Why Germany might let Europe fall
August 18th, 2011
09:00 AM ET

Why Germany might let Europe fall

By Fareed Zakaria, CNN

This is the moment of truth for Europe.

For the last year or so, the Europeans have repeatedly produced workable compromises that kicked the can forward. They hoped these compromises would quiet the markets.

This strategy was often quite successful. Europeans kept promising, “Yes, we are going to bail out the weaker countries with the greatest debt load, but we want some structural reforms in return. And as we get more structural reforms, we’ll bail them out more. And if the crisis seems more intense, we’ll bail them out again.”

The Europeans repeatedly produced packages that were enough to satisfy the markets.  Their hope was that at some point concerns would dampen down and then in the quiet of the night they could allow a country like Greece to soft default - a restructuring that doesn't spook everyone and doesn’t become a Lehman Brothers-like event.  They sought a quiet reshuffling of debt.

I think this soft landing has now become impossible.

Today what people are basically asking is: “Is Europe’s debt going to be centralized or not?” In other words, is Europe going to be willing to say, “All our debt is pooled together and theoretically, as a single entity, we’ll pay it back.”

The key to this commitment is Germany. Germany is the only country that can pay.

But Germany is increasingly reluctant to do so.  What we're watching is the rise of a new, ‘normal’ Germany, which in turn will lead to the unraveling of the old, highly unnatural structure of Europe.

The old structure of Europe rested on an extraordinary degree of German abnegation of its own interests.  The Germans believed their national interest lay in subordinating itself in every way to Europe’s broader interest.  That was what Europe was built on.

That’s why when you go to Brussels to the European Union you find a French-run affair with Germany’s money - a German-financed, French-run organization.

That has changed.  The Germans, 60-years after World War II, are understandably becoming a more normal country. They are deeply, purely European but they are not going to pursue Europe’s interests at the expense of their own.

Despite what people say, Angela Merkel has been extraordinarily willing to bail out weaker states in Europe.  Obviously, she's tried to get a good deal in terms of forcing some structural reforms in Greece and places like that.  But the real story is that she did this despite German public opinion, which is now 75% opposed to any kind of bailout. This German opposition to bailouts will surely remain going forward.

And if that is the trend going forward, the Europeans are going to have a very, very big problem. There really is no way you can make the numbers work without a much more substantial German commitment of resources than there is now.  If that doesn’t come through, it’s very difficult to see how the euro in its current form survives.

The key to Europe’s future is how Germany conceives of its interests.  If it does so in a way that would be perfectly normal (it is important to emphasize there is nothing scary about Germany simply saying that it wants to do what’s right for Germany as well as Europe rather than always putting Europe above Germany) this might be the end of Europe as we've known it.  It might be the end of Europe as a constructed, political entity built and supported by key nations, particularly Germany, no matter the cost.

For more of my thoughts through the week, I invite you to follow me on Facebook and Twitter and to bookmark the Global Public Square.

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Topics: Debt Crisis • Europe • From Fareed • Politics • United States

soundoff (644 Responses)
  1. MC in TX

    Fundamentally if the EU is going continue to have a monetary union they need to have a separation between central finances and local finances. The central government needs to have its own taxing authority and have some responsibility for continent-wide projects. The markets would then look to the central government's stability to determine their confidence in the Euro and worry less about what the local governments are going. If you compare this to the U.S., for example, if Illinois were to default it would be a big deal but the ultimate impact to the dollar and the national credit rating would not be all that bad. The markets would recognize that the default of a one state's government has only a limited impact on the rest of the country. The EU's continuing to bail out the local government's is rather like the U.S. government committing to bailing out the states if they default. In the short term that re-assures markets a little but in the long term that saps confidence in federal stability (as it should).

    August 18, 2011 at 12:28 pm | Reply
  2. unknown11

    Well, unlike the US it appears that Germany has figured out that you cannot carry the world. And unlike the US they did it before they went broke.

    August 18, 2011 at 12:31 pm | Reply
  3. GetGoated

    I see the path gets ever wider, Christ's despair that men are lost by their own desire for easy returns. What holds true in the world of finance also holds true in the world of spirituality. The difference is that their expectations are not going to be met as they desire. They will all indeed receive their recompense with perfect accuracy. You better all run and tell Jesus that he didn't do a very good job as Christ's Prophet. You all have a sunny day.

    August 18, 2011 at 12:33 pm | Reply
    • glenn robert

      Say, what?

      August 18, 2011 at 12:41 pm | Reply
  4. Rethink

    Fareed, are you becoming a Euroskeptic?

    August 18, 2011 at 12:34 pm | Reply
  5. Halcyon

    RIP European Union: 1993 – 2012.
    We hardly knew ye.

    August 18, 2011 at 12:40 pm | Reply
  6. Peter Q Wolfe

    Honestly I saw this coming as no union not even the Soviet Union could survive under one currency for a very long time. The time is beginning to show that no one currency not even with the Brentwood Conference for usd supremecy will hold up in coming years. Fact is that the world financial organization needs to quit playing favoritism and to restructure trade agreements for balance. Fact again is that Greece, Italy, Span, Portugal and Ireland need to work this out by opting out of the Euro as soon as legally permissable and to restructure by themselves with a guarnteed bail out and destruction of government and replacing them with Euro members on the fiscal positions. It is the only way even with very high interest the piper is in time to pay.

    August 18, 2011 at 12:42 pm | Reply
    • ScottJoh

      That's not exactly true, the US dollar was THE money of the world for over 50 years. Since the US economy started to falter in the 90's (due to the lack of the military using tax dollars to drive a military based economy) the world started to slowly become more unstable. The US tired to "patch it up with small wars but the bankers making money from the war wanted more. So in the late 90's the cooked up PNAC – So a war could be started to make them more money. And they succeeded but since Europe didn't share in the spoils, they faltered. And here we are today....

      August 18, 2011 at 1:29 pm | Reply
  7. Jacob

    Fareed Zakaria's analysis on this issue is 100% spot on. My friends in Germany say their country is sick of carrying all the dead weight in other European countries. They consider the Greeks, Italians, and Spanish to be very lazy, not very intelligent, and generally unworthy of any more assistance. Germans now feel all their hard work is going to subsidize other people's leisurely lifestyle. They were willing to make some serious sacrifices to keep the EU going, but they feel they are being taken advantage of by a bunch of leeches and beggars.

    August 18, 2011 at 12:44 pm | Reply
    • PT

      Yeah, the Germans tend to generalize a lot and calling whole countries lazy etc. Last time they did that was with another group of people, the Jewish, and that didn't turn out well did it?

      Step 1: Use silly stereotypes and even de-humanize whole populations to the eyes of your citizens (see "PIIGS")
      Steps 2 on are yet to be seen, but history tends to repeat itself, we all know that.

      August 18, 2011 at 2:39 pm | Reply
      • lololo

        Well good job in doing exactly the same as the "evil" germans...

        August 18, 2011 at 5:38 pm |
  8. Alienate

    Dear Mr. Zakaria,
    Don't you get a bit frustrated and depressed when you write an intelligent article, and all you get in reply are a bunch of Jesus Freaks sputtering nonsense?
    I know I do.
    It must make you think: "Why bother"?

    August 18, 2011 at 12:49 pm | Reply
    • Neutral

      Because he did not provide a solution!

      August 18, 2011 at 1:23 pm | Reply
  9. Blogson

    One has to wonder how Germany has the financial resources to continue to bail out much of the rest of the E.U. The continued bailout prospects involve a metaphorical two-edged sword – Germany has much capital invested in the rest of Europe which could go down the drain if other countries fail, but it also may go down the drain itself if it continues to bail them out. Add to that the negative German public opinion about continued bailouts and the Merkel government may be defeated in the next election, resulting in the possible end of bailouts and in radical political and economic change for Europe.

    August 18, 2011 at 12:53 pm | Reply
  10. pastafaria

    The whole purpose of the Euro was to allow the financial industries of emerging economies in post soviet-bloc Eastern Europe to piggyback off of the liquid and stable monetary systems of the established Western Europe nations. This idea was doomed to fail from the outset – there's a reason why the U.K. and Switzerland, the other two economic powers of the EU, wanted nothing to do with the Euro. Germany's acceptance of it was purely to take advantage of short term gains from increased trade with Eastern Europe, which benefited Germany disproportionally. It's not that German politicians who voted to adopt the Euro didn't know that this day would come, they just knew that it would come after the next election. On the bright side, uncertainty about the Euro is probably the only reason why the dollar might still have any international relevance 5-10 years from now.

    August 18, 2011 at 12:56 pm | Reply
  11. ScottJoh

    The German Central banks are HOPING the other EU countries fail. It will be the easiest way to take over Europe. The bank failed to do it in WWII with war so now they are trying with money. LEARN YOUR HISTORY! Those bank backed both sides of the war! Who lost the war? The people did! Just wait, the bank will start taking over govts in the near future.

    August 18, 2011 at 12:57 pm | Reply
  12. Radioman

    I think it's about time this country started behaving like Germany. Take care of ourselves first before worrying about taking care of the rest of the word.

    August 18, 2011 at 12:59 pm | Reply
  13. Andrea M

    What's with all the Jesus freaks up in this thread? If you really want to impress God, maybe go volunteer at a charity or at least go take a hike and appreciate the beauty that you believe he created. Sitting on the internet shouting about end times and how God wants us to only pay in cash is not only silly, but lazy, and doesn't really go to the point where Jesus wanted people to not only say good things, but DO good things.

    August 18, 2011 at 1:02 pm | Reply
    • RonFromNM

      Don't you know that God sits around in his underwear reading comments on CNN?

      August 18, 2011 at 1:05 pm | Reply
    • malasangre

      there is no need for good works if you believe faith alone is the answer. Every protestant minister will tell you so. its kind of , well you can if you want to but nothing can change your "fate". For all who believe Jesus is "coming back" read Matthew 28:20(?) " I am WITH you ALWAYS"

      August 21, 2011 at 11:28 am | Reply
  14. RonFromNM

    Germany is probably noticing financially how similar this would be for itself to the war reparations of WWI and saying, Danke schein, nein.

    August 18, 2011 at 1:04 pm | Reply
  15. allawash

    It's still beyond me how a country like Germany can go through two world wars and be defeated twice, a depression, have half it's country run by the USSR for 40 years, and still come out as a world leading country, all in less than a hundred years.

    August 18, 2011 at 1:05 pm | Reply
    • asdf

      German work ethic is a bit different than France or Italy where 30 hour work weeks are the norm. Germans work a little more like Americans (though still with more vacation).

      August 18, 2011 at 1:10 pm | Reply
    • isassy

      Pretty impressive, isn't it?

      August 18, 2011 at 2:05 pm | Reply
    • Sasha

      If at first you don't suceed, try and try and try again.

      August 18, 2011 at 2:59 pm | Reply
  16. asdf

    And this is why the EU economically has been a joke from day one. You are going to share a common currency with the Southern European Catholic countries but have no control over their spending. Way to lend your name to their debt Germany so they could get lots of it cheap. Once again Protestants paying for Catholics just like they have done for 500 years.

    August 18, 2011 at 1:06 pm | Reply
  17. Greek Guy

    There is no way Germany will ever give up the EURO. Even if German popular opinion is 99% for Germany's exit from the Eurozone, the 1% minority (politicians) will not allow it. Come on FZ, all Europeans can now buy all the stuff Germans make so easily in the Eurozone and Germany (primarily) gets to set the monetary policy too. Germany is an economic powerhouse because of the EURO/Eurozone, they will do everything to save it.

    August 18, 2011 at 1:11 pm | Reply
    • Chris

      That is probably true. But given that France is Germany's top most trade partner, keeping only France in that monetary union could be sufficient for Germany. 😉

      August 30, 2011 at 5:39 pm | Reply
  18. Coriolana

    The most exciting thing CNN can do is to stem the waterfall of manure that drops from this guy's computer.

    August 18, 2011 at 1:18 pm | Reply
  19. Michael Patrick Schmitt

    Atlas Shrugs. This would be a beautiful thing if working people finally rose up against the welfare and bailout states. Maybe the US will learn from this. Bailing out companies, countries, people does not work. It not only destroys the person who is doing the bailing out and the person supposedly being bailed out but all others.

    August 18, 2011 at 1:19 pm | Reply
  20. Post

    Who the fk is Zakaria? All I see is posts written by him. Keep your alarmist opinions to yourself. This ain't news. It's stupid.

    August 18, 2011 at 1:20 pm | Reply
    • isassy

      Ironic, that your post addresses stupidity....

      August 18, 2011 at 2:08 pm | Reply
  21. Man with a notepad

    I disagree with the statement about letting Europe fail. Or at least letting the Euro fail. Germanu will not allow it. Who are they going to trade with if they do? Germany has gotten a lot of income out of the Euro creation primarily through its ability to export through the same currency across it's immediate trading neighbours. The Euro is itself the next best thing after the US Dollar. China will not allow the Euro to fail either and will purchase it. Fiscal policy will prevail when push comes to shove. The alternatives are just too bleak and it would be very irresponsible of the European Union to allow for the continuation of the bailouts to occur without central authority. The markets are forcing this centralization to happen which in my view is absolutely correct.

    August 18, 2011 at 1:20 pm | Reply
  22. Oscar

    Europe is screwed. Euro was a bad idea, the economy is failing, and Muslims hordes are moving in as fast as they can. Perhaps we should encourage another round of European migration to the U.S.

    August 18, 2011 at 1:25 pm | Reply
  23. aizen

    the idea of aeuropean union was bad to start with, some countries came with high debt or weak currencies...the british got it right to keep their own currency...europ is now saturated, overcrowded and in debt as hell...i am seeing the dissolution of this so called rag tag union as inevitable....it serves no purpose, it doesnt even match the stability of the older benelux...germany should not shoulder their problem, they should watch out for themselves, lest they end up like the US

    August 18, 2011 at 1:30 pm | Reply
  24. Gulden

    -What if- ponderings are usually better kept inside one's mind. The same goes for this column. What if Obama resigns? What if oil is found under Salt Lake City? The last we can use now, is scaremongering from the media. Journalists are not innocent bystanders making the occasional remark to the fight of elephant bulls. On the contrary, they are at the knobs of the economy machine. The trust knobs and buttons, more precisely. FRM is using his power to give his beloved USA some relative gain in the war of trust that is going on. Compared to a 14 trillion debt clunking in your ears at the same time, this is but the muttering of a mouse. Germany will not falter and it does not stand alone in North-West Europe. EU GDP: 16 trillion USD. Total debt 9,8 trillion. USA 14,6 trillion USD. Total debt 15 trillion USD. I rest my case. FRM is behaving as a US sports journalist at the Olympic games. Yes you can focus on individual countries. Isn't it a bit more realistic to count the medals over territories or continental blocks of similar size? The emerging picture will quite different. Yes Europe is diverse and has diverse interests. Is that so different from the states within the USA?

    August 18, 2011 at 1:32 pm | Reply
    • ScottJoh

      The difference in your KEY statement is; The US developed as one country. We had several changes in our monetary system but still one country. The EU was artificially created. In less than a few months, the entire continent changed, hundreds of years of separation, gone! I'm not surprised about this. I knew this would happen when I first heard of it. But I'm a nobody who no one would listen to. Funny how the smartest are ignored while the dumbest rule things.

      August 18, 2011 at 1:57 pm | Reply
  25. Ariel

    Bear in mind that the European Economic Community, now the European Union, was built for one central reason – to bind the European countries together, including arch-enemies, so they could no longer plunge the world in massive, global warfare. This has succeeded to date. The fall of the Euro would not spell the end of the Union, but could be a trigger to less centralization and a return to individual nations pursuing solely what they perceive to be in their best interest, for which they do not have a good track record. Bailing out the Euro may be a small price to pay.

    August 18, 2011 at 1:32 pm | Reply
  26. NewRome

    Why don't Germany just invade them all? Oh wait...

    August 18, 2011 at 1:33 pm | Reply
  27. irwin

    What an idiot?

    Europe is a big place, Acyually Germany comprise only 25% of EU GDP. what idiot is this gu?

    Europe contains russian and loads of ex soviet countries. P

    August 18, 2011 at 1:47 pm | Reply
    • ddrew78

      irwin: While you are correct and Germany is only one of many countries in the EU, they do carry "only" 25% of the EU's GDP. Put this in perspective: If say Virginia produced 25% of the American economy, who do you think would be running the USA? Iowa? New Hamphire? I think not.

      August 18, 2011 at 2:11 pm | Reply
  28. NASA

    We're being invaded by aliens! Once our financial system fails, chaos will reign. Then it's easy for them to harvest us humans! I say we launch all ICBMs to Mars!

    August 18, 2011 at 1:50 pm | Reply
  29. Nyconlin

    I consider you one of the best informed journalists in the US media regarding international politics and usually agree with your statements but in this specific topic your mis-interpret the situation.

    The Euro is much older then the actual currency, it basically was established withe the 'European Currency System" in 1972 which linked the currencies of Germany,France,Netherlands, Italy and Luxemburg (today considered "core Europe") together and allowed the currencies to float within plus/minus 2.25 %, later joined by additional countries as they joined the European Union. This lead to a coordinated policies in this countries regarding economics, social systems and trade. After the fall of the iron curtain the majority of Eastern European countries designed their political system close to the German system of "Social Market Policy" (not socialist !!!) and the Skandinavian countries have historically very similar systems. The introduction of the Euro was the basic condition of France and Great Britain to give approval for the re-unification in 1989 and Germany agreed to this, which was very hard based on the experience of the high inflation in 1923 and the strong Deutschmark which was seen as the symbol of the economically development after WW II.

    The perception in Germany is that the countries which followed a more liberal economic policy oriented on the US "turbo capitalism" of the US as Ireland, Great Britain and Portugal created the bubbles in the housing markets and the stock markets which after the crash in the financial markets resulted in a crash of their economies. (Greece is the exception as the government obviousely "cooked" the books to full fill the criteria to join the Euro).

    Germany is a medium power in the world but the single largest economy in the largest regional economy in the world (the European economy is larger than the US economy). It is the interest of Germany to keep the EU and the Euro strong as this also strengthens the position of Germany. And all political parties in Germany agree on this (except the Left) and this is also strongly supported by the voter.

    On the other side the Germans are more focused on economical fundamentals as. economic growth, employment, unemployment and social stability and less on developments of stock markets. And especially they do not be forced in any activities by the US markets, banks and rating agencies as they are seen as the reason of the financial crisis in 2008.

    The policy of the chancellor has clearly three targets: give the markets the minimum to keep them happy, create the necessary change in the countries in crisis (which is to be expected policies closer to the countries of core Europe) and support the change with the necessary financial support.

    There is one basic agreement in Germany: after two wars the future is a Germany in a closer and closer European Union, everything else is unthinkable.

    August 18, 2011 at 1:56 pm | Reply
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