We don’t know whether 2017 will bring surprises as formidable as those in the year now drawing to a close. Here in Europe, there is the threat of two risks that are each bigger than the Brexit ever was. The first would be an electoral victory by Marine Le Pen in France. At the least, that would put France’s membership in the European Union into question. The other major risk comes from a renewed euro crisis whose contours are already visible in Italy, Greece and Portugal.
A relatively innocuous Italian referendum over constitutional reform culminated in a political crisis. The solution looks like this: A new prime minister has been appointed; otherwise nothing has changed. There is no need to take note of his name; in a few months, Paolo Gentiloni will have disappeared in the swamp of Italian politics. What remains is a country that simply hasn’t come to terms with the euro. Since 1999, Italy has had virtually no economic growth; with Matteo Renzi, the last reformer has thrown in the towel.
There will be an attempt to postpone the inevitable, but no tricks by the central bank are of use against citizens’ indignation. At the same time, all the opposition parties are in favor of leaving the euro zone. At some point, they will form the government.
The fear of a collapse of the European Union and the ensuing dependence on Russia is countered by the fear of a disappearance of any sort of orderly politics.
At that moment, Germany will face a momentous question, perhaps as early as next year. Chancellor Angela Merkel might just be confronted with the consequences of her policy of perpetual postponement.
It’s hard to know when, but certainly at some point, a monetary union that is anchored by a Germany brimming with strength and enjoying a current account surplus of 9 percent of economic output will at some point run into economic and political realities.
Germany will then have to decide: whether to permit all those things we said we would never do – budgetary transfers, debt cancellation by the European Central Bank, joint government bonds? Or will we allow the monetary union to break up into a northern and southern half?
A break-up would bring enormous expenses. Italy would service its foreign debts, including those with German banks and insurance companies, with a new, devalued currency. With the departure of southern Europe, the value of the remaining euro would be boosted in relation to the rest of the world, making German industry less competitive.
But above all, that would mean the end of European unity. In the best scenario, there would be a division into two parts. But more likely would be a quadruple division into a northern euro, a southern euro, a pro-Russian grouping of eastern countries and Great Britain in the split-off West. Then at the latest, Europe would be crushed by the alpha beasts in Washington and Moscow.
We are headed toward a conflict that will cut deeply into the German soul. The fear of a collapse of the European Union and the ensuing dependence on Russia is countered by the fear of a disappearance of any sort of orderly politics. Then there is the fact that Germany, with its massive trade surplus, is more dependent on the rest of the world than are other nations. Viewed from within, the German economy is extremely robust. Viewed from without, the picture is different.
The conflict is already evident in the German attitude toward Greece. The International Monetary Fund refuses to participate in any further program for Greece without a haircut. For domestic policy reasons, Germany can’t participate in such a debt-reducing deal. A new crisis over Greece is looming on the horizon.
The correct decision would be to keep the euro zone and the European Union together politically – even at the cost of the basic elements of a political order. I suppose this is also the chancellor’s political instinct. Sigmar Gabriel and Martin Schulz most likely hold similar opinions. But I’m not certain whether it will also be the instinct of the new Bundestag or will be shared by German media, economists and constitutional lawyers.
I hope that pragmatism will gain the upper hand, because I simply cannot imagine that any other decision is possible in the field of conflict between political dogmatism and millions of jobs.
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