Capital markets: Merkel flexes her muscles
German politicians have used the sovereign crisis to increase their influence over Europe’s financial markets, the price of support for Greece. But the country’s reluctance to do anything about the weaknesses of its own banking system leaves it open to accusations of double standards. Hamish Risk reports.
GERMANY’S RELATIONSHIP WITH the rest of Europe is something of a conundrum. In a report this summer called Where is Germany going? – a collection of articles compiled by the think-tank Notre Europe – Janis Emmanouilidis and Almut Moller sum up the country’s ambivalent position. "History has shown us that neither Germany nor the rest of Europe are able to cope with German leadership. It is thus somehow a paradox that in many member states there is both moaning about the lack of German leadership and an increasing fear of German dominance." The lack of leadership refers to reticence about supporting a financial stability plan and a bailout of Greece, while the fear of dominance stems from a new determination from Germany to influence the reform agenda of a dysfunctional economic union, and a confluence of new regulations that will reshape the banking industry. There were two reasons for Germany’s reluctance to bail out Greece. One was the chance that the policy might be challenged in the German Constitutional Court, which might have sparked further panic in the markets; the other was of more historical significance.