Germanys position on Greeces debt crisis is simple: It has refused to bail out a country it sees as having failed to carry out the domestic reforms that would allow it to respect its fiscal responsibilities.
Introducing fiscal transfers into the eurozone — flows of money from rich countries to their poorer partners — would be akin to pouring money into “a bottle without a bottom,” the argument goes. It would encourage reckless behavior; for the currency union to work, everyone needs to put their house in order and play by the same rules.
Sadly, for Berlin, that position is unsustainable. There are three good reasons — economic, geopolitical and demographic — why fiscal transfers are not just a good idea but one that Germanys leaders should consider carefully.
First, fiscal transfers are likely to be necessary to save the European project, which is clearly in Germanys economic interest. Preserving the stability of the eurozone comes at a cost. But this doesnt only mean legitimate and overdue reforms in economies such as Greece. It also requires substantial effort from healthier economies such as Germany in the form of fiscal transfers.
It would be shortsighted for Germany to overlook the benefits it will continue to reap as a result of a stable currency and the political stability that has come along with it. The breakup of the eurozone would leave Germany just as exposed as any other country.
Germanys outstanding economic performance has given Berlin and its policymakers an undeniable aura on the European stage.
Second, it is also time to acknowledge the importance of great power rivalries in shaping the the Continents future. Its foolish to pretend that struggling EU countries have no alternatives to membership in the bloc.
With Greece in particular, the potential for an “Orthodox Axis” — in which Athens seeks refuge in the arms of a power- and influence-hungry Russia — is real. German leaders should not take European integrity for granted.
Athens is also one of the key elements of Chinas “One Belt, One Road” initiative, setting Greeces strategic value at a far higher level than its current economic bargaining power may suggest. It would be tragically ironic for Berlin and the rest of Europe if Beijing realized the value of Athens before Brussels did.
Finally, theres the fact that Germany is aging rapidly. The countrys outstanding economic performance has given Berlin and its policymakers an undeniable aura on the European stage. But this may all soon evaporate as the realities of its demographics — and in particular, the decline of productivity that comes with its aging population — kick in.
To maintain its high level of political influence, Germany will need to find an alternative to economic power. Political and cultural reasons make it hard for the country to increase military spending — but there are no similar obstacles to economic assistance.
If Germany fails to invest in its global strategic position, it will continue to underperform diplomatically on the world stage.
Permanent fiscal transfers to a geopolitically strategic country like Greece would be a legitimate way to ensure Berlin continues to play a central role in the European project and would give a boost to its strategic relevance.
Fiscal transfers, in other words, need not be a zero-sum game. At a time when the United States is becoming increasingly unilateralist, pundits have volunteered Germany as the next leader of the free world.
Its a plausible interpretation of current global dynamics — but only if Germany can change its mindset and intellectual software. If it fails to invest in its global strategic position — and blocks the rest of the EU from doing so — it will continue to underperform diplomatically on the world stage.
Jeremy Ghez is an affiliate professor of economic and international affairs at HEC Paris.
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