PERSPECTIVE Europe: Sink or Swim? The German Approach to the Crisis May Prove to Be Economic and Political Dynamite for the EU BJÖRN HACKER July 2011 The crisis in the Monetary Union continues. Rearranging a few deckchairs on the flagship Europe will not do the job. With every ad hoc measure European integration threatens to be blown off course. The first prophecies of doom already warn of the EU project running aground on a sandbank. A visit to the engine room to readjust the motor of integration is therefore unavoidable. But the blueprint for this cannot simply serve the interests of the German government alone. Since debtor and credi­tor countries are in the same boat only a common effort will refloat the vessel. Fiscal Union»Lite« Based on German Rules? After some initial hesitation and manoeuvring Germany last year assented to the rescue package for Greece and, subsequently, financial assistance for Ireland and Portugal under the umbrella of the newly established European Fi­nancial Stability Facility(EFSF). The German government approved the abolition of the so-called»no bailout« clause of the Lisbon Treaty, advocating the establishment of a permanent European Stabilisation Mechanism(ESM) from 2013. It takes seriously – as documented in its plans for a»competitiveness pact«, which was transformed into a»Euro Plus Pact« at the March summit in 2011 – the fact that this crisis is no mere accident or something temporary that can be waited out, but the result of far­reaching socio-economic differences between the mem­ber states. However, Germany will have European neighbours pay up for pushing through these steps along the arduous path to overcoming the crisis, although they are the right ones. This is because Berlin considers those states respon­sible for the debt misery whose competitiveness lags con­siderably behind that of Germany. Centrestage stand in particular the so-called GIPS: Greece, Ireland, Portugal and Spain, which reportedly lived beyond their means for a long time, thereby putting the common currency in jeopardy. „ „ Financial assistance in the form of loans and guaran­tees should accordingly be granted only under strict con­ditions. Permanent new national programmes for aus­terity, wage cuts and privatisation are the consequence. „ „ The economic policy autonomy of the states covered by the rescue package is significantly curtailed; the key decisions are taken in Brussels and only implemented lo­cally. „ „ Interest rates on emergency loans are horrendous. Any country wishing to borrow from the EU can count on stiff surcharges. The transaction is supposed to reward the creditor. „ „ Hopes of preventing future crises are pinned on a stricter stability pact. Even the ten-year growth strategy »Europe 2020« is being subordinated to the criteria of budgetary control over the so-called European semester. The background to this list of measures lies in the un­derstanding of the EU as an area of permanent competi­tion between the member states for investment, jobs and production locations. Thanks to its export-oriented indus­trial base, its wealth of innovation and high productivity Germany is in a good position. That is a fact. Another fact, however, is that Germany has achieved this posi­tion to a considerable extent through the below average development of real wages over the past 15 years, weak domestic demand and the creation of a low wage sector.