Is Germany resisting the "Race to the Bottom" in Europe?

Germany, and Angela Merkel the German Chancellor, clearly lost the battle over the bailout package and the European Central Bank’s move to buy bonds. (See “Where’s the Leadership in Europe, http://seekingalpha.com/article/204702-where-s-the-leadership-in-europe.)


Is Germany and Merkel now trying to stage a “comeback”?

There are certainly signs that Berlin is attempting to re-asset itself in the moves it made on short selling and other complex bond transactions. Furthermore, Merkel is asserting herself into the financial reform debate. At a meeting of the G-20 Thursday: “German Chancellor Angela Merkel said Thursday she will push her Group of 20 counterparts to accelerate steps to tighten political control over financial markets and add new taxes on banks. Ms. Merkel also said she will push G20 leaders to coordinate their strategies as they look to withdraw stimulus measures enacted during the financial crisis.“ (http://online.wsj.com/article/SB10001424052748703559004575256051573932296.html?mod=WSJ_hps_MIDDLEThirdNews.)

Politically, in the German state itself, Merkel needs to exert herself to defend Germany and Germany’s support of a sound fiscal and monetary stance within the European Union. The political feedback to the Chancellor’s position on the bailout was immediate and dramatic. She and her party lost seats. To maintain her coalition, it seems as if she must place herself in a stronger position.

Within the broader picture, however, someone needs to step up in Europe and show some real courage, something that will not be easy. That leadership has been sorely missing and the decline in the Euro to a four-year low just underscores how the market is ‘grading’ the response of the European Union to their current financial crisis. The immediate reaction to the German actions was disappointment in the response of the rest of the Union. There obviously is no unity within the European community.

Yet, the German movement is not without reason.

Someone has to step up to the plate.

Unfortunately, the European Union has tolerated the lack of discipline and incompetence in its member nations for years. As a consequence, there has been a “race to the bottom”; a movement to the lowest common denominator and the recent financial crisis is the result. And, now all members of the European Union are suffering.

Nature does not allow a vacuum to exist for very long in any human association. If the association allows the undisciplined or incapable to dominate, then the performance of the association comes to reflect this bias. Need I present a sports analogy?

The other alternative is for the members of the association to have standards set by the disciplined and capable where a situation can be achieved in which the rising performance of the community is shared by all.

A successful union has enough benefits for all to share. In an unsuccessful union no one is really happy!

In the European Union it seems as if there is no one else to turn to but the Germans for this leadership. It is certainly not going to come from France. France is the epitome of the acceptance of the mediocre. France’s leadership has guided the European Union into the state it is now in. It is not the future.

Will other nations listen to Germany? Will new leadership be established in the European Union?

I’m not sure that the rest of Europe is ready to get ‘disciplined’. There is a lot of ‘mouthing’ of the need for discipline, but are the nations doing this talking ready to change things for the longer term or will they revert to old habits once the immediate crisis is over? Can governments that really ‘tighten up’ be able to be re-elected in Greece, and Spain, and Portugal, and other places? Will other nations in the European Union really stand for German discipline and leadership?

Watch the hips, not the lips!!!

If the nations in the European Union other than Germany fail to get their acts together, will Germany and the German people be able to drop their standards of performance to the level of the ‘bottom’?

My guess is that the Germans do not want to be mediocre.

Therefore, disunity and disgruntlement will continue to rule in Europe. And, this will not be good for the Euro.

What might change attitudes in Europe?

The answer might be years of falling further behind the United States, China, India, Brazil, Russia, and other emerging nations. The European model, as it now stands, cannot compete in this world of the future. Competition is going to be fierce and nations that thrive on low performance and undisciplined behavior will fall further and further behind. But, this is a message to all nations, including some that are in the list just presented.

Unfortunately, Europe stands in a position to cause a lot of disruption to others. It is still important enough to let its failures cause dislocations in the world economy.

The United States should applaud the behavior of the Europeans. The behavior of the Europeans and the decline in the value of the Euro takes a lot of attention off of the value of the United States dollar and the weakness it has experienced due to the undisciplined behavior of the United States government with respect to its fiscal and monetary policies.

Still, I would like to see Germany and Angela Merkel succeed. I would like to see a strong Europe and a strong Euro. But, maybe I am just being sentimental.