Would she consider the version of Eurobonds suggested by Germany’s advisory council ofeconomic “wise men”? Under this scheme, debts exceeding 60% of GDP would be transferred into a fund with joint liability and paid off by the debtor countries over 20-25 years. Wolfgang Schauble, the finance minister, says this too is thinkable only as part of a “fiscal union”.Mrs Merkel’s spokesman does not reject the idea categorically, but he points to “formidable” obstacles in Germany's constitution and European treaties.
There is no support for relaxing fiscal targets for Greece or Spain. But Germany’s main opposition parties want growth-boosting measures alongside the fiscal compact.Since the treaty requires a two-thirds majority in both houses of parliament,the government has to negotiate on this. But Mrs Merkel can accept much of what they want, including a capital increase for the European Investment Bank andmore effective use of European structural funds.
There are two sticking points. The opposition wants a financial-transactions tax, which the government thinks is unworkable unless all EU countries sign up to it (and Britain,for one, will not). But there are other ways to tax the financial sector that might provide the basis for compromise. The opposition also favours the wisemen’s “redemption fund” proposal. But Mr Barthle, who is involved in the negotiations, insists there will be no such fund.
The German government does not accept that austerity is pushing the eurotowards break-up. Yes, deficit cuts and structural reforms inflict short-termpain. But the rewards will come, as Germany’s own experience shows. TheBaltic countries enacted austerity and are growing fast (see Charlemagne).Voters’ revolts in southern Europe show the folly of changing course, not the risk of sticking to it. Mr Hollande told French voters he would reduce the retirement age, notes Mr Barthle. “Germansare not prepared to work until they are 67 to allow others to retire at 60.” Asfor pressure from America, Barack Obama is clearly impatient for relief before November’s election. But he does not care whether recovery can be sustained, Germans say.
Germany is in denial. The crisis has not yet hit the German economy (though it may be about to), notes Sebastian Dullien of the European Council on Foreign Relations. He doubts if the government “is aware of how bad the situation really is.” Mrs Merkel wants to save the euro but believes peripheral countries can make still more sacrifices. That misperception is dangerous, says Mr Dullien. How dangerous may become clearer after Greece votes. The German line is that Greece must decide whether to default and perhaps exit from the euro. Europe is better prepared now than it was two years ago, says Mr Barthle. There is no legal provision for a country to leave the euro but an exit from the EU might be arranged, he adds. In short, Greece must learn to swim fast.