China is to the world as Germany is to Europe.
Industries in both countries are much better equipped to compete in export markets than are most of their rivals. That is due in part to fixed exchange rates that they zealously protect.
Both countries tend to see their advantage as the result of their own moral superiority: They save; others spend too much.
Germany’s fixed exchange rate is the euro zone, which legally includes 16 countries but in practice includes a number of others that seek to tie their currencies to the euro. It is enshrined in treaties and laws that assume that no country that adopts the euro can ever change its mind.
Now the world is riveted on the spectacle of Greece being forced to choose between default and seemingly permanent austerity. Other European countries, most particularly Germany, want to see many Greeks take pay cuts. If, that is, they hang onto their jobs. They also think unemployment should rise, and that many Greeks should consider moving to more economically attractive countries.
Sympathy and solidarity are in scarce supply. A few weeks ago, one German who has been involved in some of the talks regarding Greece put it simply: “They had their fun.”
The euro states have been talking about bailing out Greece for months now, hoping that a simple promise to do that would calm markets and reassure investors. But they are remarkably hesitant to actually part with the money.
About the only thing Europe has so far accomplished is to make the International Monetary Fund look good. When the I.M.F. does a bailout, it imposes strict austerity terms, which makes it wildly unpopular, but it provides money at very low rates. Europe wants strict austerity and high rates. Subsidizing the irresponsible Greeks is simply wrong, or so they say in Germany.
Angela Merkel, the German chancellor, made clear this week what she believed to be the primary purpose of the European rescue package. It was not to spare Greeks pain, or even to help that country’s economy regain competitiveness.
“When Greece accepts these tough measures, not for one year but several, then we have a chance for a stable euro,” she said.
All this brings to mind the American politician William Jennings Bryan, who was nominated for president three times more than a century ago. He campaigned against the “cross of gold,” arguing that American prosperity was being sacrificed so the country could stick to a gold standard.
Now the Greeks — and soon, perhaps, the Portuguese or the Spaniards or the Irish — are being told to accept higher unemployment and lower wages for the indefinite future. Not for their own good, necessarily, but to preserve a currency.
At the moment, the euro has weakened because of the Greek crisis. For Germany, that is another bonus. Its already competitive manufacturing industries get an extra boost.
Valéry Giscard d’Estaing, the former president of France, has said that his dream is to see Europeans subsume their national identities, so that a woman might say, “I am a European from Italy,” not an Italian. This crisis has made it crystal clear that the people running the more successful parts of Europe do not think in that way.
Greece needs many things, including labor market reforms and large reductions in government payrolls, some of which may come from the austerity being enforced from Brussels, Frankfurt and Berlin. But none of those will help the country’s industries regain competitiveness. Instead, domestic demand has been slashed by the austerity, while export demand remains weak.
Throughout most of Europe, manufacturers report a surge of new orders as the global recovery takes hold. But in Greece orders continue to plunge.
European markets were shocked this week when a bond rating agency, Standard & Poor’s, talked of Greek bond investors losing half their money. But it is hard to see a way out for the country without some kind of debt restructuring — and without a way to be freed from the harsh strictures of the euro.
The euro is not, of course, directly to blame for creating Greece’s problems. The country borrowed too much and spent too much. It has a tax system that is inefficient at collecting revenue, and a political system that has encouraged politicians to put people on the national payroll rather than fix problems that led to unemployment.
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