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by Kindred Winecoff

...By now it's old news that Greece will receive a 30mn euro credit line from other euro economies, with perhaps another 10-15mn en route from the IMF. Boone and Johnson at Baseline Scenario argue, rightly I think, this is a temporary fix not a permanent one. But at this point the more interesting question to me is not what happens to Greece, but what happens to Europe. And by Europe I don't mean Europe-the-continent, but "Europe"-the-ideal. The frictions that have always existed between Germany and France on this point have come to quite a head, as this NYT article notes:

Germany, long the financier of the European Union, has made it clear that it will no longer pay for the mistakes and frauds of others.

France has put a much stronger emphasis on European unity and pride, trying to avoid involving multilateral institutions like the International Monetary Fund in the future of the euro, a prominent symbol of Europe’s challenge to the supremacy of the United States.

The problem is that while France is clear in what it wants, Germany can't seem to decide:

Germany always acted in its interests, Ms. Guérot said, but those were perceived as sublimated within the European Union and NATO, the two postwar multilateral institutions that both protected the new democratic Germany and kept its ambitions in check. Now Germany is turning more obviously to Russia for energy and commercial interests, she said, making its European and American partners uneasy.

“We sublimated hegemony,” said Ms. Guérot, a German who is working on a paper called “Germany Unbound.” “But we’re dropping the sublimation now.” She laughed, then said: “Of course, this doesn’t sound nice to others.”

If it's true that Germany wishes to ascend to regional hegemony, then abandoning the rest of Europe in its time of need is not the way to go about it. In fact, Germany is acting in the opposite way that a hegemon would:

Germany also reacted angrily and defensively to a modest French suggestion by Finance Minister Christine Lagarde that the German export model had to change in the interests of other, less competitive euro zone countries, and that Germans should spend more buying the goods of their less fortunate neighbors.

Germans, who have already undergone a wrenching structural reform and paid a huge bill to integrate the former eastern Germany, say they feel that “they’re paying a significant personal price,” Mr. Klau said. “Poverty has increased considerably in Germany and is now a social reality. And it makes Germany more inward-looking than the old West Germany, and a more defensive country.” ...

Germans feel they have paid both their reparations and their dues, “and many times over,” said Ms. Stelzenmüller, especially in an uncertain time of globalization and financial crisis. “People want to be normal, in the sense that other people don’t come to us first and say, ‘You have to pay.’ And it doesn’t have much to do with political orientation. All of us are huddling with our backs against the storm.”

No hyperbole intended, but using Kindleberger's typology of hegemony this sort of inward-focus in the midst of an international economic crisis has many more parallels with the refusal of the U.S. to assume international leadership during the interwar period than its postwar acceptance of it. So I think the NYT has the general framing of this issue all wrong. In fact, there is one paragraph in it that gives the game up:

At the heart of the dispute is the euro. The French see it as the currency of a new, united Europe; the Germans see it as the direct descendant of the mark, and the European Central Bank as retaining the DNA of the Bundesbank, whose main task was to keep inflation down. The French favor a kind of European economic government, with easier rules on deficits; the Germans have no intention of giving up economic sovereignty to anyone, let alone to the French.

Ah, so it is the French who seek to preserve their regional influence, but they can't do it alone. Germany wants to minimize its exposure to Europe -- especially the low-income countries, and the less-trustworthy PIIGS -- and it always has. There is much more that could be said, but this is getting long already. I'll try to revisit this soon, but I am not optimistic about Europe: the bailout arrangement for Greece indicates that Germany's tolerance for bailouts is weak and weakening, without Germany there is no Europe, and the other PIIGS are on deck.

Disclosure: No positions

Source: Not Optimistic About Europe