Credit is frowned on. There are quite elegant restaurants that don’t
take credit cards, and installment buying in general has been slow to
take hold. Walmart tried to expand into Germany in recent years but had
to close all 85 of its stores in 2006. Germans didn’t take to the
faux-smiley demeanor of Walmart’s employees, and the company found it
hard to keep prices low while complying with national labor laws. The
car loan market is underdeveloped. Home equity loans are practically
unknown. That is one reason why Germany had no mortgage bubble of the
sort that upended so many Western economies over the last decade.
Another is that Germany does not really have an investment banking
sector as we would understand it.
Germans usually explain their eccentricities about credit by
referring to the hyperinflation with which their leaders tried to
mitigate the burden of reparations from World War I. Germany’s treasury
printed so much money that, in 1923, prices were quoted in the trillions
of marks, shoppers pushed their shopping money around in wheelbarrows,
and restaurant menus were edited hourly. That inflation, and the
austerity required to purge it, may have played a role in the rise of
Hitler. Germans associate their emergence from the rubble of World War
II, by contrast, with the deutsche mark, the currency set up under
American military rule, and the Bundesbank, the conservative,
incorruptible, and coldly competent institution established to preserve
its value. Bundesbank presidents were revered figures, more often than
not at loggerheads with the elected chancellors they served. And they
cast their shadow over German democratic politics, according to
Klaus-Dieter Frankenberger, foreign editor of the
. “You don’t advance your electoral prospects by loosening the tap of monetary policy,” Frankenberger said this fall.
The German public was dragged into the euro reluctantly and would
never have consented to it had they been consulted. “The euro has always
been the ‘Golden Calf,’ so to speak,” says Barclays’s economist
Thorsten Polleit. “It was forced upon Germans.” There is still a lot of
debate about
it was forced upon Germans. The most common
explanation is that French president François Mitterrand insisted on the
euro as a condition of Germany’s reunification. A number of Germany’s
top politicians and economists assured citizens that the new currency
would hold prices stable. That turned out to be right. They also
promised that this would not mean sharing wealth and bailing out
laggards. That turned out to be wrong—and perhaps catastrophically,
apocalyptically wrong. In the late nineties, “many chief economists did a
lot of client presentations where they told people the euro would be as
stable as the German mark,” says Jörg Krämer, chief economist at
Commerzbank. “I am quite happy I was young enough not to have had to do
this.”
In Berlin, Germany’s political capital, one can still occasionally
hear the argument that Germany is the “main beneficiary of the euro.” It
is an export-dependent economy, after all. Without the euro, Germany’s
money would appreciate against that of its neighbors. Those neighbors
would therefore buy fewer German goods. But among the bankers of
Frankfurt, the country’s finance capital, this argument cuts much less
ice. In his office at the top of Deutsche Bank’s twin towers (known in
town as
, or Profit and Loss), Thomas Mayer, the
bank’s chief economist, warns against the view, common among
nonspecialists, that a weak exchange rate makes an economy more
competitive. “A weak exchange rate is good for old industry,” Mayer
says. “They can sell outdated products at cheaper prices. A strong
exchange rate forces you to continuously adapt to new technology and
consumer tastes.” He gets no argument from Hans-Werner Sinn of the Ifo
Institute for Economic Research in Munich, who says, “It is ridiculous
to say Germany was the winner of the euro.” Sinn notes that from the
mid-1990s—roughly the time when Europe’s interest rates began to
converge on the euro—Germany has had the second-lowest growth rate
(behind Italy) in Europe. If Germany is profiting now, Sinn thinks, it
is partly because its savers no longer dare to take their money out of
the country.
Germans grow up getting the lesson drummed into their heads that
they, as the perpetrators of the twentieth century’s worst atrocity, owe
a large and perhaps unpayable debt to humanity. Some Germans draw the
conclusion that the European Union is entitled to collect this debt on
humanity’s behalf—that it is entitled to obedience, even deference, from
Germany. Finance minister Wolfgang Schäuble, 69, has at least some
sympathy with this view. So do some other senior members of Merkel’s
party and cabinet. The EU’s own bureaucrats, of course, believe to a man
that Germany’s responsibility for making Europe whole is limitless.
It is difficult to say how many people in politics sincerely accept
this view, because enormous pressure is brought to bear on people who
dissent from it. Jürgen Trittin, the senior politician in the Green
party, calls those who would do anything to slow down European
integration regressive nationalists. When Wolfgang Bosbach, one of the
most loyal members of Merkel’s party, decided that the liabilities to
Germany in vouching for Greece were growing dangerously high, party
regulars gave him the cold shoulder. This September, Merkel’s aide
Ronald Pofalla strode across the floor of the Bundestag during a vote
about contributing more German money to another European rescue package
and told Bosbach: “I’m sick of looking at your face and listening to
your sh—.” What upset Merkel’s people about Bosbach was precisely that
he had long been one of the party’s most loyal soldiers.
Fifty-nine-year-old Bosbach recalled a few weeks later: “There have
always been naysayers, always. But I was never one of them. That was
really the first time I said no, and a few people were absolutely
shocked.” Other German politicians worry that Germany’s neighbors are
taking Germany for a ride, but their worries are practically inaudible.
In the barrooms and TV talk shows of Germany, however, impatience
with Europe and the euro is at a boiling point. The opinion pollster
Renate Köcher of the Allensbach Institute found recently that in the
course of 2011, the percentage of Germans uneasy about the eurozone rose
from 38 percent to 55 percent. Whereas at the turn of last year voters
opposed kicking any country out of the eurozone by a margin of 40
percent to 36 percent, by September they favored kicking out the biggest
debtors by 46 percent to 29 percent.
The almost universal reaction of European leaders has been that the
German people don’t know what they’re talking about, and many German
politicians have paid lip service to the same idea. For Bosbach, this is
a danger to democracy. “It may well be that people don’t understand
every last detail about the Greek budget and the situation on the
financial markets,” he says. “But they have a keen grasp of how
successful the rescue measures are likely to be. And up till now, at any
rate, the skeptics have been vindicated.”
I spoke about this democratic disconnect with Michael Fuchs, the
deputy chair of Merkel’s party in the Bundes-tag, who is responsible for
economics and the euro. He was sitting in his office near the
Brandenburg Gate, preparing for a trip back to his constituency the
following day, and he admitted his voters were getting restive. “We are
growing far apart from our people,” he says. “I tell you, the questions I
get are not really . . . convenient. Somebody will say to me,
‘Michael you’re a nice guy, but can you explain to me why I have to work
until 67 and I get [as a pension] 46 percent of my final salary, while a
Greek guy is retiring at 57 with 94 percent of his last salary?’ ” In
the past two years, German journalists have coined the word
Wutbürger—a rough translation might be “rageniks”—to describe such people.
Jörg Krämer believes the tensions between voters and politicians may
now be affecting the financial rescue efforts themselves, because
markets believe popular discontent constrains governments and undermines
their credibility. “Sooner or later, politicians will pick up this
‘anti’ sentiment,” says Krämer. “A new government may step away from the
guarantees the last one gave. This, in the end, explains why the
bailout policy doesn’t work. Because on paper it looks perfect.” In
fact, France’s Socialist presidential candidate, François Hollande,
favored to beat Nicolas Sarkozy in April’s elections, has threatened not
to honor the arrangements Sarkozy reached in France’s name at a
November Euro-summit and last week’s meeting in Brussels.
Like Sarkozy, Merkel has been dealt a difficult hand. She would not
be paranoid to worry that, sooner or later, some eloquent member of her
party will topple her by rallying the nation’s natural majority against
the bailouts. Germany’s Supreme Court ruled last fall that all further
efforts to aid struggling eurozone countries must be approved by a vote
in the Bundestag, not by ministerial sleight-of-hand. So her binding
undertakings on solving Europe’s debt crisis must be public ones, not
backroom deals. To complicate matters further, her Christian Democrats
rule as part of a coalition with the Free Democrats (FDP), traditionally
Germany’s pro-market party, and the FDP is a zombie party.
The FDP’s problem is that its leadership insists tax cuts are the
answer to every policy question. German voters apparently believe that
tax cuts are the wrong answer, at least when the questions involve debt.
The FDP’s national popularity has lately fallen to 2 percent—below the
threshold at which parties can enter the Bundestag. And the country,
more generally, is moving left. A year ago, antigrowth protesters in
Stuttgart, furious at plans to demolish the city’s beloved train station
to make way for a $6 billion commercial complex called Stuttgart 21,
gathered by the thousands for weekly demonstrations. Last spring those
protesters played a role in booting Christian Democrats from the
governorship of Baden-Württemberg, which they had held since 1953.
Merkel is more an operator than an ideologue. She is a perspicacious
observer of both allies and adversaries. As evidence, people who know
her say that she is uproariously, if sometimes cruelly, funny, and does
devastating imitations of Sarkozy and King Abdullah of Jordan. Although
raised in East Germany, she did not travel in dissident circles before
the end of communism. Indeed, a curious report in the newsmagazine
Der Spiegel
on the twentieth anniversary of the fall of the Berlin Wall revealed
that she had spent that fateful day at the sauna. She has got to where
she is not by sharing her party’s instincts and opinions but by sizing
up its leaders and outmaneuvering them. An entire generation of
conservative leaders who vied with her for leadership of the
party—including Stoiber, former CDU chairman Friedrich Merz, former
governor of Hesse Roland Koch, and the present (figurehead) federal
president, Christian Wulff—have found new employment. Her only remaining
potential challenger within the party is Ursula von der Leyen, the
Brussels-born labor minister and leonine mother of seven, who is the
daughter of the former governor of Lower Saxony.
Merkel has responded to shifting public opinion by shifting her party
to where the votes are. At the Christian Democrats’ annual convention
in Leipzig this November, there was much grousing among the party rank
and file about the “Social Democrat-ization” of the CDU, especially as
Merkel tried to rally her mostly free-market loyalists behind a minimum
wage. (She succeeded.) Last March, during the two weeks that separated
the Japanese tsunami from that Baden-Württemberg governor’s election
mentioned above, where environmental issues loomed so large, she
reversed years of party policy and committed Germany to the dismantling
of its nuclear power plants. She has taken up the Social Democratic
positions on limiting compulsory military service and reforming
secondary schools. “Tell me one difference between Social Democrats and
Christian Democrats right now,” says SPD economics spokesman Carsten
Schneider. “I can’t name one.”
While Merkel, by temperament, could change her position on the euro,
that is easier said than done. Journalists who have spoken to her
privately say she expresses frustration that if she invites 10
economists to a meeting, she gets 100 opinions. She sees the difficulty
of rescuing Greece and has dropped broad hints that Greece might need to
leave the euro. According to a senior CDU politician it was she—not
Sarkozy or European leaders more generally—who laid down the law to
Greek leader George Papandreou when he announced a referendum on an EU
bailout package last fall.
By contrast, a German exit from the euro is a course that Merkel is
unwilling even to discuss, and she has been categorical in her
commitment to the single currency. “If the euro fails,” she said
recently, “Europe fails.” Her attempts to balance the needs of Europe
and those of Germany have often left her with the worst of both worlds.
That is, while many in her party consider her a spineless and indecisive
Europhile goody-goody, those in neighboring countries see her as a
predictably Teutonic stickler for
Ordnung. You can see her depicted in Greek and Italian editorial cartoons wearing a Bismarckian
Pickelhaube or a
Stahlhelm of the sort favored by the Wehrmacht early in the last century.
Words and Bonds
The simplest method of rescuing the euro is for the debtor countries
to leave the eurozone and adopt new currencies. Unfortunately, that
appears to Europe’s best economists highly dangerous. Once you rule that
out, there is no point in mincing words: The choice is between (a)
allowing the currency to break up and (b) rescuing it by having prudent
countries pay the debts of profligate ones.
Option (b) means consolidating fiscal authority in Brussels, and
allowing that central authority to issue debt in the names of the
formerly sovereign member states. Effectively, it means disbanding the
countries that make up the EU. Economists speak of “fiscal union” among
European countries. There is, however, little agreement on what these
words mean.
“In Germany,” says Thomas Mayer from his office atop the
Deutsche Bank tower, “fiscal union basically means you send fiscal
policemen into southern European countries to force them to have
austerity budgets. When the southerners talk about fiscal union, they
expect large-scale transfers from north to south. With such a different
debate, we never will get fiscal union.”
Most economists think real fiscal union will eventually require some
kind of “eurobond”—a common pot of credit on which all countries can
draw. Eurobonds represent everything that the historical experience of
Germans warns them against. The more irresponsible the country, the more
irresistible the appeal of eurobonds. That is why German politicians,
with few exceptions, deplore them. Barely has the word “eurobond” formed
in my mouth when Michael Fuchs replies, “Nonsense. We need pressure on
those countries to do something. If you don’t use pressure, they will
start partying again.” (This moralistic language—describing indebted
countries as “partying”—is common in German discussions of money.
Countries deep in the red are called
Schuldensünder—“debt-sinners.”)
Germany’s bankers are even more skeptical about eurobonds than its
politicians. Axel Weber—formerly head of the Bundesbank, formerly a
prominent German member of the European Central Bank, and formerly
viewed as the likely next head of the ECB—resigned from his posts when a
plan for the bank to buy troubled countries’ debt on the secondary
market passed despite his opposition. When the ECB started buying
Italian bonds last summer, its second-most prominent German, chief
economist Jürgen Stark, resigned, too, rather than participate.
Even in the finance ministry—where Wolfgang Schäuble, the 69-year-old
arch-Europeanist, serves as minister—there is skepticism. “People the
minister’s age and older are very conscious Germany was given a second
chance,” says one ministry aide. “They see the EU as the vehicle for
Germany’s redemption, and they are willing to make concessions to
protect the euro. But they can’t make concessions that don’t work.”
Still, there has been a subtle change in the way the ruling
coalition’s politicians address the issue of eurobonds. Last year they
said: No eurobonds. This year they say: No eurobonds until Europe has
the proper rules in place. In fact, the way Germans use the word
“eurobond” in arguments over the euro crisis has a lot in common with
the way Americans use the word “quota” in arguments over affirmative
action. Some people genuinely hate the thing. Other people merely hate
the word, because they think it costs them votes. Sigmar Gabriel, head
of the Social Democrats, made this point last fall when he argued that
the Christian Democrats, despite their professed abhorrence of shared
liability, had laid the groundwork for a eurobond by agreeing to buy
rickety European debt. I asked one politician in Berlin in November if
he thought eurobonds were an inevitable part of the solution to the euro
crisis. “On the record I say no,” he said with a smile. “Off the record
I say yes.”
‘They are all going to hate us’
Under pressure of the euro crisis, Germans have taken on the traits,
ostentatiously and publicly, of an older Germany, with which recent
generations of Europeans are unfamiliar—an aphoristic, proudly
provincial Germany that tends to present everything as common sense or
home truth. “You cannot fight debt with debt!” says a provincial finance
minister. “Sovereignty ends where solvency ends!” says a national
newspaper editor. “You don’t ask the frogs”—the Greeks are the frogs in
this one—“if you can dry out their pond.”
Certain Germans are, for the first time in decades, willing to say
they know better and to needle those who don’t. The rental car magnate
Erich Sixt ran an ad in Greece over the summer: “Dear Greeks! Sixt is
accepting drachma again!” The Germans’ newfound confidence is visible to
anyone who comes from an English-speaking country drowning in debt.
Volker Kauder, the leader of Merkel’s Christian Democrats in the
Bundestag, warned Britain on the eve of a November summit that it ought
to fall into line behind Franco-German plans because “Europe is speaking
German now.” This attitude worries some people. They see it as a step
towards nationalism. “Go into a German football stadium sometime,” said a
friend of mine who was raised in the West Germany of the 1980s, when
patriotism was still taboo. “Suddenly everybody knows the national
anthem.”
That is a misplaced worry. But the traditional German deference to
American judgment, which received a severe blow during the Iraq war, has
been further damaged by the debt crisis. On a train from Munich to
Leipzig I ran into an executive who managed to convey a bottomless
contempt for both America’s tort lawyers and its designers of
derivatives. “In your country,” he said, “where you have to a put a
sticker on your microwave saying ‘Don’t put your pet in here!’ how could
you make these financial weapons of mass destruction?”
Other Germans
express impatience with Timothy Geithner’s frequent visits to lecture
Germans, and America’s stewardship of its own debts is universally ill
viewed. Economist Hans-Werner Sinn believes certain Americans support
eurobonds as a way of having someone else pay for the losses of American
investment funds. “I think everyone here understands that game.”
The bleakest view of American irresponsibility comes from the largely
pro-American Edmund Stoiber, who believes the country’s $15 trillion in
debt will have “unforeseeable consequences” for the world. “This is
something I could not have imagined five years ago. Democracy is for me a
sacred thing, and today the democracies are losing their prestige. They
are associated with debts and crises.” He notes scathing remarks made
by Chinese deputy foreign minister Fu Ying about the tendency of Western
democracies to rely on debt and adds, “That is a terrible insult that
unfortunately has a grain of truth in it.”
Last year, the labor economist, central banker, and Social Democratic
politician Thilo Sarrazin wrote the most controversial German
nonfiction book since the Second World War.
Deutschland schafft sich ab
(“The Abolition of Germany”) addressed the mismanagement of the
country’s welfare state and the demographic decline that would make its
programs hard to fund in the future. It added a few home truths about
declining scholarship and productivity in Germany’s increasingly
immigrant workforce. Sarrazin made his points with a freewheeling
bluntness that certain Germans deemed unseemly in a countryman. Angela
Merkel was one of those certain Germans. She forced his resignation from
the Bundesbank.
In his pleasant house on the outskirts of Berlin, surrounded by
larches and pines, Sarrazin is writing a book on the euro. While still
in the early stages, he says a lot of the discussion about the
currency’s merits reminds him of a speech by Brezhnev to the Communist
Central Committee or the pope’s Easter message. “You understand?” he
says. “You can do nothing else but applaud, but it doesn’t get you any
further.” Sarrazin has a reputation for stating plainly what many
Germans think but don’t dare say, and so it is with the euro. When one
gets past political piety, Sarrazin believes, one is brought face to
face with the simple cause that has doomed most currency unions:
different national habits. Modern Italy, he notes, has existed for 150
years. “They still have not come to grips with the economic problems of
the south,” he says. Europe is unlikely to do better with habits that
vary even more widely.
The idea that such differences could be transcended arose in the
immediate aftermath of the Second World War. “Germany was not only
militarily but morally defeated,” Sarrazin reflects. “One discovered the
Europe of Charlemagne, of Franco-German friendship. Many Germans wanted
to give their nationality up in favor of being part of Europe. But in a
Europe where all the neighbors choose to stay Dutch and French and
Czech and Polish, you have no choice but to stay German. Even if some
Germans don’t like it.”
Others see Germany’s role in Europe changing, too. “The assumption
that we finance Europe, that’s over,” says Klaus-Dieter Frankenberger.
“That because of history, the war, we have to spend ourselves out of
historical guilt. That’s over. Unification made a difference.”
Germany may not be changing as quickly as Frankenberger thinks.
Germany still has an unusual—that is, an unusually
diffident—relationship to Europe. There is still a limit to how far
Germans will permit themselves to go in expressing discontent. “They run
amok over Stuttgart,” says the independent economic adviser Bernhard
Eschweiler, who worked for 17 years at J.P. Morgan. “But not over the
euro. The public in the end will not give the green light to pull out of
the euro.”
Germany, unlike other Western countries, has no party built on
hostility to the European Union and no hot-blooded anti-euro populist.
The closest approximation thereof is Peter Gauweiler, a sharp-witted
Bavarian lawyer who belongs, like Edmund Stoiber, to the Christian
Social Union (the Bavarian sister party of Merkel’s Christian
Democrats). He was a protégé of the CSU’s charismatic orator and leader
Franz-Josef Strauss in the 1970s. This fall, he narrowly lost a bid to
become the CSU’s deputy leader and to set the party on an overtly
anti-euro course. The battle pitted the party establishment against
Gauweiler and most of its rank and file. Gauweiler has launched a number
of lawsuits over the years, including most recently the one that
resulted in the decision requiring a parliamentary vote for any new
bailout funds.
Gauweiler is a welcoming, voluble man with a big, white moustache. He often wears Bavarian
Tracht.
He is also well read. It is tough for an American journalist to get him
off the subject of American literature (Twain, Hemingway, Fitzgerald,
Gertrude Stein), for which he has considerable fondness. He, too, likes
moralistic aphorisms. (“Going into debt is like taking drugs,” he says.)
And yet, when you ask Gauweiler, the most ardently anti-euro politician
in Germany, whether Germany should pull out of the single currency, he
is brought up short. “Well, that’s very hard,” he says. Almost at a loss
for an aphorism, he explains that the decision to adopt the euro is
probably not something that Germany can undo. “You can make a fish soup
out of an aquarium,” he continues, “but that doesn’t mean you can make
an aquarium out of fish soup.”
Europe is about diversity more than unity, Gauweiler thinks. In their
assumption that Europe can be made into a single market, a single
culture, it is the EU’s builders and not their opponents who have set
themselves against European values. Gauweiler recommends a speech that
Thomas Mann gave shortly after World War II in which he explained that
what Germans wanted in the future—or ought to want—was a European
Germany, not a German Europe. “This whole business with stability and so
on is about making a German Europe,” Gauweiler says. “You understand?
We give them money and vouch for their credit, and we tell them: ‘Do
this and do that.’ They are all going to hate us.”
Christopher Caldwell is a senior editor at The Weekly Standard
and the author of Reflections on the "
Revolution in Europe: Immigration, Islam and the West."
