Don't like the bailout? Neither do Germany's reluctant rescuers


EUROPEAN DIARY:Impatient with the bailout states and discontent with the EU, Germany’s bargain with Europe is in flux, writes ARTHUR BEESLEY

ANGELA MERKEL is holding court in a glassy conference room overlooking the Bundestag. The markets are in uproar again over Greece, but the German leader is in reflective mode as she discusses the titanic effort to defend the euro.

“Obviously what we are doing here is to lay the ground for the future,” the chancellor says. “There is not as yet a satisfactory response as to how we deal with the sins committed in the past but I think the fact that we have looked at those squarely in the face and tried to address them is already progress.”

In battle-weary Berlin, scene of bruising political fights over the sovereign debt debacle, Merkel is still coming to terms with her unexpected new role. The crisis casts a wary country in the fateful guise of guarantor-in-chief for the euro zone, raising insistent questions about the evils of a European transfer union.

Reluctant to rescue Greece, Merkel’s dithering last year worsened the crisis. But there’s no going back now.

Problems multiply. Merely a year into the Greek intervention and Athens is again on the rack. Ireland has been rescued, but wants better terms. While a long-delayed Portuguese bailout is now done, the deal still rests on an unpredictable election next month. Spain remains a risk. In the political backrooms of Berlin, they have yet to fully figure out what to do about all this.

Even if big questions over past fiscal “sins” remain unresolved, it seems clear enough by now that the chaotic course of the drama serves to magnify German power.

Many say “more Europe” will be the natural outwork of the crisis, at least for now. In reality it means “more Germany”. Merkel’s effort to recast the single currency area in Germany’s image via her “Pact for the Euro” was portentous.

As Europe grapples with the latest Greek outburst, she remains in prime position, the one with the final say.

Why else was IMF chief Dominique Strauss-Kahn due to have met her on Sunday before his planned meeting with finance ministers in Brussels? Fateful events in the Sofitel New York intervened, but the point is clear.

At issue right now is whether Athens defaults, something Merkel seems reluctant to support given anxiety it could spark a wider conflagration.

Ringing in her ears, however, is a chorus of local economists who say any further prevarication will only worsen the crisis and increase inevitable losses at the European Central Bank (ECB) and state-owned banks.

What is more, Merkel was principal promoter of measures in the new permanent euro zone rescue fund which require “private sector participation” as a condition of any future bailout.

But this fund does not come into force for another two years.

Merkel’s push for early certainty over the initiative was explained by her need to avoid a tricky negotiation immediately before the next German election in 2013. Still, events may yet conspire to prompt a messy default situation at that time.

If outsiders consider her government “mean” in its European dealings, the point is quickly made in Berlin that the German public think precisely the opposite. This is key, notwithstanding high talk about the country’s historic European destiny.

Ask foreign minister Guido Westerwelle, who was replaced last weekend as head of Merkel’s Free Democrat coalition partners after a series of drastic political setbacks.

“We know that this did cost us support,” he says of the bailouts. One-third of the Free Democrats oppose the permanent bailout fund.

Around Berlin, defensiveness is discernible. A few things stand out: impatience with the Greeks and Irish; discontent at regulation-creep from Brussels; ultra-caution over the ECB’s expanding role; and an increasing preference for inter-governmental policy, which keeps the EU institutions at bay.

Certain Germans still profess astonishment that Taoiseach Enda Kenny offered “nothing” in return for a bailout interest rate cut on the night he went to battle to Merkel and Nicolas Sarkozy over corporate tax. Months later, the matter remains unresolved.

Views are strong on other Irish questions. Ask whether Ireland’s super-sized bank bailout can be perceived as a reverse-rescue of German banks courtesy of Irish taxpayers and the query is quickly dismissed.

Germans instantly point to Berlin’s nationalisation of Hypo Real Estate, a crippled bank whose demise followed a disastrous deal with a Dublin-based, German-listed bank called Depfa. Lax financial regulation in Dublin drew a certain kind of investment, they say.

In much the same way, there is widespread dissatisfaction with the relentless tide of legislation from the European Commission on “trivial” things like quality of soil.

Similarly, the Commission’s call for powers to police the Schengen visa-free zone meets with a shrug.

Germany abstained from the UN resolution to authorise the Libyan no-fly zone, separating the country from France, its closest ally, and Britain.

Berliners insist, however, that there is no waning in Germany’s commitment to its external obligations. In the 1990s, the country was told to adopt a grown-up foreign policy. The argument goes that grown-ups make their own decisions.

Expect more of the same. Germany’s bargain with Europe and its European partners is in flux. New limits have been reached, new strains are evident.