Germany as Saviour or Demon: Political Risk in the Eurozone and the Burden of History

Germany as Saviour or Demon:

Political Risk in the Eurozone and the Burden of History

[Germany as Saviour or Demon] – PDF

William Leiss (9 December 2011)


Introductory Note:

These reflections were inspired by the insightful article published on December 6 in Spiegel Online, doctor “A controversial paragon:  Europe shudders at Germany’s new-found power”: treat 1518, viagra sale 801982,00.html”>,1518,801982,00.html.  See also (1) the opinion column by Jakob Augstein, “The return of the ugly Germans:  Merkel is leading the country into isolation:” 8 December:,1518,802591,00.html and (2) Christoph Schult, “Summit advice:  How about a little humility, Frau Merkel?” 8 December:,1518,802515,00.html.


The sheer scale of the irony now playing out on the European continent is mind-boggling.  The first phase of the Eurozone crisis is just about over and the second – marked by the German-French alliance’s proposal for a dramatic upgrade in fiscal integration of at least some subset of the EU’s national economies – is about to begin.  Almost certainly the  practical implementation of this new strategy will set the nations who sign up for it on a one-way street:  The external oversight and self-discipline for national budgets that will be required to halt the euro’s downward slide toward destruction will lead, step by step, to a deeper functional unity, first in fiscal matters and later in other institutions.

If the financial markets can be persuaded to accept it as a viable long-term strategy, they will do so only with a highly sceptical mindset.  Those markets will be alert to any hints of backsliding, playing for time, or fakery in the national accounts, and undoubtedly they will punish the malingerers severely should they find evidence of the same.

As the marvellous Spiegel Online article shows, Germany appears to have won over the French – not just Sarkozy, but much of the French decision-making élite more widely – to its concept of long-term financial and economic health.  In a speech in November Sarkozy said:  “All my efforts are directed towards adapting France to a system that works.  The German system.”  In fact, as of now, Germany stands alone as the one and only model for all of the Eurozone (and indeed EU) economies.  Thus 66 years after France and the rest looked around, in the Summer of 1945, at the immense destruction, loss of life, and raw memories of the unimaginable savageries perpetrated on them by their German neighbours, are they about to say:  “We are all Germans now”?

One of the smaller ironies for the French was the news, just this past week, that German police were raiding the homes of the last surviving members of the SS unit that carried out the notorious massacre at the village of Oradour-sur-Glane on 10 June 1944:  There were only two survivors (out of almost 700 men, women, and children); the French have never rebuilt the town (, leaving it as a memorial to those who died there.  After all this time, the German police apparently were looking for evidence of their complicity in that shameful episode.

But ironies abound.  Who in 1945 could have imagined that in 2011 the Foreign Minister of Poland – a country which suffered so terribly during the Nazi occupation – would give a speech in Berlin in which he said:  “I’m less worried about Germany’s power than about its failure to act.  It has become Europe’s essential nation.  It must not fail in its leadership.”  (See also the New York Times article, December 9, “Europe’s debt crisis brings two former foes closer than ever”:

Meanwhile, in the nation whose citizens have been ordered to impose upon themselves the harshest “austerity” measures to date – Greece – Germany’s presumed role in dictating the bitter medicine they are being forced to swallow is palpable to them.  (In both Dublin and Athens, the EU bureaucrats who have been sent in to oversee these measures are referred to by the natives as “the Germans,” no matter what their actual nationalities happen to be.)  Their memories of the harsh Nazi occupation in 1941-44 are still easily recalled.  So most Greeks will not be joining in the chorus of, “We are all Germans now.”  But could this too change?

As it battles for its fiscal health the EU will arrive at a crossroads, perhaps in one year, or two, or longer.  Persisting along the straight and narrow path – that is, emulating the German model – could, if all goes well, allow citizens of Europe to see with sufficient clarity through the chill winds of austerity to a better and stable collective future.  But in traversing this path they will come upon alternative turnings from time to time.  Taking some of those turnings will mean rejecting the medicines they are now being offered and digging in their heels, resisting the restructurings of employment patterns, pension and retirement schemes, and (to some extent) the welfare benefits they now enjoy but cannot really afford.  There will be strong temptations – already on view in Greece – for citizens and public officials to seek to thwart the application of austerity measures through sabotage and noncooperation.

They may even try to ignore their budgetary targets, but they will not be able to conceal their noncooperation, as before, by faking the national accounts.  What is perhaps even worse, at the political level they may try very hard to cooperate but be unable to do so, because the institutional changes that are presupposed in the austerity targets simply cannot be carried out in the necessary time-frames.  This is the scenario described in a very recent OECD report (Spiegel Online, 8 December, “OECD report questions Greece’s ability to reform”:,1518,802514,00.html.)  Should this scenario play out, punishments may arrive from the North (because citizens there will demand this of their governments), and national bankruptcies will loom, leading to full-blown social crises.  It is impossible to forecast how that might all end.

In short, there are enormous political risks inherent in Europe’s present situation.  Much of the pathetic, fumbling search for pseudo-solutions during the last two years has been designed to avoid entering deeply into the zone of political risk by confronting the need for radical changes to the EU institutions.  For example, if national referendums are required to ratify such changes, will the necessary approval be given?  To take the case of Ireland, it was the national government there which made the catastrophic mistake of nationalizing 100% of the debt of its private banks.  The money that enabled them to do so, when their sovereign debt could no longer be financed through the markets, came from the EU.  Will the Irish citizens, knowing how long it will take them to dig themselves out from under this monumental blunder, perhaps conveniently forget how this mess was made and take out their grievances on the EU?

The risk will have to be run, because the earlier strategy is broken.  There will be no quick fix, as Merkel sees clearly, and it is impossible to say how much time will be required; but all the while the financial markets will have Europe’s politicians on a very short leash.

It’s far too simplistic to “blame the markets.”  This is entirely the politicians’ own fault, because in the long run-up to the 2008 crisis they had been fiddling while their bankers stuffed their huge businesses with combustible materials.  European politicians watched from the sidelines as the Irish and Spanish housing bubbles expanded; they allowed their banks to bulk up on toxic assets from the US subprime mortgage assembly-line; they acceded by default to the weakening of international regulatory regimes that was pushed by US and UK interests; they allowed their banks to accumulate large portfolios of sovereign debt instruments on the theory that they were “risk-free”; they turned a blind eye to the Greeks’ blatant lies about their budgetary deficits; and so on.  A slice of these depressing stories is told in Michael Lewis’s inimitable and entertaining style in his latest book, Boomerang:  Travels in the new third world (New York:  Norton, 2011).

The latest German-and-French-led initiatives are a hopeful sign, but there is no guarantee that they will succeed in staunching the bleeding in the Eurozone.  The risk of political disintegration in the EU will remain high for some time to come.  But if it works in the end, with Germany leading the way to a brighter collective future, would this not be the supreme irony, after all that happened in the preceding century?

Author’s Note:

My personal interest in Germany’s role in the burden of history in Europe is dictated in part by the fact that I am of German ancestry, and in part by my long apprenticeship with Herbert Marcuse.  I have discussed this autobiographical background, including reflections on Marcuse and Heidegger, in a recent interview, available at:

Gutman and Marcuse and Heidegger

In a conversation with Laureano Ralon and Roman Onufrijchuk, I recall the great gift bestowed on me by the opportunity to study with great teachers, in particular the historian Herbert Gutman and the philosopher Herbert Marcuse.  Questions about  the eight years of apprenticeship I spent with Marcuse during the 1960s, both at Brandeis and UC San Diego, naturally lead to my own thoughts about his period of study with Martin Heidegger.  Basing my discussion on the brilliant and pathbreaking book by the contemporary French philosopher Emmanuel Faye, Heidegger:  The Introduction of Nazism into Philosophy [original in French, 2005; English translation, Yale University Press, 2009], I argue that Heidegger’s thought will always be morally compromised by his enthusiastic and unapologetic support of Hitler’s regime and by his own effort to synthesize his philosophical thought with Nazi ideology.  A passage in Heidegger’s postwar work, cited by Faye, describes the fate of extermination-camp victims as, in effect, a “death unworthy of death,” bringing to mind the notorious phrase, “life unworthy of life,” which was used during the Nazi period to justify the murder of groups singled out for extermination.  I undertake these reflections in the context of my own continuing struggle, as a person of German descent, with the legacy of barbarism and savagery bestowed on us by the Nazi regime, a legacy that must never be forgotten and that can never be forgiven.

Hoaxes and Hobgoblins

This past September we learned of The University of Calgary’s embarrassment over the discovery that oil industry funds had been moved through its research accounts to carry out non-research activities dealing with climate change issues.[1]  These funds were used to support the activities of a group calling itself, buy somewhat mischievously, “Friends of Science” (  Of course one thinks immediately of the old saw:  “With friends such as this, who needs enemies”?  Is the irony implicit in the name intended or not (the case would be more interesting if it were).

Read full article: Hoaxes and Hobgoblins [PDF]

[1]; Vancouver Sun, 09/15/11 :; Postmedia News, 09/16/11 (Talisman):

Death by Debt

Here are extracts from Chapter 3 of my book, physician The Doom Loop in the Financial Sector, and Other Black Holes of Risk (University of Ottawa Press, 2010), pp. 101-2:

Thus, by the middle of 2010 six of the seven largest economies in the world looked to be in no shape … to spend their way out of another serious financial meltdown for a very long time to come [due to accumulated debt levels]….  Recent events have seriously eroded the margin of safety in the discretionary public resources available to most of the world’s wealthiest economies; that is, the capacity of their governments to incur additional debt responding to a further financial crisis,…”

Read the full article: Death by Debt [PDF]

European Debt Crisis in three acts

The Online English Edition of Der Spiegel has a brilliant analysis of the European debt crisis that is not to be missed.

Read “The Ticking Euro Bomb” (October 5-7, no rx 2011):

Act I:

Part 1, advice Section 1:  “How a good idea became a tragedy”:,1518,790138,00.html

Part 1, Section 2:  “The Greeks jump at the opportunity”:,1518,790138-2,00.html

Part 1, Section 3:  “The critics of the Euro”:,1518,790138-3,00.html

Act II:  Life with the Euro (2001 – 2008):

Part 2, Section 1: “How the Euro Zone ignored its own rules”:,1518,790333,00.html

Part 2, Section 2:  “The Greek deception is discovered”:,1518,790333-2,00.html

Act III:

Part 3, Section 1:  What options are left for the common currency?,1518,790568,00.html

Part 3, Section 2:  Greece adrift,1518,790568-2,00.html

Part 3, Section 3:  Design defects, political weakness, public disinterest,1518,790568-3,00.html

Part 3, Section 4:  Are European rescue efforts doomed to fail?,1518,790568-4,00.html

Political Risk in the Middle East: The Emergence of Turkey

In case you missed the important and perceptive article by Doug Saunders, in Saturday’s Globe and Mail (“Why the West quietly cheers Turkey’s Rise,” 17 September 2011, A16:, here is a short summary: Turkish Prime Minister Recep Tayyip Erdogan was well-received during a visit last week to the capitals of Egypt, Tunisia and Libya. This and other recent initiatives appears to mark a significant shift in Turkey’s foreign-policy orientation, away from Europe and the prospect of EU membership and toward the Arab world, which of course remembers Constantinople as the capital of the Ottoman Empire, which ruled much of the Middle East and North Africa for four centuries, until it finally collapsed for good in 1922.Political Risk in the Middle East

Prolonging the Agony: Europe’s Sovereign Debt Crisis

When will the senior political and financial leaders in European countries come to their senses? When will they concede that their current policies to contain the debt crisis are not working and cannot be made to work? How long are they going to prolong the agony of waiting for the next wave of contagion to strike?

Prolonging the Agony

eBook / PDF versions available

Two of my books from The University of Ottawa Press – The Doom Loop in the Financial Sector and The Priesthood of Science – are available as ebooks or PDF file:

In addition, all of my books from McGill/Queens Press are available as eBooks for libraries. These include:

9780773575356 Leiss, W – C.B. Macpherson

9780773561922 Leiss, W. – The Limits to Satisfaction: An Essay on the Problem of Needs and Commodities

9780773562219 Leiss, W. – Under Technology’s Thumb

9780773564794 Leiss, W. – The Domination of Nature

9780773569515 Leiss, W. – In the Chamber of Risks: Understanding Risk Controversies

9780773572409 Leiss, W. – Mad Cows and Mother’s Milk: the Perils of Poor Risk communication

9780773564671 Leiss/Chociolko – Risk and Responsibility

Three new papers on Risk

Three papers on risks associated with the long-term storage of high-level radioactive waste in Canada, mind commissioned by the Nuclear Waste Management Organization: Go to

Paper #1: How should matters of risk and safety be discussed?

The first paper addresses the question of how to approach discussions about risk in this area. Four “reference frames” are used to demonstrate the different approaches or perspectives that can be applied to a conversation about this risk: the energy policy frame; the risk and safety frame; the overriding values frame, and; the geographical frame.

Paper #2: How might communities organize their discussions about hosting a site for used nuclear fuel?

This paper presents a variety of deliberative tools that a community might use when holding discussions about hosting a facility. Communities involved in a site selection process may wish to consider how the process of engagement might unfold in the context of their own unique situation, and the author describes some types of formal and informal methods for facilitating reasoned debates about controversial issues.

Paper #3: What is happening in other countries where similar issues about used nuclear fuel are being discussed?

This final paper deals primarily with high-level radioactive waste management and provides an overview of the plans of various countries to deal with their high-level waste. All of the information is taken from publicly-available Internet sources, most of which are websites maintained either by national agencies that have legal responsibility for the waste within their borders, or international agencies with other types of mandates in this area. Profiles for 16 countries are provided, along with a large collection of references and links to internet-based resources, as well as a table illustrating the progress of each country in managing radioactive waste.

William Leiss, OC, PhD, FRSC

Risk Blogs – Summer 2011

The following series of short essays was written in the period June – August 2011 and posted on my website: Similar pieces will be added to the series on a regular basis. If you are interested in them you may check the website periodically or follow me on Twitter (@WilliamLeiss), where I post a Tweet (a) each time a new short blog appears on my website and (b) when I read something in the current press relevant to risk issues and provide the URL for those who also might want to read it.

LeissRiskBlogsSummer2011rev2 [PDF]

Update: the PDF was updated August 29, 2011

Financial Risk Management: Duping the Rubes

Before 2008 financial industry professionals arranged to deceive local government officials around the world about the risks inherent in their “structured” products, pilule costing the citizens those officials worked for huge losses they could ill afford. Much of this sad story has been told in excellent investigative journalism accounts published in The New York Times, some of which are referred to in my 2010 book, The Doom Loop in the Financial Sector and Other Black Holes of Risk (University of Ottawa Press), pages 38-43. Here I refer to developments occurring after the book was finished, as well as one other newly-reported important episode, involving school districts in the state of Wisconsin.

Duping the RubesRev3 [PDF]

Update: the PDF was updated October 3

Difficult Risk – Risk Tradeoffs: Political vs. Financial Risk in the EU

There was an important article by Jack Ewing and Liz Alderman in the August 10 edition of The New York Times, thumb entitled “Some in Germany want Greece to temporarily exit the Euro Zone.” This article takes up issues that have been quietly heating up in the background for some time already but which are, cialis inevitably, becoming harder to ignore. Ever since the first EU bailout of Greece in May 2010, and intensifying with the subsequent Portuguese rescue mission and especially the second Greek one, both in 2011, comments emanating from Germany and elsewhere have cast aspersions on the “profligate southerners” who have come to depend on their “frugal” northern compatriots to rescue them from financial disasters of their own making.

Full article: Risk Risk Tradeoffs [PDF]

Fat Tails and Climate Change: Catastrophic Failures in Risk Management, 5

Image courtesy of UNEP / click image for original

The phrase “fat tails” became familiar to some people after the storm broke in 2008’s global financial crisis. A fat tail refers to the probability and consequences of a possible event that is outside the bounds of our normal expectations, find as defined either by our prior experience or by accepted theories – for example, link theories of the behaviour of financial markets.1 More specifically, it refers to the probability of an adverse event (such as a financial crisis) that is both more likely to occur than is “normally” expected, and that if it should occur could have catastrophic dimensions. [See and the lovely 2010 animated graphics in The Economist:]

Fat Tails and Climate Change PDF

Risk Management Cases: Drilling for Shale Gas

Image courtesy of 32BJ/Flickr

Environmental risks associated with drilling for shale gas, prescription and the extraction process known as “hydraulic fracturing” [“fracking”], are receiving a good deal of attention in Canada, the United States, and elsewhere.

The state of New York has had a moratorium on shale gas development for the past year, but Governor Mario Cuomo has recommended that it be lifted in favour of permitting activity in selected areas. The Province of Quebec now has a two-year moratorium in place and has indicated that further research will be required before it is known whether the environmental risks can be limited to acceptable levels.

Readers who are interested in this issue, especially those who live in or near areas where underground shale deposits may attract this activity, will be interested in the following current resources.

Shale Gas Drilling [PDF]

Financial Risk: The World turned Upside Down

Image courtesy PIAZZA del POPOLO / Flickr

Here’s the latest from the Greek debt crisis:

“Europe is seeking to avoid a default at all cost because it could also initiate payment of credit-default swaps, there with unpredictable results. There is little public information on which financial institutions have sold credit-default swaps and might have to absorb losses if Greece defaulted, there but it is likely that American banks and insurance companies have taken on the largest share. The shock to the global economy might compare to the collapse of Lehman Brothers in 2008, illness the European Central Bank has warned.” (Jack Ewing & Landon Thomas Jr., “Europe faces tough road on effort to ease Greek debt,” The New York Times, 4 July 2011)

Wait a minute! In credit default swaps the first party pays a premium to a second party in order to “insure” the value of an amount invested in corporate or government bonds made by the first, and the second party guarantees to make up the shortfall if that investment loses value, for example where the issuers of the bonds default on their debt.* Derivatives such as credit default swaps are a risk management strategy for investors, protecting them (for a price) against large losses. So how does this very sensible risk mitigation strategy, used by individual investors, end up causing or exacerbating another broad financial crisis?

The World turned Upside Down

Catastrophic Failures in Risk Management, 4: The Terrorist Attack on Air-India Flight 182

Image courtesy Corinna A. Carlson / Flickr

The month of June 2011 marks the first anniversary of the release of Air India Flight 182: A Canadian Tragedy, illness the final report of the Commission of Inquiry into the Investigation of the Bombing of Air India Flight 182, troche headed by Mr. Justice John Major.

The mid-flight destruction of Flight 182 off the Irish coast on 23 June 1985 killed all 329 passengers and crew; an explosion at Narita Airport in Japan, which was part of the same terrorist plot, killed two baggage handlers there. The resulting toll represents, still today, the second-largest loss of life (second only to the September 11, 2001 events in the United States) in a single terrorist plot ever to occur anywhere in the world.

Catastrophic Failures in Risk Management 4 [PDF]

Catastrophic Failures in Risk Management, 3: Blood Donation Risk and Gay Men

Image courtesy vincent0849 / Flickr

As we are now seeing in the long-running global financial crisis, decease the initial stages of catastrophic failures in risk management can have follow-on consequences over long periods of time. In the case of blood donation risk, the infection of blood recipients by the HIV and Hepatitis C viruses in many countries around the world, including Canada, in the 1980s was such a catastrophic failure. This risk is known as “transfusion-transmitted infection” (TTI). Full post here: Catastrophic Failures in Risk Management 3 [PDF]

Catastrophic Failures in Risk Management, 2: The Never-Ending Global Financial Crisis

With increasing frequency comments on the ongoing sovereign debt crisis in Greece and the euro zone include a reference to the need to avoid a repeat of the collapse of the investment bank Lehman Brothers in September 2008. The basis for this otherwise puzzling comparison is the concept of “contagion,” that is, cascading failures in the financial sector – the “falling dominos scenario” – which once started with a single “event” cannot be halted, by any means currently at our disposal, until other (perhaps many other) large losses occur.

Full post here: Catastrophic Failures in Risk Management 2 [PDF]