(UPI) -- The anti-austerity revolt of European voters continued Sunday when electors in a key German province gave Chancellor Angela Merkel’s Christian Democrats just 28 percent of the vote, the party’s lowest perentage since 1948.
This is a grim time to be in office in Europe. Voters have turned out governments in Britain, Ireland, Portugal, Italy, Spain, France and Greece. And while Merkel remains in office at the national level and remains personally popular, her own coalition with Bavaria’s Christian Social party is fraying badly.
How much of Sunday’s vote was against the austerity that Merkel is forcing upon Europe and how much a reaction against the way Germany continues reluctantly to bail out the bankrupt European partners is an open question. Either way, it means voters are losing trust in Merkel’s economic stewardship, even though Germany has recovered more strongly from the crisis than any other European economy.
All this took place as Greece slid further down the slope toward what the markets are calling “Grexit,” a Greek exit from the euro, which many fear would trigger Europe’s biggest crisis since World War II. After their chaotic elections and inability to form a coalition government, it isn’t easy to see how Greece musters the political will to make the budget cuts and suffer the economic pain required to remain inside the euro.
But if Greece goes, it is also not easy to see how to prevent the contagion spreading to Portugal, Spain and even Italy as depositors take their euros from their own national banks and deposit them in safer German banks, rather than see savings eroded by devaluation.
The dirty secret here is that on close examination Germany’s economic situation, despite its strong manufacturing sector and massive export trade, isn’t nearly as strong as it looks.
Germany’s Market Economy Foundation reports that in addition to the official national debt of roughly $2.6 trillion, there are $5.9 trillion in future benefit promises to retirees, the sick and people requiring nursing care. These are commitments that aren’t documented in official budgets nor has any provision been made to finance them. When these commitments are included, Germany’s real debt isn’t the “official” 80 percent of gross domestic product but 276 percent.
Moreover, the disguised way in which Germany has continued to bail out the weaker Europeans is becoming a serious public issue. This is done through the “Target2” system of the European Central Bank, where the debits and credits of the various eurozone members are held.
There has been a sharp jump in the Bundesbank’s Target2 claims within the European Central Bank’s internal payment network from $706 billion in February to $795 billion in March. Bundesbank claims have risen six-fold since 2008. Bundesbank chief Jens Weidmann is demanding collateral from weaker states for Target2 transfers.
These German credits, equivalent to $800 billion, are balanced by debts of Greek, Irish, Portuguese, Spanish and Italian central banks of almost $850 billion. So long as the German central bank doesn’t demand its money, it is in effect bankrolling the other European partners. And since this is done between central banks, there has been no parliamentary authorization for this hidden bailout.
“The euro-system is near explosion,” said Professor Hans-Werner Sinn, head of Germany’s IFO Institute, addressing Austria’s Economics Academy on April 19. “This enormous international credit should have been subjected to the parliaments of Europe.”
He may well be right. But the voters seem intent on throwing the parliaments of Europe into disarray or into coalitions that are either unworkable or impotent to take the decisive action required.
This might not be so alarming, were it not that even bigger political challenges lie in wait for Europe. Its social contract and generous welfare state is becoming steadily less sustainable as the society ages. More and more people are qualifying for pensions and expensive elderly healthcare while fewer and fewer young people are coming into the labor market and when they do there are few jobs for them. If things look grim for Europe’s incumbent politician now, they will soon look even worse as they are forced to push through new laws raising the retirement age, curbing pension and welfare payments and raising taxes.
By MARTIN WALKER