Europe is pushing Canada to join other G20 countries and contribute billions to a bailout fund for the most vulnerable countries of the euro zone.
The continent that’s been on the brink for what seems like eons is seeking others to help pay its bills.
Should the euro-zone collapse, Canada will suffer, the argument goes. This is true, in the interconnected global economy.
Germany voiced its displeasure with the Canadian government’s position that it will not contribute to the International Monetary fund. The Conservatives argue that Canadian taxpayers shouldn’t contribute to bailing out European countries that have been overspending for years.
The political logic behind decision is obvious. Canadians have suffered the effects of the recession and themselves feel tapped out. Many would ask why should Canadians help Europe – the same continent that’s fond of lecturing those it deems less “progressive.”
But this is not the primary reason Canada should stick to its position of non-intervention. This is Europe’s problem to fix, and Europeans countries, especially Germany, have the resources to do so.
The Germans have run their economy exceptionally well for the past 20 years. They made the necessary reforms to their labour markets well before the euro-zone fell into crisis. As a result, they now have the lowest rate of unemployment in a generation.
They have focused on high value-added manufacturing and ensured that the infrastructure on which their economy runs is of the highest calibre. Few countries on this planet match the German commitment to quality.
We must remember that Germany pushed for the introduction of the euro and the rules that govern its use. Even in these tough times, this calculation has been a boon for the country.
The introduction of the euro in the peripheral member states of the European Union, including Greece, Ireland and Portugal, but also now Italy and Spain, dramatically increased the purchasing power of their citizens. Newly armed with euros rather than pesetas, the Spaniards bought the BMW convertibles and Bosch washing machines they coveted. German exporters were the principal beneficiaries.
Not only did Germans sell more to these countries than they bought from them, the scale of its industry grew, free to operate without constraints across the now 27-state European Union.
Spain, Greece and Portugal, no longer with national currencies they could devalue to make their exports less expensive and stay competitive, simply could not match the German industrial juggernaut.
Instead they allocated resources to the construction, real estate and tourism sectors. While credit was readily available, this papered over the differences between the regions of Europe.
But it all started to unravel in 2008 at the onset of the credit crisis, which has been playing itself out ever since. Yet German manufacturing and export dominance has grown. It is greater now than it was even a few years ago, in large part due the depressed value of the euro, stimulating even greater exports. By value, Germany’s exports are almost the same as China.
Some economists estimate that were Germany still using the German mark, it could be valued up to 30 per cent higher than the €. The euro-zone troubles have kept German products cheap, greasing the country’s export machine, generating massive current-account surpluses, keeping German borrowing costs effectively at zero and holding unemployment close to 5 per cent. Things have never been better for the German economy.
And now Germany is leading the call for non-euro countries to pitch in and help save Europe. Its politicians are doing so because they are fearful of leading a bailout of their sclerotic European partners. The government cannot be seen by its taxpayers to give its credit card to Greece or Spain.
German leaders have avoided a discussion with their citizens on the degree to which their country has benefited from this euro affair.
Public appetite for a bailout of countries such as Greece and Spain is weak at best.
The German government is now looking for cover. Much like the Americans tried to assemble a coalition of the willing to legitimize their invasion of Iraq, the Germans are seeking a coalition of the willing, via the IMF, to manage the negative impacts of the euro crisis.
The Canadian government is wise to resist.
Jason Langrish is executive director of the Canada Europe Roundtable for Business