Perception Gap Between North, South Europe Widening

While the Germans champion austerity, southern Europeans have had enough already.

German chancellor Angela Merkel addresses parliament in Berlin, September 14
German chancellor Angela Merkel addresses parliament in Berlin, September 14 (Bundesregierung/Guido Bergmann)

Tens of thousands of people took to the streets in Portugal and Spain over the weekend to protest against the austerity measures imposed upon them. Greece and Italy are begging for more time and flexibility to solve their fiscal woes. But in Germany, patience with what are perceived to be profligate Southern Europeans is wearing thin.

While in the peripheral eurozone nations, there is a sense that they’ve done more to adjust their budgets than could reasonably be expected of them, the Germans insists that they haven’t done nearly enough. As finance minister Wolfgang Schäuble put it in February, “The realization that there is a need for change still needs to develop further with a lot of people in Greece.” He could have said the same of the Italians and the Spaniards.

Despite deep spending cuts, the Greek economy remains mired in recession. Tax revenues have dropped as a result so there has been little progress in the way of fiscal consolidation. Privatizations, which were a condition of the first European bailout committed in 2010, have yet to materialize. Greek prime minister Antonis Samaras now wants two more years to comply with the terms of the bailouts.

In June’s parliamentary election, it appeared many Greek voters did not believe that Europe would take the chance of their country leaving the currency area. “They should stop the fearmongering,” said leftist leader Alexis Tsipras who proposed to renege on Greece’s financial commitments and fell less than 200,000 votes short of a plurality.

Tsipras and politicians in other Southern European countries who expect that Germany will indeed do the utmost to preserve the currency union in its present state are underestimating German apprehension. Some 65 percent of Germans have come to believe that they would be better off without the euro, according to an opinion survey published in Die Welt on Monday. Nearly one in two Germans believes that they would be better off outside the European Union altogether.

Particularly in southern Bavaria, the wealthiest of German states, Euroskepticism is rising. In an interview with Die Welt this summer, the conservative party leader there, Alexander Dobrindt said, “With Greece we have reached the end of the road.”

There must not be any further aid. A country that does not have the will to fulfil the conditions, or is not able to do so, must get a chance outside the euro.

Dutch prime minister Mark Rutte similarly said early this year that the currency union could “handle” the exit of a single country because the risk of “contagion” has supposedly been reduced. Last week, he and Wolfgang Schäuble insisted that there would not be a third aid package for Greece.

German chancellor Angela Merkel may say that she is willing to do “whatever it takes” to save the euro but that does not mean saving the eurozone as it exists today. The very fact that Northern European leaders are openly discussing the possibility of a member state leaving, which would have been unthinkable just a year ago, should raise red flags in Athens, Rome and Madrid.

Yet Greece’s Samaras is asking for just “a little room to breathe, to get the economy going” while former Italian prime minister Silvio Berlusconi bemoans the zone’s strict debt and deficit rules which he believes “hinder growth.”

In an interview with Il Giornale newspaper, the former premier, who was forced to resign in November of last year to make way for Mario Monti, said that it was “absolutely impossible” for Italy to reduce its debt by €40 to €50 billion per year.

Italy’s public debt is the second highest in the eurozone relative to gross domestic product after Greece’s at 123 percent, or nearly €2 trillion.

Berlusconi apparently believes that Italy still has leverage over Germany and its allies. In July, he casually observed that it would “not be the end of the world” if Italy leaves the euro. Roberto Maroni, the leader of the separatist Lega Nord, formerly in coalition with Berlusconi’s right-wing party, agrees. He said last month that a eurozone exit would not be a “catastrophe.”

Neither probably wants to leave the euro for it would deny the Italians access to bailout funds as well as European Central Bank bond purchases which reduce their borrowing costs without racking up inflation.

Berlusconi and Maroni are tapping into mounting frustration with the austerity efforts of the Monti cabinet which includes pension and public-sector pay cuts as well as tax increases and an attempt to liberalize the Italian labor market. Especially unpopular is a housing tax worth €20 billion per year.

Voters increasingly see the measures as designed merely to appease financial markets and German leaders rather than a program of sound fiscal consolidation that will improve Italian competitiveness in the long term.

Confidence in Monti’s government has declined to 37 percent, the lowest since it took office in November, according to a survey that was conducted by IPR Marketing for La Repubblica newspaper and published on Monday. If the parliamentary elections in April return a majority in the eurozone’s third-largest economy that seeks “flexibility” like the Greeks, it could set the stage for confrontation and increase the risk of a eurozone breakup.

Federal elections are scheduled to take place in Germany between September and October of next year. Merkel’s conservative party is favored to secure a plurality of the seats in the new parliament although a coalition with the opposition Social Democratic Party is likely. They may be slightly more pro-European but will have to take public opinion into account as well.

Further aid for “budget sinners” in the south is simply unpalatable in the bloc’s strongest economy. It would be a mistake for Southern European policymakers to bet on Germany’s desire to preserve the euro for a eurozone without them, as far as the majority of voters is concerned, would be just fine.

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