The euro also tumbled to a one-year low

The euro also tumbled to a one-year low as concerns about the sovereign debt crisis in Europe dominated the markets.




May 3, 2010
In Greek Debt Crisis, a Window to the German Psyche
By KATRIN BENNHOLD

PARIS — A few weeks after Lehman Brothers went bankrupt and the world plunged into a financial crisis, Chancellor Angela Merkel of Germany offered some common-sense advice to reckless bankers, indebted consumers and profligate governments.

“One should simply have asked a Swabian housewife,” Mrs. Merkel said during an address to fellow Christian Democrats in December 2008 in the southwest German region of Swabia, hub of the Protestant work ethic. “She would have told us her worldly wisdom: in the long run, you can’t live beyond your means.”

Now, as Europe struggles to avoid its own Lehman experience — saving Greece and thus the euro — the episode says much about the Germans.

Led by France, European neighbors have been pressing for months for Germany, which has the Continent’s biggest economy, to throw its financial weight behind a bailout package and a new system of economic governance for the euro zone. In the process, a reluctant Berlin has been called irresponsible, selfish and even un-European.

But if France wants Germany to be more European, Germany wants Europe to be more Swabian. To bring Europe to a compromise required a deal between Mrs. Merkel and a Frenchman, Dominique Strauss-Kahn of the International Monetary Fund, who met in Berlin last week to pull Greece and the euro zone back from the brink.

The Greek episode has heated up the long culture clash between the European Union’s traditional drivers: federal Germany with its Prussian attachment to rules and an instinctive frugality rooted in past economic traumas, and republican France with its tradition of state intervention and a more Mediterranean attitude toward public debt.

Paris and Berlin have had many disagreements in the postwar world, but few are as deep-rooted as those on economic governance, said John C. Kornblum, a former United States ambassador to Germany.

“This comes from the gut, it’s emotional,” said Mr. Kornblum, who as assistant secretary of state for Europe in the 1990s watched successive French and German leaders spar over how to govern the future single currency.

If there is no political structure in place to safeguard the euro — a weakness exposed in the current debt crisis — Mr. Kornblum said it was because Germany and France could never agree on one. “There are profound philosophical differences between the two sides,” he said.

These differences are in many ways personified by Mrs. Merkel, daughter of a Lutheran pastor, and two flamboyant Frenchmen: President Nicolas Sarkozy, a conservative, and Mr. Strauss-Kahn, a Socialist.

Mr. Sarkozy and Mr. Strauss-Kahn are rivals and may even run against each other in the 2012 presidential election. But they share a belief in state intervention that unites most of the French political elite.

Mr. Sarkozy, a Gaullist whose millionaire friends and taste for expensive brands have not gone unnoticed across the Rhine, first roused German suspicions as finance minister in 2004 when he prevented a takeover by Siemens of Alstom, the French maker of trains.

As president, he allowed the budget deficit to rise above the 3 percent euro zone limit even before the economic crisis erupted, and he repeatedly criticized the European Central Bank’s interest rate policy.

Mr. Strauss-Kahn, a native of Alsace who speaks German, has been called “Mr. Euro” in France and is credited with steering his country into the euro zone as finance minister in 1997. In Germany, he is also remembered for serving under President Jacques Chirac, a staunch advocate of a political counterweight to the European Central Bank.

So when the two men independently revived calls for an “economic government” of the 16 countries that share the euro, resistance in Germany was instinctive.

In a country where many lost their savings twice in the 20th century — once to hyperinflation in 1923 and again to currency reform after World War II — central bank independence and budgetary discipline have become part of the German narrative.

Fear of inflation and broad-based aversion to debt also help to explain a striking divergence in the perception of Germany’s wealth at home and abroad. At 3.3 percent of gross domestic product, Germany’s budget deficit is low by crisis standards and frequently cited as a justification to appeal to Berlin for solidarity with poorer countries.

In contrast, the French budget deficit has widened to 7.5 percent of G.D.P. But Germans, who have absorbed East Germany and face a declining population, do not feel rich.

“Germans fear going bankrupt themselves,” said Mr. Kornblum, now a consultant in Berlin.

Jean-Pierre Jouyet, a former minister of European affairs who now leads the French stock market regulator, said: “The fundamental difference between France and Germany is that, for the French, budgetary, financial and currency stability is a means to an end. For the Germans it is an end in itself.”

Mrs. Merkel, a physicist raised in communist East Germany, has a hard-working, parsimonious lifestyle and an analytical, somewhat bland personality that in many ways reflect the national value system, said Gerd Langguth, author of a 2005 biography of her.

While Mr. Sarkozy resides in the majestic Élysée Palace and has an army of staff members, Mrs. Merkel still lives in the central Berlin apartment she occupied before her election in 2005 and has been seen doing her own shopping.

There are limits to national stereotyping. Mrs. Merkel’s more outgoing predecessor, Gerhard Schröder, made common cause with the French in breaking the euro zone’s budgetary limit.

And no German could have defended the legacy of the Bundesbank more vigorously than the president of the European Central Bank, Jean-Claude Trichet, referred to by some in Paris as “that Frenchman in Frankfurt.”

But understanding the radically different contexts in which German and French positions are honed is crucial as Europe’s two foremost powers grapple with the crisis, said Jean Pisani-Ferry, director of Bruegel, a research institute based in Brussels.

“Ultimately this is about whether Germany is ready to lead,” he said. “And leading means compromising, rather than only insisting on red lines.”

http://www.nytimes.com/2010/05/04/business/global/04iht-euro.html?src=me&ref=business