Fri, Sep 21, 2012 - Page 9 News List

Slumped in crisis, EU’s fate lies in Germany’s reluctant hands

By Ian Traynor, Kate Connolly and Siobhan Dowling  /  The Guardian, BRUSSELS, BERLIN and LEIPZIG, Germany

Uwe Albrecht has what he calls a wonderful problem. In his office in Leipzig’s fortress-like town hall, the deputy mayor says the city’s population has grown so much in the past decade that he is having to build more kindergartens and schools.

“Ten years ago we were talking about closing schools,” he said.

Now Leipzig is one of the success stories of Germany’s reunification. New roads, rail links and a redeveloped airport have sucked in investment and international companies. Yet none of it would have happened with a colossal 20-year bailout that has already cost the west of the country 1.3 trillion euros (US$1.6 trillion).

“Without the transfers from the West, it would not have been possible,” Albrecht said.

With Europe slumped in an existential crisis, looking both desperately and fearfully to Germany to supply the leadership and the money to match its clout as the EU’s central power and biggest economy, it is often forgotten that Berlin is a past master at financial bailouts. Which is why it is also weary of them.

The enormous costs the country has shouldered since 1989 have pushed many to the limits of their largesse, with people fed up with how much they have had to pay and for how long.

“People feel these transfers will never stop, that the money will just keep flowing,” said Matthias Kullas of the Center for European Policy.

In a domestic debate that mirrors the resentments across the EU, richer German states now complain about constantly having to help out poorer states via the federal subsidies system.

Just as tens of thousands of Germans tried and failed last week to persuade the country’s constitutional court to rule against the eurozone’s bailout fund, the rich southern state of Bavaria is taking similar action to try to freeze payments to poorer areas. Some southerners are calling for Bavarian independence from Germany, arguing it would be better off. In addition to the subsidies, German taxpayers stump up a “solidarity surcharge” of 5.5 percent of income tax to fund the hefty costs of unification in an arrangement due to last until 2019.

“East Germany might well need another trillion [euros],” Katinka Barysch at the Center for European Reform said.

Despite the unification fatigue, the project remains feasible for several reasons — patriotism, empathy with the less fortunate easterners, and because the process is subject to the same rules, laws, political system and culture and can be easily policed and monitored.

None of this can be said about Europe. The German merger model is not a template that can be applied on a European scale. When the euro was being created 25 years ago, then-German chancellor Helmut Kohl used to argue that German and European unification were the two sides of the same coin. The euro crisis has punctured that notion.

In the debate now raging in Germany over Europe, it has become acceptable to assert that Kohl may have been a great chancellor, but he got one thing wrong — the euro.

“It’s healthy,” said Ulrike Guerot of the European Council on Foreign Relations in Berlin. “This is the first time that Germany is having a proper polarized discussion on Europe. Europe still resonates in Germany. But now the debate is different. Some say yes, some want it smaller, some say forget it and turn their backs on it.”

This polarization is generating tremendous uncertainty and ambivalence as Berlin agonizes over which way to turn, poised between giving Europe the cold shoulder or spearheading a big new integrationist push towards a much more centralized eurozone federation. For the moment it is a case of muddling through, but few believe that this can continue for long. Whatever the outcome, Europe’s future will be decided not entirely, but mostly in Berlin.

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