Germany agrees to latest effort to save Euro
Published: Friday, September 14, 2012
Updated: Friday, September 14, 2012 16:09
The recent decision in Germany to ratify the European Stabilization Mechanism (ESM) has brought relief to a world crippled by uncertainty about the future of European commerce and fear over the possible demise of the euro.
Created during tough economic times in which nations such as Portugal, Spain and most famously Greece have become crippled due to skyrocketing debt, the ESM was designed as a permanent measure to coordinate European fiscal policy and support European nations whose credit has rendered them unable to borrow money otherwise. It would provide bonds to help straggling nations as a fund compromised of donations by 17 members of the EU.
Before the fund, Germany, the biggest economic force of the EU, was designated to produce 27 percent of the fund’s eventual €700 billion pool of funding. The measure is essential for helping to stabilize the worth of the euro; however, many Germans failed to see any benefit that their nation would receive from ceding power and contributing to a fund that was going to instead benefit other smaller, “mismanaged” nations.
Since July the issue had raged throughout German courts, with the international community fearing that objectors would pull Germany out of the ESM entirely. Without their biggest donor, the ESM likely would not survive past the planning stage, which would leave underperforming nations to fall beyond financial chaos and possibly, down the line, lead to the complete implosion and final discontinuation of the Euro.
Fortunately, the German courts made the final decision to back the measure last Wednesday, September 12. Of course, the decision did not come without Germany receiving concessions. Germany will receive power to oversee handouts, and the fund cannot increase without prior German approval.
Still, a measure with strings attached is widely regarded as better than no measure at all. In a global economy the failures of one region can have global ramifications, with consequences that severely affect the United States as well. According to DePaul economics professor John Berdell, “Many American bank measures (such as the rescue measures of our past recession) have been dependent on European banks. The collapse of the euro would’ve created financial risk; banks here would make less credit available, and this would slow our economy.”
The final approval of this measure functions not as a final cure to Europe’s long financial problems. However, it does work as a heartening sign of stability and, perhaps as significantly, a sign of nations being able to think less independently and show willingness to cooperate in the global economy. DePaul diplomacy expert JD Bindenagel explains that this demonstrates that European nations are “not only committed to financial stability but political unity. The expectation is that there will be more hurdles in the future. But they have moved the ball forward as far as crisis management goes, making them better able to hurdle future obstacles that will arise.”