Remember, the euro system has 18 other finance ministers.

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Who Made Germany Europe's Boss?

Clive Crook is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was chief Washington commentator for the Financial Times, a correspondent and editor for the Economist and a senior editor at the Atlantic. He previously served as an official in the British finance ministry and the Government Economic Service.
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There are two main lines of analysis about Germany's role in the European Union. The first, favored by populist euro-skeptic politicians, is that Germany seeks to reverse the setbacks of the 20th century and rule Europe by other means. The second, popular with political commentators and other members of the European elite, is that German guilt over the setbacks of the 20th century inhibits it from exercising the leadership that the EU actually needs.

If the past several weeks are any guide, reports of German inhibitions have been exaggerated.

We'll see whether Friday's tentative agreement over Greece sticks. Tomorrow, Athens is to present a list of measures to the International Monetary Fund, the European Central Bank and the European Commission -- the so-called troika, with which Greece’s new government vowed not to deal. If the supervisors sign off, the plan must go to various national parliaments for approval, including Germany's. This thing isn't over yet.

Whatever the outcome, Germany's role in the stand-off has been striking. The struggle between Greece and the euro-zone finance ministers has been reported as though it were a battle between Greece and Germany, with the rest looking on. This was an impression that German officials went out of their way to reinforce.

Last Thursday, as another in an extended series of final deadlines loomed, Greece presented an amended proposal for discussion. Euro-zone officials were guardedly optimistic, saying its letter could be a basis for negotiation; the Dutch chairman of the so-called euro group of finance ministers, Jeroen Dijsselbloem, called another meeting to discuss it. Meanwhile a German government spokesman dismissed the document out of hand: "The letter from Athens is not a substantive proposal for a solution," he ruled; German officials called the letter a "Trojan horse."

German Finance Minister Wolfgang Schaeuble continued to declare that Greece already had an assistance program, so there was nothing to discuss. He dared Greece to defy the troika and suffer the consequences. The Financial Times reported:

Mr Schaeuble declines to publicly discuss Grexit, he has repeatedly said that Greece can choose to leave the €172bn financing programme — with all that implies. "I’m ready for any kind of help, but if my help is not wanted, that’s fine," he said recently.

By the way, I think when he said "my help," he was talking about the euro group's help.

It began to seem plausible -- which came as a surprise to me, I admit -- that the German government actually wanted the euro system to split. Some German officials, again according to Financial Times, have been advocating that very course.

Hawkish German officials accept what they call "the amputated leg theory," which says Greece should be cut off like a gangrenous limb to spare the rest of the eurozone body.

Nice image.

When I thought I couldn't be any more perplexed or disappointed, I saw Schaeuble's response to the agreement on Friday. Bear in mind, he's a co-author of the final document, which obliges the Greek leaders to walk back many of the promises that won them the election. Rather than commending the compromise, he said:

The Greeks certainly will have a difficult time to explain the deal to their voters.

How helpful.

On the merits, I think Germany's wrong, because the current program has failed and Greece's economic plight isn't entirely its own fault. But set this aside. A different and even more important question arises: Who put Germany in command?

Germany is Europe's biggest and most successful economy, accounting for 29 percent of the euro zone's output and 24 percent of its population; its voting power in various EU forums is weighted accordingly. It's also Europe's biggest creditor, which gives it special standing (and a huge vested interest) in negotiations about public debt. Constitutionally, though, it's still just one nation in a euro system of 19.

Because of its size and strength, it can and should lead. It has no right to dictate. And if its leaders were wise, they'd avoid arousing the suspicion that they were trying to do just that.

Recently Germany has often appeared to direct policy at the European Central Bank, on banking union, on Greece, and on many other politically freighted topics. It has seemed to presume it's in charge. Europe's other governments and various policy-making bodies are much to blame in this, because they've acquiesced.

Heaven knows, Europe needs stronger leadership -- but Germany, at the moment, looks poorly qualified. Its policy makers are unenlightened on the macroeconomics of debt and deflation, and its officials seem unable to exercise influence with restraint or respect for all EU citizens.

Perhaps forcing Greece out of the euro system and seeing it suffer the consequences would teach other countries about the perils of fiscal indiscipline: That seems to be Berlin’s thinking. But Germany's casual contempt for Greeks and their new government teaches citizens of other countries something else as well -- something disturbing about the direction of the evolving EU.

Maybe they'll buckle under, for fear of being the next infected appendage to be severed. Maybe they'll ask whether "You will obey" is what they were promised.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Clive Crook at ccrook5@bloomberg.net

To contact the editor on this story:
James Gibney at jgibney5@bloomberg.net