin Wall.
The election of François Hollande last month in France seemed to mark the beginning of a shift in Europe’s struggle against the Euro collapse. No more is Europe dominated by a “Merkozy” alliance pushing for austerity above all else—Hollande’s campaign was largely predicated on an opposition to Germany’s handling of the crisis, and the French president has now emerged as the leader of a coalition supporting “growth” polices in Europe. France may still be the junior partner in the Franco-German axis, but Hollande has the wind at his back, as a growing number of leaders across Europe support him on growth vs. austerity. Merkel and the Germans are now looking increasingly isolated in their insistence on austerity and their reluctance to endorse more bailouts and debt-sharing measures, particularly eurobonds.
Yet despite a few minor concessions to demands for growth-focused policies, the election of Hollande has not led to a the softening of attitudes in Germany some expected. Last week, Germany reiterated its opposition to eurobonds, and the spread of bank panic from Greece to Spain has not yet led to pledges to send many more German Euros down south.
With the crisis becoming more dire, many observers, in America as well as Europe, have been baffled by Germany’s continued refusal to budge in a crisis that threatens to collapse the European project that has been a cornerstone of German postwar history.
To those familiar with Germany, however, this attitude should not be surprising. On my recent visit to Germany I heard much to support the points made in a New York Times piece that helps explain, at least partially, the historical basis for German reluctance to embark on another round of Greek bailouts. It all goes back to the Fall of the Wall:
Most economists agree that Germany could do more to help revive growth throughout the euro zone, and there are reports that Chancellor Angela Merkel is preparing to propose a major European Union plan to accomplish that. But the German reluctance to underwrite the economies of Greece and other struggling countries is not just a matter of the parsimonious Germans hoarding their funds, as it is so often portrayed, but a sense that subsidies do not breed successful economies. […]
While unemployment in the former West Germany is 6 percent, it remains stubbornly higher, at 11.2 percent, in the east. In 2010 gross domestic product per capita was more than $40,000 in the former West and just under $30,000 in the former East, compared with 1991 figures of $27,500 in the West and about $12,000 in the East. But much of the narrowing in the gaps between east and west, experts say, is attributed to the migration of job seekers westward as much as to any significant improvement in the east.
There have been success stories in the revival of cities like Dresden and Leipzig, and some regions, especially on the southern edge of the former East Germany, are doing better. But the eastern part of the country today is known for perfectly rebuilt town squares that sit empty for much of the day and new stretches of autobahn with few drivers on them.
“Germany made huge investments in infrastructure in East Germany,” said Klaus Adam, a professor of economics at the University of Mannheim. “The hope that the rest would follow has not been fulfilled. You need to get the productivity figures up.”
The parallels are not exact. East Germany was a country that had lived for nearly half a century under one of the most repressive communist regimes in the world, and the economy had been wrecked by years of communist economics; Greece, for all its faults, was a functional, if messy, market economy and democracy. The problems they face are not identical. Yet there are certainly many similarities, and Germans are beginning to get a feeling of deja vu from this whole affair.
Germans have paid something like $2 trillion to “fix” the East; many German taxpayers feel tapped out and defensive. They suspect that no matter how much they give Greece, and Portugal, and Spain, and Italy — they will continue to be attacked as ‘stingy’ and ‘selfish’ and much of the money will end up stolen or lost.
They are probably right about all this — and that makes it much, much harder for German politicians to tell voters that it’s time to dig deep and pay the piper one more time.