The treaty will formally be signed in March and was presented as the first step in a strategy to win back the confidence of the financial markets and the large number of European citizens who still wonder whether or not their leaders are able to come up with solutions that really work. The second move in mid-February should be a new bailout package for Greece. That will only happen, though, when the Greek government manages to strike a deal with banks and other private holders of Greek bonds over the losses they are willing to accept. In the third and final stage of this plan, the EU has to agree in March on the details of the European Stability Mechanism (ESM), the permanent bailout fund that should be big and robust enough to protect Italy and Spain against the risk of default and prevent similar future accidents in the eurozone.
Criticism on this approach has been strong from the start, both inside the EU and from institutions like the International Monetary Fund (IMF). According to many experts, the policy is too much focused on limiting spending and cutting budget deficits and too little on stimulating the economic growth necessary to reach balanced budgets in the foreseeable future. Guy Verhofstadt, former Belgian prime minister and now leader of the Liberals in the European Parliament, summarized the criticisms when he commented on Monday’s deal: “The new agreement consolidates fiscal discipline but omits completely to address the other side of the coin -- that of solidarity and investment that will create jobs and growth.” Joseph E. Stiglitz, a Nobel Prize-winning American economist, has lambasted the European obsession for cutting deficits. Stiglitz called the new EU treaty a “suicide pact” that risks pushing Europe into a coordinated and self-defeating recession.
To a certain extent, these comments did have an influence on EU thinking. Apart from the new budgetary rules, the EU leaders on Monday also adopted a policy paper to stimulate job-friendly growth. Few people were impressed by these good intentions because, as one commentator put it, they look like new deadlines for old promises that were made before and were not successful in creating jobs for the rising number of unemployed young Europeans.
Much of the blame for this European inability to come up with a balanced policy to solve both the acute problems with the euro and create the proper conditions for a longer term recovery, has been put on the shoulders of German chancellor Angela Merkel. Analysts have called her “stubborn” and too much focused on imposing a German fiscal and monetary model on the rest of Europe. Romano Prodi, the former president of the European Commission, called the German leader “egoistic,” echoing a broadly shared frustration among other European politicians who are afraid that Germany is becoming too powerful. In several EU member states a debate has started about the prospect of German domination of the EU, a union that was always based on the understanding that it would not be good for internal coherence and acceptance if one country would dictate decisions.
Long term EU observers have tried to explain the recent German assertiveness by stressing the fact that Merkel and her advisers belong to a new, post-World War II generation that is not hindered by the old, historically induced modesty that characterized previous German leaders like Helmut Kohl. As the rest of her colleagues, Merkel is there to defend the national interest, in her case the German national interest, as she sees it. As one of her close aides put it: Europe should get used to the fact that for Merkel German financial interests are sometimes more important than European integration.
That is the new European reality. Germany is contributing by far the most money to save Greece and other ailing eurozone countries because it is the best performing economy in Europe with a clear self-interest in a strong euro. In return, Berlin wants to be sure that the EU is not wasting that money. The rest of Europe should get used to those new facts of life. Germany, on the other hand, should understand that sometimes less pressure and more flexibility would do wonders. Above all, it should realize that with power come more responsibility and less appreciation. It is indeed lonely at the top.
