Germany in Europe: Christmas Presents from Merkozy

I am with those who argue that this summit might have killed the EU without necessarily saving the euro. In this respect, indeed, the Summit was historical. The main problem was not solved, but the EU got another big one: how to deal with the UK veto. The risk that the EU now plunges into difficult institutional hassles – which will absorb much political energy – is big.

Yes, there is improvement on the fiscal surveillance side, but, as Simon Tilford from CER argues, the agreements are a“stability pact with lipstick”. And yes, there are subtle changes with respect to the role of the ECB, but here also after the summit is before the summit: the question of a more vigorous role for the ECB will be on the table again, when France and Italy need refinancing.

But essentially what happened is that three domestic opinions prevailed over Europe’s strategic interest at large: the French want Eurobonds without political union; the Brits want control over the continent without wanting Europe; and the Germans want the single market and exports without fiscal union. Instead, the French got intergovernmentalism, the UK got out of Europe, and Germany got golden rules: none of these really helps the EU and none of them really saves the euro. ‘Merkozy’ and Cameron can celebrate their victories. They made their people happy. The question is for how long.

The Brits will have their hangover very soon, as they lost strategic control over the continent and soon will realise how much the City needs the single market. The French may be happy that they do not need to follow weird German concepts of political union, but time will come when they realise that being the addendum appendix of Germany in an intergovernmental setting does not suit their vanity or interests. And Germans will realise that Europe cannot be governed with a golden rule alone and that they cannot have the export gains without paying for fiscal union. The three key players, haunted by their public opinions, opted for a ”only-the-necessary” approach on Europe. Everybody wants to have the cake and eat it too; nobody wants to pay a price. But this will not work. You cannot have it both ways. My non-arithmetic equation here is that you cannot convincingly do more Europe, if most want less. It is no longer a question of Councils; it is a question of political energy.

In this respect, the most interesting article I read last week was by Werner Abelshauser, an economic history professor, who argued in the Frankfurter Allgemeine Zeitung (Friday, 9^th December)  that the best deal for Germany now – like in the middle-ages – is to go global with a mercantile approach and to stabilise only a smaller, homogenous Eurozone. Based on many conversations, I would argue that this corresponds to how most Germans feel today: we want to go global; we want to equip the world with engineering products; we want Europe to remain stable; but we no longer want to invest much in it (let alone pay for it). We want it to remain on a level below supranationality, with every country basically on its own. We want the single market and the exports to it, of course, but no transfer union. And we want a ‘smaller’ Eurozone. I don’t understand the charm this concept has in the eyes of many Germans, despite being so evidently illusionary. Germany cannot suck the rest of Europe into its own industrial value chain; it cannot have the single market and its benefits without fiscal union; it cannot have a ‘homogenous’ euro and the export advantage, simply because its neighbours will not allow it. At some point, they will drop out of the movie. And then Germany cannot be the economic powerhouse of Europe without showing international responsibility.  Selling tanks to Saudi Arabia while at the same time abstaining from intervention in Libya are not going to work for long.  Foreign policy is not just luxury. Pure mercantilism is no strategy, it is dependence.

The problem is that Merkel failed to tell all this to the German people. My problem therefore lays  not first and foremost with the Council conclusions. I agree that this Council, as many before, may create more Europe through the backdoor.  But I wished it came through the front door, just so that people could see it.

I am still dubious about what will happen when Merkel, in less than three months or so, turns to the German public and announces that Germany now has to unleash the ECB or introduce Eurobonds, because she must.  This can only backfire with the public, which has now been told, month after month, that this would never ever happen.

Up to 46% of Germans appears to be convinced that the euro is no longer good for Germany. This feeling is shared by a majority of the French.  Marine Le Pen actually has the most coherent discourse about the fact that the euro is no longer good for France, because, as she argues, it creates an asymmetric relationship in favour of Germany. Les extrèmes se touchent… many left-wing socialists in France argue the same way. The question is when this discourse will explode. The anti-euro argument has now reached beyond the critical figure of 30% in both France and in Germany. Marine le Pen says in France what Hans-Werner Sinn and others say in Germany: the euro is no longer profitable. This is the real problem of Europe today, not the Council agreements.

The real question is whether, through committed European policies, we will be able to use our economies as a tool for a political project of Europe. This was the promise of Maastricht 20 years ago. But Maastricht disentangled the state-market relationship to the detriment of citizens. This relationship would now need to be fixed on the European level, and the task is not a minor one. If we do not succeed, the chances are high that the gravities of national economies will exacerbate both European divergence and social inequality, and this may ultimately make the Eurozone implode – for political reasons.

In this respect, my wish for a present underneath my Christmas tree is to reactivate the spirit of Maastricht in 2012: the idea of an ever closer union beyond fiscal surveillance!

With this, I wish you all a Merry Christmas and a happy new and great European year – let’s build a better Europe!

This column was first published by the European Council on Foreign Relations

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