The nineteenth-century French diplomat Charles Maurice de Talleyrand-Périgord, better known simply as Talleyrand, claimed that the Bourbon kings who were exiled during the French revolution had "learned nothing and forgotten nothing." By hanging on to their old-fashioned beliefs about France, they were blind to the changing times and missed the popular uprising and political earthquake that were transforming Europe. Until about a month ago, Talleyrand's contemporaries at the Quai d'Orsay, home of the French Foreign Ministry, could have claimed the same about the modern-day Germans, who have let the euro crisis, and contemporary monetary history, pass them by.
Two years, three sovereign bailouts, more than a trillion euros in cheap ECB loans, and dozens of summits later, the latest developments in Europe suggest that Berlin might be capable of learning after all. Chancellor Angela Merkel's government has begun shifting away from its long-standing mantra of "austerity plus more rules" to something somewhere between a pan-European deposit insurance scheme and a full-fledged fiscal union. In short, the threat of a Spanish bank run sparking Europe's financial collapse has focused the German mind. Although eurobonds -- whose proponents include Mario Draghi, president of the European Central Bank; David Cameron; and Barack Obama -- remain taboo in Berlin, other policy proposals are finally receiving a better hearing among policymakers in Europe's largest economy.
According to Quentin Peel in the Financial Times, behind closed doors Merkel's government is even more open toward unorthodox policy proposals. Merkel holds her tongue because of upcoming Greek and French parliamentary elections, domestic opposition (particularly over extending bank insurance schemes beyond the national level), and fear of sending the wrong signal to financial markets. And despite Berlin's declared opposition to eurobonds, its dismissal is not as clear-cut as it seems. Berlin would back a eurobond, but only after a full fiscal union has been constructed to avoid future moral hazards.
Also consider that the Bundesbank has softened its stance on inflation, a historically unprecedented shift. It now takes the
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