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carl mortished

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The summer's almost over and, in the Mediterranean, hoteliers will begin to add up this year's takings. In Greece, the reckoning is more important than usual. Prices were cut to entice northern Europeans, and although business on Aegean beaches has by all accounts been brisk, it may not be enough to keep the financial wolves at bay. Germany's central bank reckons that Greece will be begging for a new aid package in the Autumn and, by the way, the Bundesbank believes that the last tranche of aid, a €5.7-billion ($7.8-billion) lump paid in July, was only paid under political pressure.

Buba's jaded view of Greece's financial progress under the troika's tutelage emerged in a leak of an internal Bundesbank document by Spiegel, the German news magazine. But further evidence emerged today that Greece is struggling to generate enough economic activity to meet its tough fiscal targets. Greek government data published yesterday showed that the economy shrank by 4.6 per cent in the second quarter while tax revenues were €1.5-billion shy of targets over the last seven months. The Greek government still struggles to collect what is due, but the simple truth is that Greece's economic engine is not running fast enough to generate enough wealth to pay for the Greek state. The economy has contracted by almost a quarter since 2008 and more than 1 in 4 are without jobs, yet the Greek economic plan is to balance the government's budget before interest payments this year. Greece's progress under the 2010 plan will be reviewed later this year. Even the prospect of more aid, however, can only mean more pain for ordinary Greeks who know that handouts inevitably come with demands for more cuts in government spending.

The leak of the Bundesbank report is embarassing for Angela Merkel, the German chancellor. She faces elections on Sept. 22 knowing that any talk of more money for Greece will be hugely unpopular and will stimulate a small but growing anti-EU sentiment. Being unofficial boss and paymaster of the quarrelsome Union has never been comfortable for Germany, because of the history of the last century. The euro crisis has exposed the nation's embarassment and unease while encouraging anti-German sentiment across the continent. In an attempt to defuse the tension, Wolfgang Schauble, Germany's finance minister, penned a defence last month of the Merkel strategy. Published in five European newspapers, his article, "We Germans don't want a German Europe" sought to calm the anti-German lobby but he also exposed the underlying political problem that the euro crisis has exposed. The critics want Germany to lead effectively but not to impose its economic solutions on Europe, he said, pointing to the lack of consensus on Germany's role in the crisis or elsewhere. He wrote: "The idea that Europe should be – or even can be – led by a single country is wide of the mark. Germany's restraint does not just reflect the burden of its history. The truth is that the unique political structure that is Europe does not lend itself to a leader–follower dynamic."

Unfortunately, he is correct. Europe lacks any unifying political idea, other than a customs union. The introduction of the euro, without the political cohesion that could enforce a common banking system and co-ordination of tax and spend policy, has exposed the contradiction. Within this empty political shell, Germany finds itself in charge, imposing internal depreciation policies – wage and benefit cuts – on disputatious and politically immature populations. These policies worked for Germany during its reunification when West Germans rallied to the support of their East German compatriots but this is different. Germans and Greeks don't have the same mindset. Herr Schauble says that Europe signifies "the equal coexistence of its member states." What that means for Europeans is equal co-existence in inequality: unequal in wealth, in opportunity, employment and income. That is a tension that can only lead to trouble.

Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights .

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