He did it again: German finance minister Wolfgang Schäuble repeatedly reflected on a possible Grexit in February 2017, after having raised this threat already in the negotiations on the third bailout programme in summer 2015. International observers cannot believe Germany has started playing hardball again in this delicate affair just when the European idea is on the line due to growing support for populist nationalists in upcoming elections. So why is Schäuble forcibly creating new ripples on the seemingly quiet front of the Eurocrisis?
The German majority: Advocates of a stability union
Led by the current and previous federal government under Chancellor Angela Merkel and her CDU, the advocates of a stability union for the most part favour preservation of the status quo of the EMU architecture. The fundamental reasons for the Eurozone crisis are from this angle to be blamed on the failure of the crisis states to stick to existing rules and economic policies, thereby harming their competitiveness. Accordingly, the paramount objective in combating the crisis and further developing the Eurozone has been to correct these purportedly “wrong” policies in these countries and close possible loopholes in the rules. A whole host of measures have been implemented along these lines, from the launch of national debt brakes in the guise of the fiscal compact to stipulating quasi-automatic sanctions with the reversed majority voting in the reformed Stability and Growth Pact. Additionally, structural reforms promoting competition and fiscal consolidation in the Euro Plus Pact and in the European Semester as well as the enforcement of these if necessary within the framework of credit assistance programmes have been brought on the way.
Such views have been supported by a clear majority of actors from academia and employers representatives as well reflected within a media landscape that has only sporadically ventured any critical analysis. Indeed, centre stage in the debate has been occupied by topics like the consolidation of budgets, market-friendly structural reforms and corresponding mechanisms to enforce compliance at the Eurozone level.
The minority: Supporters for expanding or rolling back the Eurozone
While supporters of a stability union blame the Eurocrisis on these failings within those states hit hardest by the crisis, the much smaller grouping of proponents of a fiscal union point the finger at fundamental flaws in the EMU design. Critical scholars, intellectuals and journals along with the trade unions have urged that EMU be buttressed by elements of cross-border liability and coordinated policies. But these voices are weak in the German debate: The contours of the camp striving for more fiscal integration, with instruments such as Eurobonds, automatic stabilisers in form of a common insurance mechanism or a fiscal capacity to curb and contain asymmetric shocks, remain pale. This can be explained by the absence of a strong political body behind these alternative proposals. In particular, the Social Democratic Party (SPD) has manoeuvred between support for Keynesian and heterodox concepts on the one hand and positions firmly ensconced in the majority opinion in favour of a stability union on the other. Overall, the SPD can be considered to nestle within the fold of the CDU’s approach, and this might change only in 2017 with Martin Schulz aiming to break the peaceful coexistence of the two biggest parties in German politics on European affairs.
In addition, there is a new group of actors with the potential for obtaining a majority that is very heterogeneous in terms of both its composition and its specific demands, which rejects both the vision of a stability union as well as a fiscal union. The demand for a reversal of currency integration is being spearheaded from two diametrically different directions: conservative-liberal critics associated with the right-wing nationalistic party Alternative für Deutschland (AfD) view any ties to purportedly crisis- and debt-ridden states as posing a serious danger to German taxpayers. In contrast, critics from the far left of the political spectrum are raising the spectre of an erosion of national welfare states and democracies due to the increasingly radical market approach of the Euro regimes. This heterogeneous camp and its growing support in the population are putting pressure on the established actors, who increasingly tend to shy away from policy proposals supporting deeper European integration.
Not sustainable: Schäuble on repeat
This constellation in the continuing political discourse, as described in more detail in a study recently published by Friedrich-Ebert-Stiftung, is why the debate on the Eurocrisis, the review of the one-sided austerity approach and possible reform options for EMU remain stuck in Germany. The stability union is supported by a solid group of actors and benefits from the relative mild impact of the crisis as perceived by the German population. As long as growth and employment in Germany remain higher than in many neighbouring states, a change in course despite a stagnating economy, deflationary threats and high levels of unemployment in many crisis countries is highly unlikely. Thus, again and again we will hear Schäuble grumbling at Eurozone countries out of line with his stability approach.
Very few factors could alter the terrain of the German debate over the future of the currency union One is the SPD’s positioning, which so far fails to shift to such an extent that it could breathe real life into a fiscal union as laid down in its party program. Another is the growing attractiveness of the camp supporting a roll-back. The sustainability of the stability-at-all-costs approach, fundamental to the beliefs of the finance minister, is an illusion. As partial stagnation in the Eurozone wears on, the question of expansion or roll-back of the currency union will clearly become ever more pressing. Forcing another Greek stand-off in the summer, with the harmful economic consequences so clearly exhibited already in 2015, will further undermine the status quo that Schäuble so desperately seeks to cement in the Eurozone.
Dr. Björn Hacker is Professor of Economic Policy at the Berlin University of Applied Sciences (Hochschule für Technik und Wirtschaft). Cédric M. Koch works in the Department of Economics and Law at the Berlin University of Applied Sciences (Hochschule für Technik und Wirtschaft) as well as for the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).