The tide has turned. For several years now, national and international media have presented the Euro crisis as a soap opera, pitting lazy, profligate, scheming Greeks against honest, thrifty, industrious Germans. Yet as austerity continues to bite and in light of the demands of the fiscal compact treaty, created for the most part to appease Germany, these roles are changing. Germany is now cast as the wealthy villain. Over three days at a recent Brussels seminar for Euro-area financial journalists, I watched a German journalist be torn to pieces over the policies of his government.
It is understandable why Angela Merkel and her country are being targeted. The controversial 0.5 per cent structural deficit limit included in the fiscal compact treaty essentially represents an effort to assuage German discomfort with giving further economic stimulus packages to those struggling states that Germans perceive as reckless. Yet Germany, along with France, was one of the first Eurozone countries to breach the deficit rules of predecessor the Stability and Growth Pact, by running up a budget deficit of more than three percent of GDP in 2002 and for the following three years.
The inflation issue has also become a real source of anger. Germany has been hyper-competitive for the last ten years and normally this would result in significant inflation, but German inflation has stayed around or below 2 per cent over this period and continues to remain artificially low, kept there as a result of low productivity in other EU countries. At present the German inflation rate is 2 per cent, actually lower than the Eurozone average of 2.6 per cent. This low inflation keeps Germany competitive and makes it harder for peripheral EU countries to compete. The Bundesbank refuses to relax its hawk-like view of inflation and the German people are terrified of any indications otherwise; last month, after the International Monetary Fund called on Germany to accept higher inflation, Das Bild ran a full-page cover story screaming 'Inflation Alarm!'
Germany's emphasis on austerity also comes up for criticism as it becomes clearer just how exposed it is unless naughty countries like Spain and Greece toe the line. A controversial advertisement launched earlier in the year by the conservative British magazine Spectator declared, 'Most Germans own a second property. It's called Greece.' Despite the vitriol this campaign received, the Spectator is not alone in holding that a large portion of Greek-based assets and debts are owned by Germans. German banks are the second largest holder of loans to Greece, to the tune of €34 billion. Before the crash Germany lent huge amounts to the countries who bought its exports, disregarding the quality of the loans and prospective inflation. As it demands harsh cutbacks in from those member states that want money in part to pay their loans back, the international community is less and less amused.
The poor German journalist at my seminar made three very valid points in an effort to defend the actions of his people. He pointed to the historical reasons for Germany's fear of inflation, a legacy left behind by the hyper-inflation of the 1920s Weimar Republic, itself a result of the government's mass printing of money to pay off reparations imposed after the first world war. Because of this memory, he said, inflation for Germans is like corporation tax for the Irish; they are simply unwilling to move on it. He also pointed out that Germans resent criticism as they provide such a large part of Europe's bailout fund, second only to Luxembourg; Germany has a 27.1 per cent share in the ECB and 6 per cent voting rights in the IMF, and pays out accordingly. Finally he made the point that, a mere ten years ago, Germany was called 'the sick man of Europe.' It struggled in the late 90s, after growth slowed following high spending during the first decade of reunification. In response Chancellor Gerhard Schröder introduced painful labour and market reforms and despite enduring the worst recession since 1945, Germany managed to return to growth and keep unemployment remarkably low. German people, said the embattled journalist, feel that Europe ignores where Germany's success has come from, those painful years of harsh reform.
Ultimately we journalists would do well to remember that there are no singularly villainous or righteous countries in this crisis. It is playing out as more of a thriller than a soap opera, as everyone has so much to lose.