Stabilizing role?

Hesitant, lacking orientation and too defensive: Germany's management of the eurozone debt crisis faces criticism from all sides as the 17-member monetary union teeters on the verge of collapse.

In the eyes of many observers from the opposition, including Social Democrat (SPD) parliamentary head Frank-Walter Steinmeier, Germany is simply avoiding the seriousness of the situation in Europe.

"We are in the midst of a veritable political crisis," Steinmeier said in front of the Bundestag, Germany's lower house of parliament. "This may be the direst situation ever faced by the EU, and here in Germany our government - apart from Finance Minister Wolfgang Schäuble - is going about its daily business as if nothing were the matter."

All eyes on Berlin

Schäuble, however, despite his efforts, is still scrambling for a way to help Europe overcome its problems. While the German finance minister at the beginning of the debt crisis only hesitantly signed off on the multi-billion-euro debt package for Greece, a clear change in pace could be observed in the past week.

"We're taking pretty much everything we can find in our toolbox to come up with mutual, practicable solutions," Schäuble told German public television in an interview on Tuesday.

Schäuble, together with Chancellor Angela Merkel, will be headed to an emergency EU summit in Brussels next Thursday to discuss a second bailout package for Greece. Greek Prime Minister George Papandreou has urged Germany to approve the package - and fast; if the second bailout fails to come by the end of July, Papandreou warned, global financial markets could spin out of control.

Merkel's government, meanwhile, remains aware of the widespread opposition to the Greek bailout in the German population. So far, Berlin has taken on 190 billion euros of the EU's share of the bailout. Schäuble therefore remains insistent on banks and private creditors being involved "substantially" in the next rescue package.

"Now, more than ever, with many doubtful as to Greece's ability to pay off its debts, the private sector must take part in the rescue package. Europe has to buy itself time as it prepares a new program for Greece."

Critics of the Schäuble plan see his demand that the private sector be involved as the main stumbling block to a speedy solution to Europe's crisis. Even Jens Weidmann, head of Germany's central bank, the Bundesbank, has called the Schäuble scheme "very problematic."

Unwillingness to share credit rating

One of the main points of criticism brought against Berlin is its refusal to share its high credit rating with debt-laden states by the creation of so-called Eurobonds, something Schäuble said Germany would continue to do.

"In a currency union, where monetary policy is determined by the European Central Bank but where fiscal policy is up to each member state, we very much need a system of sanctions to force each state to fulfil its obligations to financial solidity," Schäuble said in his rejection of the Eurobond scheme.

"If all EU states pay the same interest rate, then there would be no more motivation to maintain a sound budget, and this would be a clear step in the wrong direction," Schäuble said, adding that "as long as the eurozone maintains its common currency, we cannot risk subjecting all states to a general interest rate risk.

Germany's finance minister refuses with this policy to use Germany's high credit rating as a dead pledge for the eurozone. But what credibility do such intentions really have given the numerous reversals that have marked recent German fiscal policy?

At first, Berlin insisted that the bailout mechanism be only temporary. That demand was dropped, and the mechanism was installed permanently. Then Germany pled to allow eurozone members to exit the currency union, which likewise ended unsuccessfully. Lastly, Schäuble proposed a system to establish ordered national defaults, but until now that proposal has been ignored on the European level.

The Hamburg global economic institute (HWWI) has criticized German economic policy as "inconstant," singling out a lack of "clear signals" and any "willingness to compromise."

With that said, such views perhaps overlook that German policy has maintained a sense of continuity; neither Merkel nor Schäuble have lost sight of the German taxpayer. Whether that will be enough to overcome the current crisis, however, remains to be seen.

Author: Richard Fuchs (glb)
Editor: Andreas Illmer