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Getting Cyprus Wrong – and Germany Too?

27. March 2013, von Almut Möller, Comments (1)

The agreement on Cyprus concluded this week will turn out as a burden to policy-makers in Europe for both next steps related to Cyprus and the Eurozone rescue as a whole. The best take I have read so far is by Bruegel’s Nicolas Véron, who in his latest commentary addresses the manifold arenas in which the case of Cyprus will play out in the months to come.

Véron also discusses the role of Germany, making the point that the Cyprus agreement was held hostage by Germany’s federal electoral campaign, and Berlin as the “unquestioned central actor” in the Eurozone contributed to undermining trust won back in 2012. I agree that domestic politics played a major role for the governing coalition of Chancellor Merkel. The last thing Merkel wants is a euro controversy tainting the so far bright prospects of her re-election, and headlines in German local newspapers this week did her a favour by stating “Citizens’ deposits safe in German banks”.

The question is, despite the opposition trying to capitalise on the government’s potentially damaging slip and on the anti-Merkel mood in Cyprus and other parts of Europe: with a different government in power in Berlin, would the stance on Cyprus have looked significantly different? I doubt it.

German sociologist Ulrich Beck provided what I consider the key to understand German thinking in an interview published by the London School of Economics’ EUROPP blog this week. It is a crucial hint to understand the German soul throughout the past, present and future of the crisis, which is why I quote it in full length:

“(…) Germany’s austerity policies are not based simply on pragmatism, but also underlying values. The German objection to countries spending more money than they have is a moral issue which, from a sociological point of view, ties in with the ‘Protestant Ethic’. It’s a perspective which has Martin Luther and Max Weber in the background. But this is not seen as a moral issue in Germany, instead it’s viewed as economic rationality. They don’t see it as a German way of resolving the crisis; they see it as if they are the teachers instructing southern European countries on how to manage their economies.”

From the crumbling of the City of London during the first wave of the crises through the debt and governance failure in Greece to what is now being described as a ‘fatal business model’ in Cyprus in German papers, there has always been a moral, even moralistic undertone in the German debate, which people outside Germany are struggling with. For Germans themselves, however, it makes a lot of sense. There is a sense of unfairness felt in Germany when witnessing a growing anti-Germany mood in the streets of Cyprus, Italy, Greece and elsewhere: after all we are the good Europeans, not the bad ones, in helping others to find their way back to what we believe is a ‘good’ way of running an economy, and a government responsive to citizens’ needs. And we are even helping with our taxpayers’ money.

In government circles in Berlin this is framed positively and, with what I believe is a genuine sense of responsibility, as help in ‘forging a new social contract’ in countries affected by the crisis. In other parts of Europe, however, Germans cause increasing outrage for allegedly not tolerating any other system than their own, and for playing a moralistic blame game against “hubris, greediness and wilful negligence” (this is how a leading German conservative daily put it today, suggesting to turn the headquarters of the soon to be closed Laiki Bank into a “museum of greed”).

I understand that it is getting harder to believe in the rest of Europe when reading such commentary (and the list of similar quotes has become long in the course of the crisis) that Berlin has good intentions, and that it genuinely does not want to dominate or destroy other countries’ economic and social models. Keeping in mind the hugely formative driving force to German thinking as described by Ulrich Beck might deliver a key to understanding Germany better.

But Germans have to do their part too. In my observation there is still a lack of real understanding of how and why Germany is perceived by others as lacking empathy among policy makers in Berlin. And those who indeed are aware of these perceptions are playing an increasingly dangerous game by ignoring them or playing them down as a natural sight effect that comes with strong leadership.

If I was to revisit the findings of a set of papers that we published in mid-2012 on how Germany is viewed by other EU Member States, by now the results will certainly give much more reason for concern regarding Germany’s role in Europe. Perceptions matter in European politics, and they might turn against German leadership and narrow Berlin’s room for manoeuvre – to the detriment of Germany and Europe.

Europe For Citizens

“This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”

Is there an Alternative for Europe in Germany?

15. March 2013, von Almut Möller, Comments (1)

In my last blog I made the point that despite Germany being a major player in the reform of the eurozone and despite federal elections taking place in the fall of 2013, Germans at the moment seem rather indifferent about the eurozone’s future direction.

I found this to be rather baffling, since the decisions taken by eurozone leaders these days are not mere technical or legal adjustments, but will determine the substance of policies in the currency union and have already done so.

But is it really true that Europe is absent in the minds of German citizens? Perhaps it is a question of weeks now.

The election campaigns haven’t got into full swing yet, as the political parties are still in the process of putting together and adopting their platforms. And it was only this week that a new party with a distinctly anti-euro profile has entered the stage (to which I will come back).

Over these past two weeks, both the leaders of the Green Party (BÜNDNIS 90/DIE GRÜNEN) and the Social Democrats (SPD) have presented their draft platforms to the public. The Greens will put the draft to their party congress in Berlin in late April. In June, every party member gets the chance to cast a vote on the top ten priorities for the Green campaign. As to the Social Democrats, their party congress will convene in mid-April in the southern German city of Augsburg to adopt the 2013 platform. Those seeking for “Europe controversy” in the country notorious for its “Europe consensus” are likely to eventually find some food for commentary at these gatherings.

Leafing through the 100-pages platform of the SPD and searching for “Europe”, there was a particular thing that struck me. EU matters have usually been framed as a grand thought and duty for Germany, more of a political ritual found in intros or conclusions, or in the obligatory chapter at the end in pamphlets of this kind (sometimes together with foreign policy). For voters that made the effort to read through those pamphlets, things must have quite naturally looked as something of a separate matter (“We will work for a better Germany for you, and then there is also the EU which we, good Germans as we are, want to build.”).

Today, European affairs have become much more a matter of policy substance – and with issues such as budget and banking supervision or the tax on financial transactions, quite naturally, intertwined with the domestic context. The new message, accelerated by the past years of crisis, is “We will work for a better Germany for you, and our playing field to achieve this is also Europe”. In other words, we can only preserve our freedom, prosperity and social justice in this world when taking much more responsibility for each other. My guess is that this is a line that still won’t go down naturally with traditional SPD voters.

Needless to say that for the Greens, advocating Europe in such a way is an easier argument to make. The party’s environmental agenda, one of its main pillars since entering the formal political arena in Germany thirty years ago, is by its very nature a field in which the borders of nation-states do not matter all that much.
It is too early to tell though whether the parties challenging Angela Merkel’s return to the chancellery manage to frame their agendas to really make a difference – and to portray European affairs no longer as a matter of statecraft at EU summits, but of political choices, of political drama and of majorities.

Europe For Citizens

“This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”

The French Squeeze

14. March 2013, von Adriaan Schout, Comments (0)

There are signs that the economies in the eurozone are picking up in various ways. Recent figures of the ECB on Target2 (the capital account of the eurozone countries within the ECB) show remarkable signs of improvement. The claims of the triple-A countries Germany, Finland and the Netherlands on the problem countries are going down. The Dutch and the German claims at the peak of Target2 lending in 2012 amounted to € 173 billion and € 750 billion, but these have dropped by almost 20% since. There are many explanations for this development. Draghi’s promise to do ”whatever it takes” to keep the eurozone intact, has created the trust needed to restart trade in sovereign debt of Spain, Ireland, Portugal and Italy. In addition, (wage) reforms and austerity measures have reduced the imports; investors are returning and exports of for example horticultural products are increasing.

These developments in the south imply enormous reductions in risks for the budgets of northern countries. If the situation in the problem countries had deteriorated, the Target2 claims could have end up as losses – and downgrades – for the triple-A countries. These claims are not just important in terms of abstract risks on the ECB books, but they also have practical implications for the national debt positions. The Dutch government used the profits from the Central Bank on the sovereign debts from Southern countries to lower its public debt figures, so that the deficit is at least cosmetically closer to the 3% monitored by Olli Rehn. However, including the Target2 risks of the ECB in the national budgets would show that national debts are potentially much higher. Also in this respect the drop in the ECB’s Target2 exposure is good news.

However, the difficulties in the eurozone and the Target2 risks are far from over. The Global Competitiveness report for 2012-2013 displays the many remaining economic hurdles in the eurozone including repeated warnings over inflexible labour markets in Spain. Moreover, the outcome of the recent elections in Italy obviously creates additional challenges.

The real worry however is France. Its Target2 deficit has not gone up due to the deterioration of its current account. Moreover, its public debt is rising above 95% – which means that its debt becomes unsustainable. The global competitiveness index of France has fallen last year from 18 to 22. It is doubtful whether the French social economic institutions – including its labour relations – are up to the economic challenges France is facing. Despite the efforts of Olli Rehn with the reinforced EU semester, France has shown few signs of improvement over the past year. Worryingly, with the economic reforms in its neighbouring countries including Spain and the Netherlands, its competitiveness and current account balance is being threatened from all sides.
We saw in August 2011 that financial markets woke up to the worries over Italy’s economic situation. Typically, this awakening did not happen with a whisper but with a bang. The crisis in the eurozone was then probably at its worst because of the size of the Italian economy. An immediate crisis over France may not be around the corner, but all ingredients for the next major euro problem are present. Symbolically as well as economically, a eurocrisis over France would be extremely damaging to the European integration project as a whole.

It is surprising that the French interest rates are currently still comparable to those of Germany. Either financial markets are irrational or they are counting on Draghi’s unconditional support for France. Both explanations would be very dangerous economically and politically. Irrational financial markets could prove to be extremely volatile and a repetition of August 2012 is possible. Alternatively, German – and Dutch – patience with Draghi and the ECB could reach its limits. FDP chairman Brüderle already warned France that reforms are needed. The EU cannot afford an existential crisis because of French economic negligence.

Europe For Citizens

“This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”

Europe – Absent?

25. February 2013, von Almut Möller, Comments (1)

This is my first entry in the Eurozone 2013 blog. Based in Berlin, in the following months I will comment on the steps taken by EU leaders to reform the Eurozone from the German capital, and will include my observations on the German euro debate.

As it happens, the German President, Joachim Gauck, has just given his long-awaited Europe speech in Berlin. Surely, the outside observer might think, his speech was only one of many interventions in a Europe debate in full-swing in Germany. After all, this is a key country when it comes to fixing economic and monetary union (EMU), with more major steps that will affect the direction and functioning of the eurozone and the overall EU likely to be taken this year. Surely, one might think, in a year of federal elections there will be competing political and economic visions on the future of Europe, and the opposition parties will want to mobilize their respective constituencies in the battle for the chancellery.

You will be surprised to hear that compared to what is at stake, and contrary to what we have seen in the French 2012 presidential as well as in the 2013 Italian election campaign: Germans so far are not fretting about Europe.

I see three main reasons for Europe being largely absent from the campaign so far:

1. Crisis, what crisis? The crisis is not making the headlines, at least for the moment. And with the German economy still doing well, a majority of Germans – unlike fellow EU citizens in other countries – simply do not feel the impact of the crisis.

2. The Merkel factor. Germans tend to trust Angela Merkel’s ability to do what is necessary to help the countries in crisis to recover (and there is a sense of solidarity by now), and to keep an eye on Germany’s interests when negotiating the future make-up of the euro governance with the other euro members.

3. The consensus country. Because of 1) and 2), all opposition parties struggle to challenge Angela Merkel’s conservative party. Adding to this is that Germans currently seem to like the idea of a ‘grand’ coalition of Conservatives and Social Democrats, so there is a tactical temptation for the Social Democrats not to bark too loudly.

Going back to the president’s speech; it is unlikely to trigger a euro debate. The president in the German system does not have political clout and by custom does not get involved in politics. In today’s speech, President Gauck did not cross this line. But the office is traditionally used to shape fundamental debates, and I believe this speech will be influencing the parameters of the Europe debate among the elites in the months to come.

Indeed, the president presented some fresh thinking. Gauck, a pastor and civil rights activist in the German Democratic Republic, put Europe’s citizens at the centre of his hour-long speech. Hardly did he touch on the crisis, on the role of governments, and on detailed suggestions on how to make the European Union work better.

He must have felt that in Germany and across Europe, citizens feel disempowered by the crisis, by nonstop rhetoric that makes them fearful, by complex and technical measures difficult to grasp, and by diplomats negotiating about their future behind closed doors.

Gauck’s language therefore was a language of empowerment. This was the vision of a democrat, a free citizen of Europe, wanting to encourage Europe’s citizens to live up to the task of being citizens in a European res publica, learning to shape their future together.

Europe For Citizens

“This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.”

Blog Authors

Adriaan SchoutAdriaan Schout

Dr Adriaan Schout is Deputy Director Research/Europe at Clingendael, Netherlands Institute of International relations. (read more...)

Alexandre AbreuAlexandre Abreu

Dr Alexandre Abreu is a 33-year-old Portuguese economist with a PhD from the University of London. Currently he is a lecturer in Development Economics at the Institute of Economics and Business Administration, Technical University of Lisbon, and a Researcher at the Centre for African and Development Studies of the same University.

Almut MöllerAlmut Möller

Almut Möller is a political analyst in European integration and European foreign policy. She is currently the head of the Alfred von Oppenheim Centre for European Policy Studies at the German Council on Foreign Relations (DGAP) in Berlin. (read more...)

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