A Fist Full of Euros (The Utopian)

In The Utopian

Thomas Meaney,Harris Mylonas

Why did it take four months for Europe’s parent nations — Germany and France — to prop up the continent’s prodigal son, Greece? And what can the European Union do when it comes to coping with such behavior with its other children?

There is little doubt Greece needs to face up to the part it played in its current financial mess — in which its ballooning deficit threatened the stability of the nation and the euro. But it now appears that in the case of Germany, at least, the slow response was more than meets the eye. Chancellor Angela Merkel was not simply pandering to her fragile coalition and frustrated electorate. Instead, the Greek crisis turned into a three-part opportunity for Germany: The country has dramatically boosted its exports thanks to a weak euro, a German is now the front-runner to head the European Central Bank, and it can now more easily justify cracking the whip on the rest of the Eurozone.

As Europe’s biggest exporter, Germany has been hamstrung by a weak dollar and even weaker Chinese yuan. The devaluation of the euro relative to the dollar in the last three months by more than 10% has helped German exports recover from a devastating 19% drop in 2009. While Germany has traditionally been committed to a strong currency, Merkel has been content to let the export sector of the German economy benefit temporarily from the crisis. Call it the Greek stimulus. The old economic tanker is skillfully navigating its course.

Germany now also has a leg up in the race to replace Jean-Claude Trichet as the head of the European Central Bank. The candidacy of the longtime favorite, Italy’s Mario Draghi, has been severely compromised by his close ties with Goldman Sachs and its role in aiding the Greek government’s attempt to conceal the full extent of its debt. Now Axel Weber, the current Bundesbank president, leads in the running, putting the Germans in a much better position to have one of their own head Europe’s leading financial institution.

More important, Germany now stands on much firmer ground when it comes to haranguing debtor nations in the Eurozone to get their books in order. The austerity measures ratified by Athens in March are a necessary step on the road to Greek recovery and would have been impossible to implement without the impetus of the crisis. Now other financially shaky nations in the Eurozone — Ireland, Spain, Portugal and Italy — have incentives to take preemptive measures to avoid Greece’s predicament.

But Germany is not the sole beneficiary. There is also silver lining for the Eurozone as a whole in this crisis. EU nations such as Estonia, Latvia, Lithuania and Bulgaria, which have not made it into the inner sanctum of the Eurozone, will now face a much longer wait. That was not nearly as easy for Western Europe to justify before the crisis. Finally, the EU as a whole can extend the wait for controversial applicants for EU membership indefinitely. France and Germany can now point to the need for EU consolidation rather than cultural or religious differences.

So what’s the fallout? European leaders reached a consensus last month following a drawn-out Franco-German compromise. All sides portray the agreement as a victory. Greek Prime Minister George Papandreou will test the waters by borrowing 5 billion euros from the bond markets by the end of March. French President Nicolas Sarkozy has bargained for more EU bilateral loans and a restricted the role for the IMF, which is run by one of his political rivals, Dominique Strauss-Kahn. Meanwhile, Merkel has solidified her role as a European kingmaker and has called for treaty revisions that could include the creation of a European Monetary Fund and rules that would expel problem states from the Eurozone.

One thing remains clear. The parents of the Eurozone solved Greece’s problem without resorting to the direct — and embarrassing — involvement of the International Monetary Fund. In recent years, new EU member states such as Hungary and Latvia turned to the IMF when they needed assistance. But Greece is too close to home. Germany and France share the same currency with Greece and cannot risk jeopardizing the credibility of the euro in the long run. Trichet’s announcement that the European Central Bank policy-makers will extend emergency collateral rules beyond 2010 eases liquidity pressure on the Greek economy and makes it unlikely that Greece will need to ask for help from the Eurozone and IMF. Yet by paying lip service to the possibility of IMF involvement in the future, Merkel has calmed the fears of her electorate.

Despite the dragging of the German Chancellor’s heels, the solution to the debt crisis has been a European one. There will be more disagreements in the months to come, but the storm has, for now, subsided. What hasn’t shattered the Eurozone just might make it stronger.

Thomas Meaney is doctoral student in modern history at Columbia University and an editor of The Utopian. Harris Mylonas is an assistant professor of political science and international affairs at George Washington University.