To help illustrate Germany’s historic dilemma as it calculates the risks of rescuing Europe, Ronald Freeman, a London banker friend, conjured up an image of Chancellor Angela Merkel as a weary mountaineer leading a perilous rock climb. Still some distance from safety, Merkel alternates between shouting instructions to those hanging behind her on a taut and fraying rope, and wondering whether to take out her knife and cut loose some of the burden.
What Merkel must calculate, says Freeman, a former European Bank for Reconstruction and Development first vice-president, is how to get everyone to the top of Mt. Europe without imperiling herself. “Until Germany agrees to switch from specific and inadequate bail-outs of over-indebted sovereigns to the unlimited back-up that only the European Central Bank can provide, the crisis will not end,” he says, leaving countries like Greece, Spain and Italy dangling below an ambivalent Germany.
Investors last week applauded Germany’s agreement to provide weaker climbers the equivalent of a temporary ledge to stand upon: access to Europe’s permanent bailout fund to provide capital directly to troubled banks anywhere in the euro area. In return, governments agreed to give banking oversight to European authorities so that they could supervise and potentially dismantle banks.
Although the decision marked a change of German heart, it neither addressed the urgency of the crisis (the banking supervision won’t be put in place until year’s end) or the scale of capital required (the roughly 500 billion euros that would be available is less than a third of what the U.S. Treasury considers necessary). Beyond that, Merkel is holding the rope at a time when German public support for the single currency is eroding. A recent Pew survey shows that more than half of Germans say their country would have been better off without the euro, and only two in five Germans have a favorable opinion of the European Central Bank.
In a thought-provoking analysis of what they call “the new German question,” European Council on Foreign Relations analysts Ulrike Guérot and Mark Leonard, who is also my Reuters Opinion colleague, explain much of Germany’s indecisiveness during the ongoing crisis. “There is not yet a new national narrative about what Germany should be or wants to be – or what place in Europe it wants to occupy.” They see Germany as passing through a dramatic moment of self-examination and reinvention, a “kind of unipolar moment,” perhaps even laying the foundation for a new Sonderweg, or special path, where it is increasingly assertive in promoting European economic policies even as it charts its own relations with larger powers like China and Russia.