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Germany gets tough over euro

Gavin Hewitt | 13:21 UK time, Wednesday, 17 March 2010

merkelafp226b.jpgThis may be remembered as the day the single currency changed. In a speech to the Bundestag, Angela Merkel said it should be possible to expel a country from the eurozone. It would be an action of the last resort. It would only apply to a serial offender who repeatedly broke the currency's rules.

From its creation the euro was driven as much by politics as economics. Its founders were inspired by the belief that Europe's destiny lay in closer union. A single currency was a fundamental pillar of that. So figures were massaged to enable countries to join. When nations broke the rules, which they often did, it was overlooked. Everyone could stay in the club.

Only recently Olli Rehn, an EU commissioner, said "the euro is not only a monetary arrangement but a core political project of the European Union".

For the German chancellor, however, what is important is defending the stability of the currency, not solidarity, not a belief that the eurozone would inevitably expand. It might not. It might even contract. The German leader wants a treaty change to allow for expulsions.

Angela Merkel has injected some German steel into the debate over the future of the euro and the crisis over how Greece will reduce its deficit. The answer was not "rapid support" or "premature aid" that might not help matters in the long-run but would actually weaken the euro. The problem had to be attacked at its roots. "There is no alternative," she said, " to the Greek savings programme". She said "no country should be left on its own" - but the message from the eurozone's strongest country to Greece was brutally frank. What will actually happen if Greece can't cover its debts is now very unclear.

This was a flexing of German muscle. Ultimately a German leader has to defend the currency. To do other is to risk political damage. The German people were proud of a strong and stable Deutschmark.There is no appetite for rescuing countries who fake their accounts and run up massive debts.


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