The Trouble With Germany

In Watchmen, Rorshach says:

This city is afraid of me. I have seen its true face. The streets are extended gutters and the gutters are full of blood and when the drains finally scab over, all the vermin will drown. The accumulated filth of all their sex and murder will foam up about their waists and all the whores and politicians will look up and shout “Save us!”… and I’ll look down and whisper “No.”

I think this highlights the fundamental problem with the core-periphery relationship taking place in Europe right now. The objective situation calls for large, rich, and fiscally sound Germany to lead a group of fiscally strong states (France, the Netherlands) to organize a bailout of Greece in exchange for accepting stringent fiscal oversight. This will signal to the creditors of Portugal, Ireland, and Spain that the actual risk of default is low, which in turn will make it easier for Portugal, Ireland, and Spain to finance their own debts. It will also create a political context in which Portugese, Irish, and Spanish political authorities can say “we need to implement some austerity measures before the Germans really give us the what-for.”

But per Tyler Cowen thanks to Germany’s unpleasant history, German politicians are loathe to try to take up the mantle of continental political leader and tough-guy. Even though everyone understands that the European Central Bank is basically a bigger version of the Bundesbank and basically follows German central banking practices, its first president was Dutch and its second one is French—and that’s how the Germans like it. They don’t want to step out front and tell everyone publicly how it’s going to be.