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Germany's hard line pushes euro zone to the edge

Greece is in the grip of anti-German sentiment verging on ire. A lot of it is disturbing, some shocking. If it builds, the austerity programs that are designed to keep the euro zone from flying apart could very well have the opposite effect.

Thursday's front page of Greece's right-wing Democracy newspaper showed a picture of German Chancellor Angela Merkel dressed as a Nazi officer, complete with swastika armband and the headline, "Memorandum Macht Frei," a reference to the three chilling words "Arbeit Macht Frei" – Work Makes You Free – that stood over the Second World War's Auschwitz concentration camp.

The "Memorandum" is the austerity plans proposed by the essentially bankrupt Greek government in exchange for a €130-billion ($172-billion) bailout from the European Union (read: Germany) and the International Monetary Fund. Without it, Greece will default on its debt by March 20, when a €14.5-billion bond redemption is due.

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Among other things, the memo calls for 150,000 government job losses by 2015 – with 15,000 "mandatory" cuts this year, and a 22-per-cent reduction in the private-sector minimum wage.

The Democracy headline was just part of the backlash against what Greeks see as German-ordered austerity. A photo gallery published Friday by Germany's SpiegelOnline showed austerity protesters carrying Nazi flags, others burning the German flag. In another picture, the "Banque de Grèce" sign in Athens is defaced and now reads "Banque de Berlin." Videos show popular TV personality Georgios Trangas rallying against the spending cuts, especially the ones that will eat into pension plans. "Germany doesn't care if 3 million pensioners die here," he says in one appearance.

On Sunday, the Greek parliament is expected to vote on the austerity-for-bailout package, assuming the unelected Greek caretaker government fixes the sticking point in a hurry. The "Troika" – the European Commission, International Monetary Fund and the European Central Bank – is demanding another €325-million in cuts in the €3.3-billion austerity package before it approves the bailout. The Greek government was straining Friday to come up with the extra cuts as protests and national strikes erupted throughout Greece.

In effect, Sunday's parliamentary vote, if it goes ahead, is emerging as a referendum on the country's continued membership in the euro zone. If Greece does approve the package – the ruling coalition has the parliamentary numbers to push it through – then the country in the view of many Greeks is doomed to become a German-controlled debtor's prison, in which the Greeks are deprived of their sovereignty and beholden to savage spending cuts and tax increases that threaten to keep the economy in the tank for years. Already, Greece is entering its fifth year of recession, after a punishing economic contraction of 6 per cent in 2011.

The backlash against German-inspired austerity is not purely a made-in-Greece phenomenon. It is building in Portugal, the last of the three euro zone countries to receive a bailout – the second was Ireland – and in Spain and Italy. The latter two are back in recession. If their economics keep sinking, external financial support of some kind is not out of the question.

It is even hitting France, Germany's greatest ally in the European austerity drive. Note that election front-runner François Hollande is distancing himself from Ms. Merkel, while President Nicolas Sarkozy is doing the opposite, to the point that he seems happy to accept Ms. Merkel's offer to campaign on his behalf in the France's spring elections. Mr. Hollande's austerity-lite strategy is smart. He no doubt remembers the austerity campaign launched by the socialist president François Mitterrand in 1983 (" Tournant de la rigueur"), which cost the left its parliamentary majority three years later.

The moment "Germany" and "austerity" become synonymous is the moment the euro zone enters a genuine existential crisis. World Bank president Robert Zoellick said as much at a security conference in Munich last week: "If Germany, at the end of 2012, is only associated with austerity and the key countries can't maintain the political support for the economic actions, then Germany could become the target of ire."

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Take Greece. The socialist PASOK party, still led by former prime minister George Papandreou, has dropped to single digits in the popularity polls, down from about 45 per cent, when it was elected in late 2009, half-a-year before Greece's first bailout. New Democracy, the main centre-left party in Greece, is sinking fast too, last polling under 20 per cent. The winners are the left-wing parties, united in their fear of austerity, and Ms. Merkel, whose popularity ratings (in Germany) are soaring.

There is little doubt that ailing Portugal, an apparent Greece in the making, will need a second bailout as its economy sinks into the Atlantic. But when it sees the nasty Greek austerity programs demanded by Germany and the IMF, you can forgive any of the Portuguese who are thinking: Forget it, maybe we'll go to Plan B and leave the euro zone.

Germany is pushing austerity too far, too fast. It is backfiring. Instead of saving the euro, the endless demands for cuts threaten to shatter it.

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About the Author
European Columnist

Eric Reguly is the European columnist for The Globe and Mail and is based in Rome. Since 2007, when he moved to Europe, he has primarily covered economic and financial stories, ranging from the euro zone crisis and the bank bailouts to the rise and fall of Russia's oligarchs and the merger of Fiat and Chrysler. More

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