The European Sovereign Debt Crisis: Is Germany to Blame?

Only a decade ago, slow growth and high unemployment plagued Germany, but the "sick man of Europe" has now moved to outperform the Eurozone average growth since the second quarter of 2010. This confirms Germany's recovery and its status as the growth engine of the continent. This surely is a success story. While Germany (also Austria and the Netherlands) is prospering, the peripheral countries in the Eurozone are confronted with a severe sovereign debt crisis. Starting in Greece, it soon spread to countries such as Ireland, Portugal, and Spain. In the course of the debate, Germany was blamed for the imbalances in Europe. In short, German export performance and the sustained pressure for moderate wage increases have provided German exporters with the competitive advantage to dominate trade and capital flows within the Eurozone. Thus, Germany is seen as the main beneficiary of the EURO. This argument, however, is vehemently disputed within Germany. Many economists and political leaders reject this argument and point to the flagrant lack of fiscal discipline in many of the peripheral countries. Some prominent economists, such as Hans-Werner Sinn, even disputes that Germany was the main beneficiary of the Eurozone. The paper analyzes the two sides of the controversy, and asks whether we are witnessing a more inwardlooking and Euroskeptic Germany. These issues will be analyzed by first focusing on the role of Germany in resolving the sovereign debt crisis in Greece, and the European Union negotiations for a permanent rescue mechanism. We conclude by discussing some possible explanations for Germany's more assertive and more Euroskeptic position during these negotiations. [ABSTRACT FROM AUTHOR]