Monday, January 26, 2015

Double Blow to Germany's Leadership

At the Wall Street Journal, "Victory Shuffles European Politics":
BERLIN—For five years, Europe’s common-currency bloc has squabbled over whether the solution to its economic crisis lies in slimming the state and deregulating markets, or in more expansionary fiscal and monetary policies.

The battle lines just got messier, the way out even less clear.

Since the start of the eurozone’s debt crisis, the bloc’s wealthier countries—led by Germany—have largely prevailed in pushing economic overhauls, not stimulus, as the main way to nurse indebted nations to financial health. Now, eurozone voters are in open revolt against such fiscal strictures, while the European Central Bank just overthrew German monetary orthodoxy.

Sunday’s historic victory for the radical left-wing Syriza party in Greece’s elections is likely to embolden populist movements in other eurozone countries, including Spain, France and Italy, which reject German-sponsored austerity.

Their growth on both the left and right of Europe’s political spectrum suggests the breadth and complexity of voter discontent. Spain’s far-left Podemos party has surged in opinion polls, and elections are due late this year. France’s far-right National Front is roiling the country’s establishment with attacks on austerity as well as immigration. Italy’s populist, euroskeptic Five Star Movement wants to renegotiate the national debt.

Greece is the most extreme example of the fraying of support for the mainstream center-right and center-left parties that have dominated Western European politics for decades. The antiestablishment surge comes amid the Continent’s longest economic slump since the Great Depression.

Meanwhile the ECB’s decision on Thursday to buy eurozone government bonds and other assets to stimulate growth and inflation broke with Germany’s deeply held belief that central banks shouldn’t print money to buy public debt.

The ECB used to back Germany loudly on the benefits of austerity, before suggesting last fall that the eurozone overall had become too austere and that Germany should spend more. Lately, ECB head Mario Draghi has avoided provoking Berlin on fiscal policy while also antagonizing it with his bond-buying program.

The bank and Berlin agree on one thing: the need for market-friendly overhauls to make eurozone economies more flexible. Yet those overhauls are harder than ever to sell to voters.

The three-way standoff between Germany, the ECB, and angry voters in Southern Europe is likely to resonate throughout 2015 in the eurozone, which lags behind the rest of the world in recovering from the global financial crisis...