20 July 2015

Germany Risks Its Reputation With Idea of Greece Exiting Eurozone

JULY 17, 2015

LONDON — For decades, Germany saw its role as the financier and beneficiary of European unity, a combination of penance for the past and self-interest. The rest of the Continent came to rely on it as the country that could be trusted to keep its great experiment moving forward.

But with its handling of Greece’s bailout package, Germany is at risk of losing that trust, some European analysts say. By taking what sounded to many as an aggressive, punishing, contemptuous tone toward Greece, the German leadership may have undercut its moral authority, they say. And by floating the notion that Greece might be better off leaving the common currency, Germany displayed its national interest more nakedly than in the past and made it clear there are limits to its willingness to put European unity first.

The German Parliament assented on Friday, with a bit of grumbling, to negotiations on another large bailout for Greece. But ChancellorAngela Merkel and her finance minister, Wolfgang Schäuble, have appeared as unenthusiastic about the deal as the Greeks.

Mr. Schäuble, after helping to negotiate a deal expressly intended to keep Greece in the eurozone, has suggested several times that Greece would be better off leaving. He has come to represent, in many eyes, the hidden face of German power. In Greece, he is portrayed as a Nazi. Even an Italian weekly, L’Espresso, showed him on its cover with the headline: “This man scares us, too.”

It may be too soon to say for sure whether the harsher German tone signifies a turning point in its role within Europe or if it is the transitory result of circumstances. But for many in Europe, especially on the center left, the Greek crisis “revealed a more brutal Germany, embodied in Schäuble,” said Hans Kundnani, the author of “The Paradox of German Power.”

“But we see, with this crisis, a qualitative transformation of the European Union into a more coercive bloc, different from the one the founding fathers had in mind, or even the creators of the single currency,” he said. “And Germany is at the heart of that.”

The fight over Greece, Mr. Kundnani said, “took these developments to a new level — a more German Europe and a more coercive E.U.”

One could argue, as many have, about the correctness of the German prescription of austerity in a time of recession. But the brutality of the negotiations over Greece in Brussels has damaged Germany’s reputation inside the European Union, said François Heisbourg, a French analyst.

“I think the Germans have crossed a line,” he said, “and it will be very difficult for them to walk it back.”

For Jürgen Habermas, a pro-European German intellectual, said that Ms. Merkel and her coalition government, including the center-left Social Democratic Party, “have gambled away in one night all the political capital that a better Germany had accumulated in half a century.”

Previous German governments, he told the British newspaper The Guardian, had displayed “greater political sensitivity and a postnational mentality.”

For much of Germany’s postwar history, patriotism was considered shameful, the German flag was not widely waved and the word Deutschland was rarely heard, with Germans preferring Bundesrepublik, or the federal republic.

The long-serving foreign minister, Hans-Dietrich Genscher, used to say that Germany had no national interest outside Europe.

But with the reunification of the country and the creation of the Continent’s largest economy, Germany became more open in articulating and defending its national interests, which have included European unity. To Mr. Kundnani, the change began when former Chancellor Gerhard Schröder broke with Washington over the Iraq war and when Germany pushed for a more rules-based system, trying to remove politics from economic management inside the eurozone.

In the past, Germany was willing to provide the glue — whether the money or the deal — to hold Europe together and go forward, though to some degree European unification has only progressed through crisis. But national interests are becoming more visible everywhere in the enlarged European Union. When it came to the latest flare-up over Greece, Ms. Merkel again negotiated to keep Europe united, but perhaps with less conviction, because few expected the deal to rescue Greece to work very well.

In fact, while portrayed as the man trying to push Greece out of the euro, Mr. Schäuble is considered more of a European federalist than Ms. Merkel. But in his view, federalism means not an open-ended commitment to rescuing neighbors but a willingness to abide by accepted rules.

When it comes to the euro, he has been a prime proponent of institutions to monitor members’ economic performance and to discipline outliers. So, it was hardly surprising that Greece under Prime Minister Alexis Tsipras’s left-wing government, which demanded what amounted to a wholesale rules change, should offend him — especially with so much German money at stake.

Mr. Heisbourg said that the Greeks “have been their own worst enemies,” and that Ms. Merkel was eager to avoid blame if there had been a breakup of the eurozone. “The Greeks will have to be seen to do this to themselves,” he said.

Germany was hardly alone. In its tough stance toward Greece, it had support from northern European countries like the Netherlands and Finland, and the newer countries of central and Eastern Europe and the Baltics. Even the French and Italians, who fought to keep Greece in the eurozone, were reluctant to push too hard, given the behavior of Syriza, Mr. Tsipras’s political party.

“For the moment, blame is put on Germany, but the Germans believe that the Greeks were not playing by the rules,” said Daniela Schwarzer, director of the German Marshall Fund office in Berlin. “Merkel now has a double fight — at home, to bring along Parliament, her party and the public for another rescue package for Greece, and in Europe, where she will still have to show power to make sure the Greeks keep their commitments and play by the rules. The whole euro system depends on that.”

The Greek crisis has highlighted a split in the eurozone, Ms. Schwarzer said. Germany and its allies believe economic strictures and a strong central bank are best in order to depoliticize the euro as much as possible. Another group, she said, led by France and Italy, share to a great degree the Anglo-Saxon view that “politics is there to define policy, especially budgetary and economic policy.”

Germany always wanted the eurozone to resemble federal Germany, with solidarity dependent on everyone playing fair, by the rules, said Robin Niblett, the director of Chatham House, a research organization based in London.

But instead, the Germans “find themselves with 70 billion euros of taxpayer money in hock in Greece and asked to write a chunk of it off, which they told German citizens would never happen,” he said. “Merkel has managed to keep the public on side with each ratchet of the eurozone, where Germany is vulnerable. So I’m not surprised it got so heated.”

Greece, however small, presents a challenge to everyone. To Guntram B. Wolff, a German who directs Bruegel, an economic research institution based in Brussels, despite all “the noise and harsh words, we have to watch the end result, and it’s not clear.” Only now will the real negotiations start, he said.

“My hope is that Germany is aware that pushing Greece to the point where it has no perspective would be very damaging for Germany,” Mr. Wolff said. “Its image has already suffered very significantly last week, but perhaps you needed these very harsh words to get the Greeks to change and get domestic support. But Germany needs to understand all eyes look at Berlin, and a Greek exit would be far more damaging to Germany than a more generous deal.”

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