The Euro-debt crisis: what future for the euro zone? Greece vs Germany and the reform of the EMU

INTRODUCTION
Preamble on the euro-debt crisis
The project of creating a common currency has always been a European dream since the 
1950s, as one of the last steps of the ideal United States of Europe (USE) – and even at present the 
European Union (EU) seems so far from a real possibility of being transformed into the USE. With 
the end of the Bretton Woods' system some experiments, such as the currency snake and the 
European Currency Unit (ECU), prepared the course of the euro
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, finally introduced with the 
Maastricht Treaty (July 1992), considered by many as a “compromise between Germany and 
France” (Mamadouh, Van Der Wusten, 2010, p. 111). In the negotiations that gave birth to the euro, 
both France and Germany seemed to prevail if compared to the other countries of the club. In 
particular, the reunified Germany of Helmut Kohl did all its best to  win the dispute with the French 
and was soon identified as the main leader of the EMU. Not only the new European Central Bank 
(ECB) was placed in Frankfurt, but also it was “modeled after German Central Bank preference” 
(Mamadouh, Van Der Wusten, 2010, p. 111), by recalling the principles of Central Bank 
Independence (CBI)  and Price Stability, with a typical German inflation control policy and with 
“the interdiction of monetizing public debt” (Proissl, 2010, p. 1). It is fundamental to remember that 
despite the fact that the French had initially tried to introduce the “gouvernment économique” 
clause in the treaty (see Art. 99), only a general framework of economic coordination was provided. 
While monetary policy was designed as federal, fiscal policies remained in the hands of nation 
states, in the assumption that “fiscal policies should not jeopardize monetary policy goals” (Maior, 
2010, p. 5); the German model was finally completed  by the “no bailout clause” (see Article 103, 
section 1: “The Community shall not be liable for or assume the commitments of central 
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The euro was introduced on January 1,1999, as an accounting currency, that replaced the old ECU. In a second 
moment, starting from January 1, 2002, the euro started to circulate. At present seventeen EU member states have 
adopted the euro. They are: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, 
Luxemburg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.
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governments, regional, local or other public authorities, other bodies governed by public law, or 
public undertakings of any Member State, without prejudice to mutual financial guarantees for the 
joint execution of a specific project. A Member State shall not be liable for or assume the 
commitments of central governments, regional, local or other public authorities, other bodies 
governed by public law, or public undertakings of another Member State, without prejudice to 
mutual financial guarantees for the joint execution of a specific project.”) This strange currency 
union was entirely based on a system of crisis prevention, while no room of crisis resolution and 
management was provided, in the conviction that a crisis of the dimension of the current one would 
never happen. As a result, when the financial crisis touched the fragile European peripheral and in-
debt countries, namely Greece, Ireland, Portugal and Spain (soon known as Gips or Pigs) this “ill-
equipped” (Featherstone, 2011, p. 201) system showed its real face to the world. The entire euro 
zone was in trouble and everyone was expecting a great German response or at least a leadership 
role “in solving the issue” (Morisse-Schilbach, 2011, p. 34). As it has been said by one expert on 
European monetary cooperation, “the Germans are the only ones with deep enough pockets”
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 and 
the Greek crisis could have been the right moment for Germany to demonstrate to be a “benign 
hegemon” (ivi, p. 36). But the opposite happened. At first Germany did not act at all, in the attempt 
to put pressure on Greece, and in a second moment, when it decided to intervene, it chose to do it 
unilaterally, by proposing, for instance, a change in the Treaty to allow the expulsion of Greece, and 
the involvement of an external institution, embodied by the International Monetary Fund (IMF), as 
an act of mistrust towards the EMU institutions. All these actions were taken under important 
domestic political and legal pressures, namely the local elections in North-Rhine Westphalia and the 
German Constitutional Court's decisions on the EU and the Lisbon Treaty. The German behavior 
demonstrates that the country is for sure transforming into a “more normal EU member state” 
(ibidem) and Angela Merkel, “unable to provide leadership” (Proissl,  2010, p. 1), seems to care 
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see Kulish N., Germany, Forced to Buoy Greece, Rues Euro Shift, The New York Times, February 11, 2010, available 
at http://www.nytimes.com/2010/02/11/world/europe/11germany.html
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much more about her national interests, like any other EU representative. Also, in the last decades 
the Germans have built a sort of “walls against too much Europe” (ivi, p. 2), embodied by the strong 
German Constitutional Court and the German Bundestag, erected as a European Constitutional 
Court and a European Parliament
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. In a nutshell, the euro-debt crisis has shown that the first stage of 
the EMU, the one designed by Germany, accepted as a “sacrifice of abandoning the D-Mark” 
(ibidem), has ended and a new EMU must be put in place. No one knows “according to what rules 
the new EMU will operate” (ibidem) and the German people and press find themselves in a sort of 
“emotional divorce” and day by day further from the EU and the euro. 
Why the euro-debt crisis? Research questions and hypothesis
The first research question of the Thesis is whether we are going towards the end of EMU-
German phase. In order to understand whether we have come to the end of the EMU-first phase, 
that is to say as Germans have designed it, I will explain the response of the expected leader 
(Germany) to the current euro-debt crisis, starting from the late 2009 Greek collapse, with a special 
focus on the role of the Chancellor, Angela Merkel, the internal constraints and the role of public 
opinion (both in Greece and Germany). In other words, I will try to explain whether German 
leadership is trying to promote a European response or, rather, whether it is just responding to its 
national short term interests and sentiments. A positive answer to the research question will be 
provided, by demonstrating that we have probably come to the end of the EMU-first phase, as 
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Recently Germany has built two sort of “walls” against too much supranational Europe, the German Constitutional 
Court and the German Bundestag. The German Constitutional Court has de facto conditioned Germany's role the EU 
and in EMU, in at least two important cases, the “Maastricht Ruling” and the “Lisbon Ruling”.  The “Maastricht 
Ruling” conditions Germany's participation and membership in EMU, since it says clearly that in case the EMU will 
not be based any more on the stability criteria, the country has to leave the currency union. The “Lisbon Ruling” 
conditions Germany's role in the whole EU, since it imposes a tighter scrutiny of the Bundestag on EU crucial 
legislation, i.e. rescue packages. According to this new rule, the Government needs the assent of the Bundestag 
through a German law.
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Germans thought they have designed it, as a system founded on “a federal monetary policy, a rules 
based fiscal policy in national responsibility, no bailouts of other members, independence of the 
ECB with a mandate to focus on price stability and the interdiction of monetizing public debt” (ivi, 
p. 1). Furthermore, my objective is to highlight the impact of the German public opinion on German 
leadership. 
My hypothesis to this first research question is that we can see the current euro-debt crisis as 
the final demonstration of the end of the EMU-German phase. As a matter of fact the country is not 
any more the engine of both the euro zone and the EU and its Chancellor, Angela Merkel, is not any 
more a European leader, à la Adenauer, or à la Kohl. In particular, one should remember that she 
“failed to develop any positive narrative about the EU, the Euro and the benefits Germany derives 
from being part of both” (Proissl,  2010, p. 2) and that she “abstained from defining any goal or 
vision for the EU and Germany's place in it” (ibidem). The transformation of the country into a 
more normal state, very attached to its national interests, has emerged also from an analysis of the 
public opinion, that for sure has contributed to weaken the German leadership and its traditional 
role in driving Europe to the right path to follow. This is not an isolated feeling, but rather a shared 
one, since the majority of Germans do believe that Greece should “sell its islands or the Acropolis 
to help fund its debt” (Featherstone, 2011, p. 201) and “that a return to the Deutschmark would be 
cheaper than to remain stuck in a flawed currency union” (see George Soros on the Euro Crisis, 
2012).
The second driving research question of the Thesis is: how will the new EMU be designed? 
If it is true that we have come to the end of the “EMU-German phase” and the crisis has 
demonstrated it, the next problem to solve is the design of the new EMU, and what will be the 
future of the euro zone. What about the original principles, i.e. the price stability and the no bailout 
clause? How will the ECB change, will it be transformed into a lender of last resort? Will a 
permanent European Fund, such as the European Stability Mechanism (ESM), be put in place? If 
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yes, will this be sufficient? And what will be the reaction of Germany to an EMU not designed 
according to its traditional principles? Is it in Germany’s interest to promote such changes? 
My hypothesis for this second research question is tentative, since facts are still unfolding 
and the final decisions will be based on what will happen in the future. Certainty, the EU has to 
establish a new system, in order to avoid such crises in the next future. Thus, a rethinking of the 
original principles and a reform of  EMU's governance is strongly needed and the theory of Pisani-
Ferry could be a good way to start, since it shows that the German traditional principles, i.e. the 
price stability and the independence of the ECB need to be reconsidered and a new governance 
must be provided. If this is sure, what is not certain to assume is on the one hand the determination 
and the bravery of the EU to work on a EMU, different from the previous one, and on the other 
hand the reaction of Germany to a EMU not any more designed according to its traditional 
principles. Also, one should count that this new system is called to be more democratic, and this 
means that the role of the German Constitutional Court and Bundestag need to be reconsidered, too. 
The research objective
This final dissertation aims to explain the recent euro-debt crisis as a failure of the original 
EMU, by focusing on the reasons of the slow reactions and lack of leadership of Germany, the 
original designer of the currency union, as well as one of the most important political and economic 
actors of both the EU and the EMU. Once described this, I will go a step further, by trying to 
analyse the future of the Euro zone and the possible reforms of the EMU, in order to understand in 
which direction the euro zone must go to avoid such crises in the future.
The structure of the thesis
The dissertation, having a macro-level of analysis, will be focused on the Greek crisis (time-
frame: from late 2009), with some references to the other crises of the euro zone (Spain, Portugal, 
Ireland and Italy) and on the response given by the EU up to now, by stressing the particular role of 
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Germany, the role of particular leader (i.e. Angela Merkel), the role of public opinion in Germany 
and Greece and the possible implications/suggestions for the near future. The thesis is divided into 
two main parts. The first part is an analysis of the current euro-debt crisis, and will answer to the 
first research question (i.e.- whether we are going towards the end of EMU-German phase);  the 
second part is focused on the future of the EMU and analyses the Pisani-Ferry theory, which I think 
could be the possible answer to the second research question (i.e. - how will the new EMU be 
designed?).
My future research 
My future research would try to provide an answer to the following questions: what will be the 
German reaction to this much more democratic and pan-European system? What about the role of 
the other EMU states, will they help Germany accept this new situation? 
By believing that Germany needs to adopt to this new situation, my future research will explore 
how other important EMU members ( i.e. France and Italy) should act in order to facilitate Germany 
to accept such changes. 
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