This must be what they mean by Disziplin. Germany’s reading of the debt crisis is that it is the fault of profligate governments. Monday’s “fiscal compact”, with its coercive imposition of budgetary orthodoxy, debt sustainability and economic convergence, is meant to bring them to heel. That should provide Angela Merkel, the chancellor, with the political cover she needs to increase Berlin’s commitment to addressing the crisis. The question now is whether Germany is ready to repay the favour to the eurozone.
The compact is a reworking of the discredited Maastricht treaty. Among other things, this stipulated that budget deficits could not exceed 3 per cent of gross domestic product and that a nation’s debt should ideally be no more than 60 per cent of GDP. Germany itself undermined that agreement. The compact will be more securely enshrined in law, assuming that it will be ratified by the 25 countries subscribing to it. It encourages governments to aim for structural budget deficits of no more than 0.5 per cent of GDP. That is a blueprint for economic stagnation. Citigroup is forecasting a recession in the eurozone in 2012-13 and annual growth of only 1 per cent between 2014 and 2016. Happy days.
Having imposed coercive austerity on her fellows, Ms Merkel now needs to don the armour they handed her and to look the sovereign debt crisis in the eye. The fiscal compact makes it more likely that indebted countries will need more emergency funding while markets remain closed to them. Berlin must be ready to underwrite that funding, through reinforced bail-out mechanisms or joint eurobonds. Germany should allow the European Central Bank greater leeway to intervene in the secondary bond markets. And it must reconcile austerity with the need for reviving the eurozone. The compact is a big “take” by Germany. Now it’s time for some “give”.