Understanding Germany’s role in Europe and in this crisis

Wolfgang Proissi of Bruegel has written a superb essay on the topic.

The more the crisis in the euro area develops, the more the last ten years seem to have been an artificial paradise. In that gravity-free world all countries were equal, markets were benevolent and the governments’ leeway was only limited by virtual boundaries.

The Greek debt crisis brought this fiction abruptly to an end, restoring gravity and with it the very hierarchy that Economic and Monetary Union was supposed to abolish. In this real world Germany is at the centre and what matters is how far any given country is from it in the eyes of the bond market. The asymmetry of the 1980s and 1990s is back once again.

This has profound consequences for the whole of Europe but especially for Germany itself. In Angela Merkel, the European Union has a de-facto leader but one who was not prepared for leadership. Germany is not ready to trade money for power or to enter into any of the usual quid pro-quos that leadership implies.  For Germany, the  change comes at very moment when it aspired to behave as a normal country, extricate itself from the obsessive travails of European integration, and turn to the wider global economy where its producers enjoy such success.

This crucial moment when the tension between Germany’s true position and its aspirations broke out into the open will no doubt be a matter for scholarly research for many years to come. But today is the time for immediate history, and this is what Wolfgang Proissl offers in this essay, which draws on his experience as a journalist, most recently as the Brussels correspondent of the Financial Times Deutschland and on numerous recent interviews with key players .  This enables him to explore why Germany has fallen out of love with Europe, to document how its partners have reacted, and to discuss what the likely consequences are.

Proissi explores the important role Germany plays in Europe and how most EU institutions have a German touch of stability in them. Importing things from Germany also gave credibility to the various EU institutions as well. He also points how Germany and Gerhard Schroder eroded the basic values on which EU was set up:

Schröder, along with French President Jacques Chirac and Italian Prime Minister Silvio Berlusconi, had been responsible for a remarkable u-turn from previous German policy. This was best captured by a newspaper cartoon depicting a smiling chancellor comfortably sitting in his armchair while lighting his cigar with a burning letter containing the Commission’s excessive deficit procedure against Germany.

The three biggest euro-area economies had challenged the Commission’s decision to start the disciplinary procedures foreseen in the SGP with regard to countries surpassing the three percent of GDP deficit limit. The countries even fought with the Commission at the European Court of Justice about the issue. Additionally they forced through a revision of the pact that strengthened its preventive arm destined to avoid the build up of deficits. But the revision also defined more exceptions for the three percent rule and gave deficit countries more time to get their finances in order. By doing so Schröder, Chirac and Berlusconi “have laid the axe to the pillars of the monetary union,” former ECB chief economist Otmar Issing said.

Then there is interesting discussion of German and French political system. Germans have a federal structure where things move slow with consensus. French have a system where president calls the shots and things happen relatively quicker.

When Merkel first met Nicolas Sarkozy she warned him: “Nicolas, you will have to get used to the fact that I am slow”. The president subsequently had to learn this was no understatement. The French political system is centred around his energetic, instinct-driven character. It allows Sarkozy to take decisions on the spot – if necessary by ignoring the views of his government, advisors, parliamentarians and other stakeholders. With the chancellor it is the opposite. In the German federal system, decisions emerge after long, thorough and often controversial discussions with the chancellor playing the role of mediator. 

This slowness is reinforced by Merkel’s cautious personality, which is not  noted for spontaneity and treasures an almost scientific way of preparing and taking decisions. During the crisis the process was further complicated by obvious disagreements between Merkel and her finance minister Schäuble, the most senior member of her team.

Interesting nuggets. We have quite a few in the paper and there are many quotations etc. There is an interesting story on How the bailout package got credibility due to German participation and how Sarkozy took the credit. This miffed the Germans more.

Finally suggestion on how Germany could be reengaged with Europe:

  • The first point concerns ‘the vision thing’. The political narrative on Europe has got lost in the past few years. A diffuse, positive feeling among the German population towards EU integration has been replaced by indifference and scepticism.
  • A second issue is Germany’s relationship with France: Merkel’s personal relationship with French President Sarkozy is, according to my contacts, bad.
  • A third point is about the euro area’s repair. There is a communication  issue and a substance issue.
  • A fourth point concerns the constitutional court. Germany should reflect upon the role that its constitutional court has started to assume.
  • A final point concerns transfers in the euro area. Germany should reconsider its categorical refusal of additional transfers within the currency area

Excellent stuff. A nice snapshot on so many European things.

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