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Greece's crisis, Germany's gain

Germany found a silver lining in the debt crisis and, in fact, all of the EU could emerge stronger for it.

March 15, 2010|By Thomas Meaney and Harris Mylonas

Why did it take four months for Europe's parent nations -- Germany and France -- to prop up the continent's prodigal son, Greece? And what can the European Union do when it comes to coping with such behavior with its other children?

There is little doubt Greece needs to face up to the part it played in its current financial mess -- in which its ballooning deficit threatened the stability of the nation and the euro. But it now appears that in the case of Germany, at least, the slow response was more than meets the eye. Chancellor Angela Merkel was not simply pandering to her fragile coalition and frustrated electorate. Instead, the Greek crisis turned into a three-part opportunity for Germany: The country has dramatically boosted its exports thanks to a weak euro, a German is now the front-runner to head the European Central Bank, and it can now justify cracking the whip on the rest of the Eurozone -- the group of nations that use the euro.

As Europe's biggest exporter, Germany has been hamstrung by a weak dollar and even weaker Chinese yuan. The devaluation of the euro relative to the dollar in the last three months by more than 10% has helped German exports recover from a devastating 19% drop in 2009. While Germany has traditionally been committed to a strong currency, Merkel has been content to let the export sector of the German economy benefit temporarily from the crisis. Call it the Greek stimulus. The old economic tanker is skillfully navigating its course.

Germany now also has a leg up in the race to replace Jean-Claude Trichet as the head of the European Central Bank. The candidacy of the longtime favorite, Italy's Mario Draghi, has been severely compromised by his close ties with Goldman Sachs and its role in helping the Greek government's attempt to conceal the full extent of its debt. Now Axel Weber, the current Bundesbank president, leads in the running, putting the Germans in a much better position to have one of their own head Europe's leading financial institution.

More important, Germany now stands on much firmer ground when it comes to haranguing debtor nations in the Eurozone to get their books in order. The austerity measures ratified by Athens this month are a necessary step on the road to Greek recovery -- and would have been impossible to implement without the impetus of the crisis. Now other financially shaky nations in the Eurozone -- Ireland, Spain, Portugal and Italy -- have incentives to take preemptive measures to avoid Greece's predicament. Less export-dependent Eurozone nations will benefit from a stronger euro and the increased consumer purchasing power of foreign goods that comes with it.

Lastly, EU nations such as Estonia, Latvia, Lithuania and Denmark, which have not made it into the inner sanctum of the Eurozone, will now face a much longer wait. That was not nearly as easy for Western Europe to justify before the crisis. Meanwhile, for more controversial applicants such as Turkey, the wait can be extended indefinitely. France and Germany can now make their case much more persuasively on economic rather than cultural grounds.

So what is to be done? There is a growing consensus among European leaders that their financial crises require a European solution. Greek Prime Minister George Papandreou, French President Nicolas Sarkozy and Merkel have all spoken of creating a European Monetary Fund as the preferred solution, and the EU executive commission has already taken up the proposal.

One thing remains clear. The parents of the Eurozone want to solve Greece's problem without resorting to the direct -- and embarrassing -- involvement of the International Monetary Fund. In recent years, new EU member states such as Hungary and Latvia turned to the IMF when they needed assistance. But Greece is too close to home. Germany and Greece share the same currency and cannot risk its credibility in the long run.

What hasn't yet shattered the EU just might make it stronger.

Thomas Meaney is a doctoral candidate in modern history at Columbia University. Harris Mylonas is an assistant professor of political science and international affairs at George Washington University.

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