Germany’s dilemma

Quote

“There is, in fact, no law or government at all in Italy; and it is wonderful how well things go on without them.”  Lord Byron 

News

Italian prime minister Mario Monti pleaded with Germany and other creditor countries this week to do more to lower Italy’s unsustainable borrowing costs, not only to help prevent Italy defaulting on its debt but also to give some encouragement to Italians who are facing the brunt of austerity measures.  As Europe's largest and healthiest economy, Germany is confronted with a web of dilemmas.  Like Hercules slaying the Hydra, for every potential solution to the debt crisis, two more problems are poised to spring up.   

The crisis has been argued from legal, economic, political and moral angles.  For example, legally, the terms of the Maastricht Treaty prevent Germany from bailing Italy out; economically, Germany might be able to increase the firepower of the European Financial Stability Facility to the point of covering Italy’s debts, but not those of the other Eurozone nations whose debt crises are also threatening the euro.  Politically, many in Germany resist throwing good money after bad and encouraging governments that are less disciplined than their own.  From a moral perspective, it could be argued that as Germany encouraged the peripheral European countries to join the euro a decade ago, and has since trebled its exports to the Eurozone, it has a moral duty to stand by its southern partners. 

Ultimately, each of these perspectives is relational, for they describe and influence how people, institutions and nations interact with each other. The EU began as the EEC – the European Economic Community – but has moved towards an ever closer political and social union.  This shifts the nature of relationship between member states from contractual towards covenantal – a much deeper binding of two parties together for better, for worse.

Perhaps the heart of Germany's dilemma is not about the euro, debts or interest rates.  Twenty years ago the West Germans pursued a relational goal – the reunification of their country – at any price financially.  The dilemma now hinges on understanding the nature of their relationship with fellow members of the Eurozone.  Is it a covenant, which will promote the long term peace and stability of the relationship at any cost, or something much more conditional?  The future of the Eurozone may well hinge on the answer to that question.

Read on…

For those of you who have not studied economics, and feel a bit lost in the arguments, a good place to learn about some of the main principles and laws as they apply to current affairs can be found in the ‘Economics Help’ blog, which you can read here.

Walk the talk

Sometimes we're tempted to use a financial argument as an excuse to end a difficult or strained relationship.  "We couldn't afford to keep her on," or "You're just not paying your way."  Money should always be made to serve relationships, not the other way round.  Is there any situation where you need to correct your priorities?

The last word

From the Bible, Luke 12, verse 34: "For where your treasure is, there your heart will be also."