Trying to steer Europe through its current challenges has been compared to open heart surgery. Keeping the patient alive while fixing the problems is risky. And the patient must have confidence in the surgical team that they know what the problem is.

Germany may be the chief surgeon, but it is in a serious debate with other Europeans about the diagnosis. Meanwhile, the patient is on various forms of life support while the arguments continue.

Nowadays confidence seems to be a rare commodity at multiple levels in Europe. Citizens have doubts about their national leaders’ ability to manage the challenges and threats racing toward them. They have even greater doubts about their leaders’ ability to forge a consensus across the European Union on what ails the continent.

Germany is still confident that its assessment of the problem is correct. Unsustainable levels of debt, rampant corruption (at least in the case of Greece), and a lack of competiveness are all closely linked problems. They are the cancers that need to be removed. Ultimately, the disease is the result of morally reckless behavior, and the patient can only be saved if he himself finds the moral fiber to redeem his actions. A recent op-ed in the Washington Post by foreign minister Guido Westerwelle spelled out the cure. There was a mix of bitter medicine and therapy along with rehabilitation, which can last for years. But overall, according to Westerwelle, the heavy lifting has to come from member states themselves. Too much solidarity would kill incentives to implement structural reforms and abandon the road to perdition. Germany’s strategy of providing just enough solidarity to give weaker euro zone member countries enough time to enact reforms is therefore still seen as the best way forward. Greece is almost perceived as a dangerous annoyance. It provides excuses to all those countries not entirely serious about getting a grip on their debt problems and doing what is necessary to regain competitiveness.

It’s therefore not surprising that Westerwelle praises the structural reforms some EMU member states have undertaken, and he encourages them to stay the course. His message to euro zone member countries is simple: be patient and virtous, endure the pain. He adds: “The experience in Germany, Poland and the Baltic states indicates that they will succeed.” Unfortunately, this fatherly empathy is unlikely to stem the rising anti-German tide across the continent and the Atlantic. In fact, it could even have the opposite effect. Politically, as the election results in Greece and France have shown, resentment against the German approach to the crisis has already claimed a number of victims. While polls show that Germany might be admired for what it has achieved over the last several years, most Europeans still do not want to become German.

Overall, Westerwelle’s grand plan for growth—although intentionally kept wrapped in vague generalities—is more revealing about underlying German attitudes toward the crisis than it is about practical solutions. The German government is merely trying to rebrand its austerity-driven approach and give it a different name. Let’s just take a look at a few facts.

  • As Westerwelle points out, it is true that Germany underwent its own process of structural reforms. It is also true that this adjustment was not painless. But Westerwelle seems to forget that it would have been far more painful if most of the other European countries had undergone the same adjustments at the same time as Germany. Cutting back in lockstep would have dragged the euro zone economy into a steep and long recession, and Germany would have been forced to deal with unemployment levels well above the high mark of 5 million it reached in the past decade. Instead, while Germany was reforming, it chose to ignore the strict budgetary rules contained in the Stability and Growth Pact. In addition to that, the rest of the continent kept on buying German products (true, in large part with borrowed money). A relaxation of budget constraints and the credit-driven shopping spree in the periphery partially offset the adverse effects of German reforms. Essentially, Europe provided a large credit-driven stimulus to German companies.

Many experts now argue that the time has come to return the favor. They have a point. The problem is that a slightly more ebullient German consumer would be more likely to stick to buying German rather than foreign-made products.

  • Westerwelle says that European funds could help struggling euro zone economies. There is no question that EU structural and cohesion funds could be better used to stimulate growth. However, the money that could be freed up is only a drop in the ocean. Nobody, not even the Germans, thinks that European structural funds have the potential to spur growth in countries currently mired in a steep recession.
  • Westerwelle sees a growing role for the European Investment Bank. Indeed, the European Investment Bank should be recapitalized and could help fund specific projects across Europe. However, the EIB cannot substitute a malfunctioning banking system in a country as big as Spain.

None of what Westerwelle is proposing will have the desired effects unless larger issues are addressed, such as some form of euro bonds (whatever name they are given), banking integration (through a euro zone-wide deposit insurance, a centralized bank resolution authority, and direct injections of capital into failing banks through the European Financial Stability Facility and the European Stability Mechanism), and a new institutional architecture of the European Union. In the absence of these steps, or at the very least the commitment to address these weaknesses, the crisis of confidence will continue to destabilize Europe. It is disingenuous to pretend that the current turmoil is only the result of a debt-crisis compounded by a lack of competitiveness in a number of peripheral economies or domestic corruption. What we are witnessing is a deep political and institutional crisis.

Westerwelle missed the chance to spell out what is really needed and why bolder steps must be taken. What he says is not necessarily wrong, but it is simply not enough. If he, his boss, and other euro zone leaders continue to be tempted to look at polls to find the answers, they will fail. Polls reflect too many contradictions and encourage inaction—as the latest findings of the Pew Institute point out, most Europeans don’t love the euro, but want to keep it. They understand that the project has flaws, but don’t want more sovereignty to flow toward Brussels. Just like the Greeks, most Germans want to keep the euro but not pay the price. Attempts to devise solutions based on all these contradictory messages are like trying to square a circle. Just as the Greeks must realize that membership in the euro zone comes at a price, German politicians too have an obligation to finally tell their citizens some hard truths about the necessary sacrifices.

Without the hard truths, the doctor will only continue to treat the symptoms and not the disease, thus failing to save the patient. It is pretty pointless to remove a cancer if the patient’s heart is failing in the meantime.

  • Chris T.

    What the authors are proposing here (a further integration on a Europe-wide level in some areas) does not differ much in kind from the recent Economist story.

    In the beginning of the article, you point out the growing anti-German backlash across Europe, meaning against that which is perceived as Berlin’s dictat.
    That may be correct, but just because this posturing goes on, does not mean one has to make policies designed to avoid it.

    After all, a little child also shows ant-parent backlash when being told what to do. Do the parents desist to gain the child’s approval? Hardly if they are good parents.
    But it does point to a fundamental flaw in Berlin’s approach:

    Giving financial support with strings attached will inevitably have this outcome, adn needlessly so.
    It would have been better for Berlin to give NOTHING at all, so that no prescription to the recipients would be necessary either.
    Any anti-German backlash would then only have been because of inactivity, not for making dictats.

    But the fundamental flaw of the Euro is not addressed in this article, or across most of Europe:

    The Euro was NOT intended by its creators as currency on its own terms, but as a TOOL to be used to force an unwanted further European integration upon the citizens of the various member countries.
    All problems of the Euro system of a grave enough nature were seen not as bad things, but rather welcomed as opportunities to be used to ride roughshod over the citizenry not desiring a USE.

    Thus, for outsiders to now come along and propose exactly such a policy of further integration (even i only in some areas) is playing right into the hands of the original schemers.
    Whether the Euro was actually a flase-flag created for this purpose, or whether well meaning actors merely accepted its flaws with the pro-integration thought in the back of their heads, is irrelevant.

    The proper approach for Germany all along, and STILL today, is let those directly involved deal with this one their own. If that means no indirect bail-outs by Berlin to German banks (the ones really being bailed out, not Greece, or the other countries), then so be it.
    This is what should happen in the US, etc.

    IIf (actually when) Greece defaulted, that would not even have to mean a Euro-exit:
    why should a little economy such as Greece’s be any different in this context than, say, a large corporation?
    If they did, all creditors would receive the hair-cut they deserve for their stupid, Berlin-put, lending practices, and the defaulter would then have to learn to live within their means.

    Tough sure, but can and will be managed. It mostly means giving up the notion that the last 10-15 years have been anything other than an illusion (of wealth, growht, etc) for the countries involved.

  • K Bledowski

    It is hard not to feel pessimistic about Europe’s travails. And the angst keeps growing with every passing day. Even with the best of intentions by some, wide gulfs in preferences, national interests, and popular perceptions remain. There is no institutional space bridge them. It took about a year for “Publius” to pen the Federalist Papers and they had it easy: an open space – tabula rasa – to work in. Europe doesn’t lack the brains of Hamilton, Madison and Jay. What it lacks is Hamilton, Madison and Jay. The busy “space” is actually an obstacle in reaching compromises. Germany and Greece loom as outliers to coming to terms with even the very basic common ground around which the rest could agree. Add the mixture of national political pressure, local prejudices, and falling incomes, and we have a recipe for discontent to fester along.

    If we take it that economics really underlay the integration process in the past 50 years, then economic instincts will guide Europe out of the doldrums. It’s the only solace I see on the horizon.

    • Chris T.

      “economic instincts”:

      That would be helpful all around.
      Unfortunately, these instincts are not of the masses, but of the elite. Anything the masses see only flows to them.
      And because the elites, with minor laudable exception, still believe and propagata failed economc theory (Keynesian then and again now, also at times and to some extent Friedman’s), this instinct will only provide more problems.
      When a problem is misdiagnosed, the wrong cure will be prescribed…