Merkel Defends Germany’s Role In Debt Crisis

By Matthew Allen

German Chancellor Angela Merkel has dismissed criticism that she has not done enough to defuse the European debt crisis, as she delivered the keynote speech in Davos.

Hedge fund legend George Soros had earlier issued a damning rebuke of Germany’s leading role in sovereign debt negotiations as he addressed journalists on day one of the World Economic Forum’s (WEF) flagship event.

The European debt crisis dominated the opening day in Davos, not only during debates but also among delegates mingling in the corridors.

The same tensions were evident in 2011 when Merkel and French President Nicolas Sarkozy promised that they would never abandon the euro. But a year on, the crisis remains far from resolved with Greece a hair’s breadth away from total insolvency.

Soros, who made his name and fortunes in 1992 by successfully betting against the British pound, said that Germany had “dictated” European policy since the 2008 financial crash and the subsequent Eurozone debt crisis.

He criticised Germany’s track record of imposing austerity measures on faltering countries and for forcing financial penalties on Greece as a condition of bailing the country out.

“The trouble is that the austerity that Germany wants to impose will push Europe into a deflationary spiral,” Soros said on Wednesday. “To be sure, I am not accusing Germany of acting in bad faith. Germans genuinely believe in the policies they are advocating.”

“[But] the fact that an unattainable target is being imposed creates a very dangerous political dynamic. Instead of bringing the member countries closer together it will drive them to mutual recriminations,” he added.

Critics addressed

Merkel did not address Soros’s comments directly during her speech that officially opened the 42nd WEF Davos meeting. But she hit back at numerous complaints that Germany had been wielding too heavy a stick to force others to amend their free spending ways.

“It is not the case that we are saying we do not want solidarity,” Merkel said. “But we don’t want a situation in which we promise something that we could not fulfil.”

“We say that to those who question our solidarity and willingness to stand up for others.”

The current debate surrounding Germany’s euro policy is whether it will agree to the merger of two European Union rescue funds that would boost bail-out funds from around €500 billion (SFr604 billion) to €750 billion.

Merkel would only say that opinion was currently divided over how much money would be needed to bail out Greece and other countries.

She instead called for a “big rethink” on economic policy that not only addressed debt issues, but sustainable future growth and competitiveness.

That would involve a series of far reaching reforms to improve labour markets, the environment and trade across borders, she said.

Responsibility question

Swiss Finance Minister Eveline Widmer-Schlumpf – this year’s president under the country’s system of revolving the office – agreed that a coordinated international response was needed to solve the debt crisis.

But she warned that debt-ridden countries should not hide behind bail-out funds or better performing economies in the search for a way out of their problems.

“International coordination will never be a substitute for structural reforms in individual countries. We should not shirk our responsibility to take the necessary steps,” she said. “We should not burden the young with the problems we have created.”

Soros is convinced that a failure to find a solution would lead not only to prolonged economic hardship in Europe, but possibly also to social unrest.
“There is a real danger that the euro will undermine the political cohesion of the European Union,” he said.

Soros also predicted far worse problems unless the EU took more account of the growing numbers of unemployed and disaffected people in Europe. He called for EU leaders to voluntarily create an “open society” form of governance, which gave its citizens a greater voice.

“When I look around the world I see people aspiring to an open society. I see it in the Arab Spring, in various African countries, I see the stirrings in Russia and as far away as Burma and Malaysia. Why not in Europe?” he said.