International Herald Tribune
Editorial
December 7, 2011
Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France issued an ultimatum on Monday demanding that all 17 nations using the euro agree to a change in European treaties that would force them to move toward balanced budgets or face sanctions.
The deal, which they want approved this week, could buy temporary stability for the euro zone if Germany finally drops its objections and the European Central Bank quickly buys enough Italian and Spanish bonds to force their yields down to sustainable levels. But the Franco-German recipe will exacerbate Europe’s fundamental problem: lack of growth. While German officials insist that budget discipline will restore markets’ confidence, markets understand that a deepening recession will make it even harder for weak nations to repay their debts.
Europe’s deeply indebted nations certainly must get their budgets under control, reform labor markets, sell state properties and become more competitive. But that can’t be done without any growth. Germany could provide some of the needed boost: saving less and spending more; absorbing more imports from neighbors. But the plan provides for no German stimulus. In fact, the International Monetary Fund expects Germany to spend less: cutting its budget deficit to just over 1 percent of gross domestic product next year.
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