German Is Once Again Begged to Save Europe

There is still a school of thought that only Germany and its strong balance sheet can preserve the eurozone. The European Central Bank will not step in to buy the bonds of financially weak EU nations. Europe’s finance ministers may create a way to leverage the ESFS fund, but even with investments from outside the fund itself, the capital it would hold to rescue Spain or Italy would be too little. Germany, it has become reasonable to say, is Europe’s one strong financial foundation.

Poland’s foreign minister begged Germany to act on behalf of the eurozone. According to the Wall Street Journal, Radoslaw Sikorski told the German Council on Foreign Relations that the largest nation in the region by GDP had to take responsibility for its own culpability in the disaster. In other words, his begging came with an accusation.

He said:

We ask, first of all, that Germany admits that she is the biggest beneficiary of the current arrangements and therefore that she has the biggest obligation to make them sustainable. Second, as you know best, you are not an innocent victim of others’ profligacy. You, who should have known better, have also broken the Growth and Stability Pact and your banks also recklessly bought risky bonds.

The first point may be largely true. Germany has benefited from the agreement that allows free trade among the region’s nations. Its prowess as a manufacturer and creator of intellectual property has helped its exports. The creation of the eurozone has made those exports easier. The ability of its banks to loan local companies money for expansion is unprecedented in the region.

Whether its banks were reckless as they bought the sovereign paper of its neighbors is another matter. The same debt was bought by smart capital markets investors around the world.

Sikorski’s finger pointing may not get the German government to move in a way that makes the financial markets believe the debt crisis is over. But the loss of easy access to the consumers and businesses in the region may.

Douglas A. McIntyre