Press

Part of the reason why southern European nations like Spain and Greece are currently in so much debt is that the northern European nations were prepared to lend to them the cash in the first place, explains Simon Tilford, chief economist at the Centre for European Reform. The construction boom in Spain, for example, wasn't financed out of nowhere: it was fuelled by enormous sums of cheap cash borrowed at very low rates.

"The problem is that when countries signed up to the single currency they were not made aware that it would require such integration. Political elites need to start explaining why it does," said Simon Tilford, chief economist at the Centre for European Reform in London.

"Germany feels isolated and misunderstood," said Katinka Barysch, deputy director of the Centre for European Reform think tank. "The rift, if badly handled, could make Germany's stance towards the EU more hard-nosed and inward-looking."

As Simon Tilford, the chief economist of the Centre for European Reform think tank points out, if every economy in the eurozone looked like Germany they would all be expected to run trade surpluses, all have minimal labour cost inflation and all have low domestic consumption. "It's a beggar-thy-neighbour strategy," he said. "If everyone is called upon to cut costs and boost export income, then there's massive depreciation pressure and a eurozone wide slump. It would mean big trouble.

"This sends a very unfortunate message," said Simon Tilford, chief economist at the Centre for European Reform, a London-based think tank. "It again suggests that the Germans are no closer to understanding that the markets are not the problem here. The markets are right to be uncertain about the sustainability of the eurozone in its current form. … What is specific to Germany is a readiness to make unilateral announcements on things that would only be doable if they were done collectively," said Tilford. "It's pretty populist stuff.

While the EU's foreign admirers are on the defensive, international eurosceptics are in the ascendancy. Charles Grant, head of the Centre for European Reform, a pro-EU think tank, says he has been struck on his recent travels by the growing disdain for Europe in Delhi, Beijing and Washington. "We're seen as locked into permanent economic and demographic decline, and our pretensions to hard power are treated with contempt," he laments.

Speaking to Today’s Zaman, Katinka Barysch, deputy director of the Centre for European Reform (CER), raised questions on "big uncertainty" about the EU policies of the new government because the two coalition partners have opposing views. "Both the Conservatives and the Lib Dems are pro-EU enlargement and that includes Turkey," she said.

But Charles Grant, of the Centre for European Reform, says the German political class's deep-seated commitment to Europe has not changed. "Germany is becoming a more unilateralist, nationalist partner," he says. "But ultimately the German political elite will do whatever is necessary to save the EU, and although the parties are pretending to be nationalistic they will go along. There is no chance that the popular will can break through – the German system is much more elite-driven."