The Moral Dilemma
While promoting the work of his government to U.S. President Barack Obama, Italian Prime minister Mario Monti was suddenly asked by his host how he dealt with German Chancellor Angela Merkel. President Obama wanted to know, “How do you get through to her?” Three years into his presidency and after innumerable meetings and phone calls with the Chancellor, Obama still seems puzzled about the best way to convince Merkel of his point of view. He is not the only one experiencing frustration with German counterparts. Every time U.S. Secretary of the Treasury Timothy Geithner and other U.S. officials suggest to Europeans, particularly the Germans, to do more to stem the crisis, they are met with thinly veiled contempt.
The misunderstanding started some time ago, during the height of the financial crisis in 2008 and 2009. During a gathering of G20 nations in Pittsburgh in autumn 2009, the Obama administration asked Germany and China to help correct some of the global economic imbalances by stimulating domestic demand in their own economies. Obama made it clear that the U.S. was not going to return to being the consumer of last resort for quite some time. The then German Finance Minister Peer Steinbrueck reacted angrily. Not only did Berlin not like finding itself in the same box as China, even more irritating was the fact that the Americans, ultimately the cause for the crisis in the eyes of the Europeans, felt that they could still lecture the rest of the world. Things eventually moved on and the tone of the exchanges became friendlier.
But on substance, things don’t seem to have improved much since then. Obama talks to Merkel frequently, but he is not sure she is getting his message. Monti, about whom Time Magazine asked “can this man save Europe?,” admits that he was flattered that Obama sought his advice about how to approach the Germans. He also had an answer:
Monti explained to Obama that the Anglo-Saxon approach to the euro crisis, based solely on numbers and pure macroeconomic arguments, would never work with the Germans. According to Monti, for Germans, economic growth is still seen as the reward for good behavior. Economic policies have to go through a moral filter. A failure to understand this approach will only foster misunderstanding. In a way, Monti explained today in Washington that Germany is still stuck in a pre Adam Smith worldview of the economy. No wonder it is so hard to convince Berlin to raise the necessary funds to erect an impenetrable firewall to protect the euro zone. Monti suggests that in order to convince the German side to move, the focus must be shifted to other arguments, such as the importance of deepening the European single market, even in areas where Germans have actually behaved rather badly, such as the common market for services. In other words, by gently reminding the Germans of their own shortcomings, it might be easier to find a common approach. After all, says Monti, the first countries to openly breach the strict budgetary rules of the stability and growth pact in 2003 “were the Germans and the French, with the complicity of the Italians, who at the time held the presidency of the EU.” Monti seems to believe that it is now up to these three countries to correct the consequences of that original sin.
Once good behavior takes hold of the euro zone countries, solidarity from Berlin will follow. In Monti’s view, the fiscal compact is a giant step in the right direction. Germany should be proud, he argues, that it finally managed to spread its culture of stability throughout the euro zone.
His words were echoed by another Mario, — Mario Draghi, the President of the European Central Bank (ECB). Draghi referred to the fiscal compact as a first step towards fiscal union. But it would be a mistake, he maintains, to perceive this as the start of the fiscal transfer union. The treaty should instead be viewed as a roadmap necessary to “put countries on track to be able to stand on their own, without having to ask for financial assistance from others.” Draghi has criticized the one-track focus on financial tools, such as firewalls.
Perhaps this is true. However, having witnessed the failure of outright pressure on Germany, I somehow can’t help but think that the two Italian Marios are trying to charm Merkel into doing what almost everybody outside Germany has asked her to do for two years now – and that is to put much more German money on the table.