The World from Berlin

'The Current Crisis Is an Affirmation of the Euro'

Financial difficulties in Greece and elsewhere continue to place tremendous pressure on the European common currency. But what can be done to save the euro? German commentators on Friday are not short of ideas.

While Greek citizens demonstrate on the streets against both their government's perceived lack of budget keeping skills and strict austerity measures introduced by Athens, the rest of the European Union is debating what to do about the ailing Greek economy.

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Athens has been hit by numerous protests this month as the government has introduced a strict austerity package to get debt under control.

The situation is serious. The euro approached a nine-month low against the dollar on Thursday before a mini-rally and in an interview with the Frankfurter Allgemeine Zeitung this week, German Chancellor Angela Merkel admitted that, "the euro is, for the first time since its introduction, in a difficult situation." There are worries that the crisis in Greece could touch off a domino effect across southern Europe, with investors wary of bond markets in Portugal, Spain and Italy as well. Many have argued that the crisis has exposed a fundamental weakness with Europe's common currency.

But what to do about it? There are a number of potential solutions to the Greek financial crisis under discussion. While some European leaders believe the monetary union itself should fix the Greek problem, others want to bring in a harsher taskmaster, the International Monetary Fund. Given what appears to be unreliable financial information provided by the Greek government when it joined the euro area, it is also likely that the EU's statistics gathering body will be given more power to proof such information in the future.

Whatever happens, any solution will be complicated. The monetary union's governing Maastricht Treaty has a so-called "no bailout" clause which stipulates that neither other member states nor the European Central Bank may provide direct aid to a member state in the form of loans.

On Thursday local commentators further debated where the blame lies, how Greece might extricate itself from the current mess and how to prevent such a problem in the future.

The center-left Süddeutsche Zeitung writes:

"By now, everyone has realized that Greece urgently requires reforms. But it has also become clear that European currency and financial oversight authorities need to be fundamentally reformed as well. It was these functionaries that allowed Greece to introduce the euro in the first place -- even though Greek figures were clearly unreliable."

"The European statistics division, Eurostat, has displayed particularly breathtaking incompetence. The bureaucrats there long suspected that Greek budget figures were unrealistic. They repeatedly expressed these doubts to Brussels. But they did not secure the necessary authority to review the figures themselves."

"Even more dramatic are the failings of euro zone finance ministers. Just imagine: The 16 ministers meet every month to agree on financial policy for the monetary union. And they know that Greece is coming to those meetings with sugar coated numbers. Yet they neglected to issue a serious warning to their Greek colleagues."

"The third body that bears responsibility is the European Commission. In those offices, using the word 'crisis' is strictly regulated -- if it is allowed to be used at all. There are political ramifications and political correctness reigns supreme."

"The Greek fiasco clearly shows that the countries belonging to the European monetary union cannot control nor reprimand one another. For the monetary union to survive, we urgently need a controlling authority for the euro -- one which is independent of all other EU bodies and member states."

Conservative Frankfurter Allgemeine Zeitung writes:

"Greece will only regain everyone's confidence through the consolidation of their budget. Those who wish for direct aid from Brussels or Frankfurt in lieu of further Greek bond issues overestimate Germany's spending power and risk destroying the European monetary union. Germany is currently fighting a lonely battle within the monetary union. But Berlin is in a strong position -- without German participation, any plan to prop up Greece will fail. If Merkel remains stubborn and only allows financial help for Greece to come from the IMF, then she may be able to save the euro."

The Financial Times Deutschland writes:

"Let's be honest: If currency devaluation was the correct solution for all countries with large debts, then everyone would have to devalue. But against who? Mars?"

"The fact that the crisis is hitting Europe particularly hard at the moment has less to do with monetary union structures and more to do with individual errors. In July 2009, for example, the European Central Bank raised interest rates despite signs of a coming recession, thus accelerating the downturn.... Bad management can also be seen in the rejection, primarily due to German opposition, of a unified economic stimulus package -- which would have lessened the crisis, studies have shown."

"Bad economic policy is not any better if it is pursued on a national level, without the euro. More important would be to establish better monetary policy, to change monetary management, to jettison the stability pact, improve the rules and establish something akin to a euro economic oversight that looks beyond short-term budget deficits. It is also necessary to better guard against financial markets, which seek to make billions by speculating against Greece today, and against the euro tomorrow."

"It is, indeed, for these reasons that clever folks in the past came up with the idea of a monetary union, thus putting an end to vast currency fluctuations between European countries. Had the euro not been introduced, the Continent would be facing an even greater disaster today. The current crisis is an affirmation of the euro -- and no reason to long for its demise."

-- Cathrin Schaer