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

In December 2009, while the spread between Greek and German ten year bonds was rising day by day, the American agency Standard and Poor's decided to downgrade Greece's sovereign rating and was soon followed by the other two sisters, Fitch and Moody's. At this point the world's focus shifted from the global economic recession to the growing problem of the European financial crisis. The fears of a possible contagion towards Spain, Portugal, Ireland and Italy became more likely to happen and the foundations of the EMU started to be doubted. Even if Greece accounted only for 2 % of EU's GDP (see Richey, 2012), the future of the entire euro zone was at stake. To solve this huge crisis a great response from the EU was expected, but notably the EMU was “illequipped to deal with a crisis like that of 2010, lacking the capacity for speedy reaction, policy discretion and centralized action” (Featherstone, 2011, p. 201). To repair this lack, many thought that Germany would have probably controlled the crisis management and “the European partners and also the EU institutions were willing to follow Germany as a leader in solving the issue” (Morisse-Schilbach, 2011, p. 34). However, the “natural leader” demonstrated reluctance to intervene and even the EU's initial efforts to promote fiscal consolidation in Greece, recalling Art.
126 TFEU, failed to reassure financial markets. If at first Germany did not act at all, when it decided to intervene, it chose to do it unilaterally, by proposing the involvement of an external institution, namely the International Monetary Fund (IMF), as an act of mistrust towards the EMU institutions and a call into doubt of its governance. The combined EU-IMF rescue packages were a pure act of conviction and persuasion operated by Angela Merkel, “despite the strong opposition of French President Nicolas Sarkozy and the ECB President Jean-Claude Trichet” (Young, Semmler, 2011, p. 8).
In addition, one should not forget that Germany opposed to two possible solutions of the euro-debt crisis, proposed by other EMU member states and representatives, “Eurobonds and the idea of turning the ECB into a lender of last resort for the eurozone along the lines of the US Federal Reserve” (Dullien, Guérot, 2012, p.1). Both these proposals were rejected by the two coalition partners in the German Government, the Christian Democrat Union (CDU) and the Christian Social Union (CSU), that, influenced by the ordoliberalist economic culture, have identified in fiscal indiscipline the main cause of the euro-debt crisis and have seen such measureas as a way of undermining the highly defended principle of monetary stability and a dangerous measure that could increase moral hazard. If compared to the CDU, the CSU has been for sure more orthodox and euroskeptical, by arguing “in favour of Greece leaving the eurozone, against the EFSF, against increases in the Greek aid thanches” (ivi, p.5) and by adopting the “Five-Point Plan”, in June 2011, to oppose to further european integration.
Behind the late German involvement and hesitancy to intervene, one should consider Merkel's interpretation of the crisis, seen as a “failure of individual countries to solve their problems of competitiveness through timely budgetary and structural reform” (Crespy, Schmidt, 2012, p. 10); this explains why she was determined that the in-debt crisis should put their own business in order first, and then they would receive help if still necessary. Other EU member states' representatives did not share this interpretation. For instance, Sarkozy, the then president of the other half of the engine of Europe, France, believed, instead, that the crisis was about “the interdependence of the countries of the monetary union, the need for solidarity, and the imbalances resulting from the eurozone itself, split between surplus and deficit countries” (ibidem).
In addition to this general interpretation, in order to have a complete understanding of the German scenario, one should consider both “party politics” (Young, Semmler, 2011, p. 8) and the strong “constraints of the German Constitutional Court” (ibidem). Party politics has to do with the difficult elections in North-Rhine Westphalia (NRW), where the head of the CDU did not want “to confront voters with the prospect of bailing out Greece” (ibidem) – one has to consider that in Germany regional elections can lead to a change in the majority of the Bundesrat, the German second Chamber; nonetheless, the CDU lost these elections, won by a red-green coalition. NRW was only the first great defeat. The CDU, in fact, lost also in Baden-Wüttemberg (March 2011), where the party had been in power for 58 years, and lost over 5% of the votes in Bremen (May 2011), (Guérot, 2012). Another big role was played by the Court of Karlsruhe, which has “limited the government's room of maneuvre” (Proissl, 2010, p. 3) through at least two important judgments on the Maastricht and Lisbon Treaties. According to the Maastricht Ruling, Germany's membership in the EU is conditioned to the permanent respect and validity of the “stability criteria” (ibidem). In other words, in case the EMU will not be based on this principle, Germany has to leave the euro. Also, in accordance to the Lisbon Ruling, the German Bundestag has to be involved on “crucial EU legislation” (ibidem), i.e. a rescue-package, “in the form of a German law” (ibidem). As Der Spiegel commented, the ruling “threatens future steps toward European integration” (Kupchan, 2010, p. 13).
The results of this is that both the German Constitutional Court and the Bundestag have been acting as a European Constitutional Court and a European Parliament, and this is far from being democratic, since their decisions go over national borders and tend to infuence the entire EU and the entire EU people. [...]