European Council on Foreign Relations

A less German Europe?

The recent announcement by Wolfgang Schäuble that " there will have to be another programme in Greece" blew some fresh air into the lazy electoral campaign in Germany in which Europe has not yet played any significant role. Although no major controversy over Europe is to be expected in the last five weeks before the vote on 22 September, Schäuble’s declaration fuels the debate about the next government’s European policy. After the tacit concession that the austerity policy has not proved to be a success, another German dogma – no more bail-outs! - seems to be falling apart. Are we observing the decline of the “German Europe”, built so painstakingly by Berlin during the years of crisis?

In fact, the concept of a German Europe is not so much a description of a new EU reality as it is an expression of concern about the state of the debate and the European spirit in Germany. True, in recent years Germany’s relative power has grown but this “hegemonic moment” has not led to a German-style remodeling of the European Union. Germany has been forced, unhappily and with increasing scepticism from the German public, to give up fundamental parts of its vision of the EU. Berlin agreed to create a permanent bail-out fund (ESM); accepted that the European Central Bank could go far beyond its previously accepted mandate; and even gave up its opposition to the direct recapitalisation of banks by the ESM (upon strict conditions, though).  The fact that Germany had to give up many of its cherished principles in European and economic policy suggests a crisis in the German conception of Europe rather than its sudden blossoming. Paradoxically, just as Germany attained unprecedented economic and political advantages over the other EU members, it met with defeat in its Ordnungspolitik.

A fundamental change in German policies after the elections is therefore very unlikely. In essential questions, such a change of course has tacitly already taken place.  But the pressure on Germany and Berlin’s growing awareness of the serious domestic impact of EU problems will lead to further concessions, which only Schäuble dares to call by name.

The question of a new rescue programme for Greece is just one aspect of this possible evolution. Although the details of Greek debt restructuring remain taboo in the election time, the issue cannot be excluded any longer in upcoming months. Moreover, the announcement by the president of the European Commission that a group of experts will be created and charged with studying the option of a debt redemption fund (which would encompass all debts of eurozone countries in excess of the Maastricht Treaty limit of 60 percent of GDP), puts this idea – consistently opposed so far by Berlin – back on the agenda. Putting it into practice will clearly be a long and bumpy task. But, interestingly, the concept comes from the German senior economic council and is supported by the opposition SPD. If a grand coalition of the CDU/CSU and the SPD is created, the question of debt reduction and the creation of a fund for this purpose could reappear.

A test of the German approach to the crisis is the eventual fate of banking union. There is a vital need for a system that would make it possible to rescue banks (or liquidate them) without burdening states (or taxpayers). This dispute, which will be addressed in the autumn, concerns a central element of the future banking union: who will make decisions in these matters, and how? Where are funds needed to carry out such operations to come from, and who will manage them? The European Commission’s recent proposal to create a special institute and fund (€55 billion) met with criticism from the German government, which is opposed to the transfer of further responsibilities to Brussels. However, the transfer of these powers to the EU is supported by the German opposition: the SPD and the Greens. If one of these parties makes it into the government after the elections, German policy on this question could evolve.

But the way in which Germany could contribute to European economic recovery is a different matter: with increased German domestic consumption stimulating economic growth. Persuading Germans to raise wages significantly, or to reduce savings, will be a backbreaking task, and the effect of this on the rest of Europe not certain. But a pro-growth stimulus on the part of Germany could take another form—an increase in public investment, which has been dramatically neglected in that country in recent decades. As the German Institute for Economic Research (DIW) recently calculated, since 1991 the value of public infrastructure (roads, bridges, railways, schools, kindergartens etc) in Germany has decreased by 10 percent in relation to GDP. No other highly industrialised country has invested so little in the same time period. It is precisely the lack of such investment that is Germany’s greatest weakness, and this threatens its medium to long-term economic development. A broad programme of investment could have a positive effect on the long term situation both in Germany and across Europe. The SPD and the Greens are advocating increases in income taxes - additional revenue would be used for a multi-billion-euro program of infrastructure repairs and investment in research and science.

Expecting a miraculous German recipe for overcoming the crisis would be making the mistake of naivety. Europe’s problems are too deep for even a German “half-hegemon” to solve. No sudden change in German policies can guarantee immediate improvements in the situation in Europe. Preventing a dismal scenario will require difficult decisions from the future federal government. The consequences of its actions (or inactions) will surely be more momentous than their apparently technical nature would suggest. Although we cannot expect revolution, the further erosion of “German Europe” would appear to be on the horizon.

Based on the text published in Polish in Dziennik Opinii on 20 July 2013.  Full English text at www.ecfr.pl

1 comments

YOSongsPK 7th January 2014 at 04:01am

I totally Agree with ya in the concept of a German Europe is not so much a description of a new EU reality as it is an expression of concern about the state of the debate and the European spirit in Germany . .  thanks for posting such post !

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