Can Germany Quash the Euro-Zone Fire?
The Financial Times has described Germany as the ‘only first class passenger on the Titanic’, lamenting its reluctance to fire up the European Central Bank’s printing presses to prop up the euro-zone. But German reticence is hardly surprising, given that German voters are overwhelmingly against this move.
From the beginning of this crisis, the necessities of politics and economics have been at odds with each other. Economists argue that voters simply don’t understand the gravity of the situation. That is true. Some of the financial games that have been played out through the last two decades of lax regulation are, indeed, almost beyond comprehension.
But the real sticking point is more fundamental. It’s a classic collective action problem. Even if the benefits of cooperation were guaranteed (which is far from the case), ordinary people find it hard to understand why they should pay to solve other people’s problems. This is even more the case when it is perceived that the poor are being asked to bail out the rich, and that it is perceived that the problems have been caused by profligacy.
The FT writes that the ECB will not print money until countries threaten to leave the currency union and customers line up outside banks demanding their money back. Maybe they are right, but I’d be surprised if Germany takes this action in any circumstances. Public tolerance for propping up other countries has now reached its limits, not just in Germany but in other less-indebted countries.
The markets should not hold their breath for closer political and economic integration. It may be essential if the euro in its current form is to be saved, but the politics suggest that many countries’ voters would sooner consider losing the euro, regardless of the short-term consequences. In that case, the fire of the euro-zone debt crisis will continue to burn until it runs out of fuel.