It’s Not Only the Economy: Germany’s role in averting a Western meltdown
The observed capital flows out of distressed countries into countries that are seen as “safe harbors” have in fact resulted in historically low yields of German and U.S. government bonds and helped the respective government budgeting. However, the current trading levels are unlikely to be sustainable and should not be interpreted as substantial strength but rather as interim relative strength in a very weak environment.
The governments of affected states and the euro community must nevertheless undergo fundamental social, economic, and fiscal reforms. This ongoing process has led in part to a downturn of most European economies with severe effects on fiscal balances and the global economy as whole.
September 2012 was packed with milestone events on both sides of the Atlantic, including the decision by the German Constitutional Court on the implementation of the European Stability Mechanism and the ECB’s announcement that it would stabilize interest rates of European countries by allowing unlimited intervention in secondary government bond markets. In the U.S., the Federal Reserve Bank announced that it would initiate a third quantitative easing program to support the U.S. job market. Despite these events, many question marks remain around an ultimate solution, and the recently improved level of investor confidence remains very fragile.
In a series of online analyses, publications, and conferences, AICGS closely follows the developments of the European debt crisis and its implications for the German and U.S. relationship. Recent essays have touched on the decision in Karlsruhe, Merkel’s leadership role, and the politics of central banking.
This publication features the highlights of AICGS’ analysis: a compilation of insights into Germany’s leadership role in overcoming the crisis and its effects on the U.S. economy, the 2012 presidential election, and the 2013 Bundestag elections. It examines the choices available to Germany—stabilize Greece, create a banking union—all within the confines of politics and public opinion.