Germany, the colossus economy of the eurozone, still isn’t big or wealthy enough to come to the rescue of the 17-nation zone, says economist Robert Samuelson, as European leaders over the weekend offered Spain up to $125 billion to prop up its shaky banks.
As Spain became the fourth eurozone country to seek a bailout, German Chancellor Angela Merkel has been cast as Europe’s Scrooge, prescribing austerity and discouraging growth, Samuelson writes in The Washington Post.
If Germany would only step up and open its wallet, Europe’s financial pain would be eased, some think. ``Wishful thinking,’’ says Samuelson. Even a willing Germany may not be able to rescue Europe.
In a report entitled ``Achtung Baby: Germany is Riskier Than You Think,’’ by Carmel Asset Management, an investment company, the costs to Germany of trying to save the euro would be prohibitive at more than 500 billion euros, raising Germany’s debt-to-GDP ratio from 81 percent in 2011 to 103 percent.
With Germany accounting for 27 percent of the zone’s economy, it does have some arrows in its quiver, says Samuelson.
It could stimulate its own economy, hoping to generate spillover to its neighbors. It could welcome ``eurobonds’’ backed by all the euro zone nations that would in effect be guaranteed by Germany.
It might also push the European Central Bank (ECB) to promote faster growth policies and support the weak financial system. Still, the effects of all these measures would be modest, says Samuelson.
While Merkel’s government Monday was defending the European rescue of Spain’s indebted banks, German press reports warned that Spain would be coming back for more aid. Just as one aid package wasn’t enough for Greece, warned the Bild tabloid, ``The Spanish patient will also need more help.’’
Aides to Merkel told Reuters the bailout was justified and Spain’s economy wasn't so weak that it needed the kinds of terms imposed on Greece. ``It sends a good signal to the markets and Europe’s partners that Europe is capable of acting and now has the instruments at its disposal to deal with crisis events that it did not have two or three years ago,’’ Merkel’s spokesman Steffen Seibert said.
Samuelson rates the latest loan to Spain as the latest in a series of stopgap measures.
Ultimately, Samuelson says, a rescue fund large enough in the event of spreading crisis to allow eurozone countries to borrow at low rates while implementing policy changes would need the backing of the United States, China and other countries with large foreign exchange reserves.
``This now seems politically impossible,’’ he says.
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