THE BLOG
05/26/2010 03:27 pm ET Updated May 25, 2011

Germany Overtakes Congress

Germany has become as the world's financial reformer, emerging out from under its politely subordinate role in Europe with last week's stern measures to curb bad behavior by banks and nation-states.

Markets are temporarily roiling only because the rules are now up in the air, now that Germany has finally led the way with reforms.

The Americans, with their Wall Street-owned Congress, has forfeited this role.

This is the type of action that must be undertaken to try and save the world economy. As others dither, or deal with hung parliaments, Germany -- the world's third biggest economic player -- has assumed leadership.

Chancellor Angela Merkel and her Finance Minister Wolfgang Schauble have cut through the lobbying and procrastination around the world:

"If you want to drain a swamp, you don't ask the frogs for an objective assessment of the situation," Schauble told the Financial Times in a clear warning to the U.S. and others.

This has pressured the Americans to smarten up as "frogs" in their "swamp" mire and mince reform attempts in Congress. It has forced the dithering EU to smarten up as "frogs" in its "swamp" like Greece and Spain drag their feet on fiscal reforms.

Brits will help too

The Brits will also be pushed to grow a backbone, thanks to Germany's initiative, a Tory Prime Minister, a financial center that was a corrupt branch plant of Wall Street and a stake in fixing Europe. It should also be remembered that Britain did not join the Eurozone and kept its own currency precisely because it foresaw that there was no financial oversight to make the profligates behave.

We should all be grateful that German timidity has lifted. Europe, the world's central banks and finance ministers are running kitchens with too many chefs and nobody who knows what to do. Now someone has laid down tough measures against national misbehavior and market malfeasance such as naked short selling.

Germany's reticence has been rooted in its shame about the past, but three generations after WWII the country has emerged as a credible democracy and significant economy. Germany's nominal GDP is bigger than China's and until months ago it out-exported China. German achievement has outshone all the others, except China's: They integrated communist East Germany successfully, imposed fiscal discipline, improved exports and maintained their traditional work ethic.

Germany's threat to dismantle the Euro if other countries don't sort themselves out is helpful. So are her demands that severe deficit controls like Germany's be imposed by all EU nations. This is helpful because leaders in Greece, Spain, Ireland and elsewhere can blame Berlin but use its threat as a stick to bring about austerity measures and discipline.

Germany's assumption of the leadership role in Europe will have profound consequences for a region that was circling the drain as well as for world markets as a whole.

Read more here.