Germany puts on the brakes

The attitude of the German government is not facilitating a solution of the financial crisis in the European Union. The refusal of an enlargement of the sovereign debt rescue fund in the euro zone (the EFSF, approved in May, for a maximum of 440 billion euros) is the latest sign of its obduracy.

Nor did the German chancellor Angela Merkel agree to a proposal that enjoyed wide support in the same Monday meeting of euro-zone finance ministers: the issuing of euro-bonds, aimed at strengthening available resources for support of the governments whose public debt has again come under attack. This proposal has encountered widespread support in recent months, not only as a way of bolstering vulnerable public debt situations, but as a mechanism for accelerating the necessary fiscal integration of the euro zone.

The disappointment that has now been generated by the indecisive outcome of the meeting is all the greater in that a boost to wiggle room afforded by these funds enjoyed the backing of several governments, the European Central Bank (ECB) and the International Monetary Fund itself, which from the very first moment committed itself to make a substantial contribution to the fund, up to a total of 750 billion euros, which was agreed upon in June.

After the recent meeting the resulting room for maneuver in the handling of the crisis is severely limited. Neither the EU institutions (in particular the European Commission) nor the national governments of the principal European economies have been showing any particular skill in the management of the present crisis. The financial markets have not been slow to notice this clumsiness and have responded with a heightened volatility, and with a punishment administered to the public bonds of the economies seen as peripheral.

In the face of so pronounced a limitation on the EU and the various national governments' room for maneuver to deal with the crisis, the ECB bears alone a great deal of the burden of coping with the situation. The maintenance of liquidity facilities for the banks- in the terms in which it committed itself last Thursday- and the continuing validity of the program for acquisition of public bonds are now the only useful tools still available.

The truth is that we are no longer looking merely at a crisis in the economies of the monetary zone, but at a serious threat to the single currency. And without the euro, the EU would enter into what would surely be the phase of greatest precariousness in its whole history- a precariousness which would affect the strength of the German economy itself. Further advance, and sooner rather than later, in the fiscal federalization of the EU (at least of the economies that share the single currency) is the only solution.