As Obama steps in to start his second term, markets take a tumble for the worst losing value immediately. The wave of optimism has been countered by a new wave of reality check which has been delivered by Mario Draghi who is the head of ECB. In his speech in Germany, the euro chief brought Germany into forefront of the discussion and highlighted concerns how it was now facing the weight of the eurozone crisis. The issue has never been considered before and up till now; the major concern of the crisis was how to limit the damage that has been caused to the other countries.
The economies of the more powerful countries were always considered sound and insulated enough and it was always expected that countries like Germany and France could not only sustain themselves but also aid others in their efforts. Commodity and equity markets always considered that Germany and France had enough to get through the crisis unscathed and that might have had been true six months back when the crisis was just emerging. But it has dragged on too far. The impact of the sovereign debt mess has been burdening other economies around the world in terms of trade and lending power and now it seems it is hitting home in case of Germany.
Draghi’s statement raises new concerns about the crisis and it seems that Germany might have gone too far than it hoped for. Up till now, Germany was trying to help sustain and maintain the EU and the euro when it could have had walked away from the table at any point. Now that it has committed to the cause, Berlin has got itself tangled into this crisis even more and the impact of this will be financial and more importantly political as well as social. Germans who were supporting the aid programme will now want their government to first deal with the economic slowdown and reshape its domestic policy before making further commitments outside.
German society is divided over domestic and international policy based on political lines throughout the crisis and now with the realisation that Germany is suffering alongside other countries, critics would gain further momentum in their drive to limit Berlin’s intervention. The importance of this issue being raised right now also gains significance seeing that Germany will elect their next chancellor within the next year and the policies that are put in place by Angela Merkel and her administration will turn the election into a referendum in November next year. Greece, France, Ireland and Spain have already seen leadership changes influenced by the eurozone crisis and it seems German elections might face the same conclusion.