There are mounting reasons for Germany to alter its stance. For one, the stakes are higher. No sooner did the elections in Greece on Sunday ease fears of a disorderly Greek exit from the euro then borrowing costs spiked in Spain and Italy. Both countries must sell government bonds to refinance heavy debt loads, but investors, spooked by recession and financial instability, are instead pulling money out of the countries. That presages far bigger challenges than Europe has faced thus far and underscores the failure of policies to stem the crisis.
Against that backdrop, the world leaders had a chance to press Angela Merkel, Germany’s chancellor, to provide stronger and more flexible bailout support — for example, by allowing Greece more time to meet the backbreaking terms of its bailout package or injecting capital from the euro zone directly into Spain’s banks or seeking more aggressive ways to lower interest rates for vulnerable borrowers, including issuance of a common Eurobond or direct bond purchases by the European Central Bank.
Ms. Merkel has long rejected such steps. But, next week, when leaders of the European Union meet for a planned summit meeting, the discussions from the G-20 could provide a foundation and political cover for her to begin to take bolder action.
Then again, she could hold firm to her current stance. She has repeatedly insisted on austerity for hard-pressed countries, even when it has been a demonstrable failure. And, while she has correctly asserted that more aid on better terms should be accompanied by greater European unity, the lack of unity appears to be an excuse to delay steps to ensure that adequate aid is available on workable terms. Under current policies, the euro zone and the global economy have been put at high risk.
By next week we will find out whether world leaders at the G-20 got through to Ms. Merkel.
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