<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By David Henry</p> <p>Germany has finally found a friend on the other side of the Atlantic: Time columnist Fareed Zakaria.</p> <p>The country has endured months of hostility in the U.S. media for its refusal to budge on its austerity program while Greek newspapers ran images of Chancellor Angela Merkel in a Nazi uniform. In his <a href="http://www.time.com/time/magazine/article/0,9171,2115038,00.html">most recent column</a>, however, Zakaria suggests that the euro area's laggards should tip their hats to Europe's largest economy for agreeing to bankroll the bailouts for as long as it has.</p> <p>Germany's contribution to the European Financial Stability Facility, when combined with earlier funds and loans, "will easily exceed the country's annual federal tax revenues," Zakaria writes. "Imagine the U.S. being willing to guarantee more than $2 trillion to bail out Mexico." The North American Free Trade Agreement clearly wouldn't evoke that much solidarity from U.S. taxpayers.</p> <p>Zakaria isn't entirely alone in his sympathy for German fiscal discipline. The Wall Street Journal has offered <a href="http://online.wsj.com/article/SB10001424052970204468004577164583645108556.html">similar views</a> in recent months. But the timing of Zakaria's comments couldn't be better as Greeks prepare for their second attempt to elect a government on June 17. The result will determine whether Greece keeps the euro.</p> <p>The Maastricht Treaty of 1992, which built on almost four decades of convergence initiatives, limited budget deficits to 3 percent of gross domestic product and restricted government debt to 60 percent of GDP. The Lisbon Treaty of 2007 included the now-famous "no bailout" clause (Article 125) for signatories to the agreement. Both documents are now effectively meaningless.</p> <p>But does solving the euro crisis mean doing the opposite of what these agreements originally intended? This is what Germany's detractors would suggest: bailouts in perpetuity (through fiscal transfers) and increased government spending (bigger deficits and debt/GDP ratios).</p> <p>The euro project was never supposed to be about a free lunch for any of its members. Germany may be the beneficiary of the experiment so far, but that's only because the peripheral countries have opted to remain uncompetitive by refusing to make the necessary structural reforms -- which Germany did under Chancellor Gerhard Schroeder. As David Brooks <a href="http://www.nytimes.com/2012/05/18/opinion/the-age-of-innocence.html">writes</a>, human nature has shown that "if we get the chance, most of us will try to get something for nothing." Greece could be the poster child for this motto.</p> <p>A mixture of austerity and growth is the only solution if the euro area is to remain intact. Recidivist nations can't expect to retain fiscal sovereignty if they want repeated bailouts. A European Finance Ministry could serve as a type of fiscal purgatory for repeat offenders, which could regain sovereignty after their budgets are back within limits. Countries that don't violate the limits would never have to give up power over their own budgets. The incentive to maintain sovereignty beats moral hazard any day.</p> <p>"Life without Germany will mean a lot more austerity than life with Germany," Zakaria writes. Greek voters would do well to consider this when they go to the polls next month.</p> <p>(David Henry is an editor for Bloomberg View.)</p> </body> </html>