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Euro: US-Germany in tactical tiff

business Updated: Dec 11, 2011 21:48 IST

Even as European leaders put together their latest response to the euro crisis, a German-American clash over how best to manage a vast financial crisis and put the world economy back on a sound footing was set in stark relief. German Chancellor Angela Merkel defied skeptics and laid the groundwork for a deeper union that she said rights the mistakes of the euro’s birth and puts integration on a stable path for the long term. In the process, she forced German fiscal discipline on Europe as the prescription for the ills that afflict the region.

Yet even as the cogs of the European agreement were being fitted into place, US President Barack Obama issued his sharpest warning yet about the German-led solution. He said the focus on long-term political and economic change was well and good, but emphasised that failure to react quickly and strongly enough to market forces threatened the euro’s survival in the coming months.

Obama sees retaining the stability of markets and the confidence of investors as a primary goal of the government and a prerequisite for achieving any changes in public policy. Merkel views the financial industry with profound skepticism and argues that real change is impossible unless lenders and borrowers pay a high price for their mistakes.

“It’s a battle of ideas,” said Almut Möller, a EU expert at the German council on foreign relations. “There is a different understanding of how to set up a sustainable economy in a globalising world.”

It will be difficult to know for weeks which approach is right. But it is clear that the stakes are high, with the health of the world economy, the EU and perhaps Obama’s presidential hopes hanging in the balance.


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