German Chancellor Angela Merkel arrives to hold a press conference in Berlin. In a period of gradual deglobalization, Germany as Europe’s foremost export engine realizes the need to invest in shoring up the European Union.
“I fear German power less than her inactivity,” remarked Poland’s Foreign Minister Radek Sikorski at the height of the eurozone crisis. More than Germany leading Europe, Europe must fear a Germany that eschews its leadership responsibilities.
Last week Chancellor Angela Merkel disproved these concerns. Her joint proposal with President Emmanuel Macron puts Germany back in the game and raises hopes of regaining the European Union’s lost dynamism.
What does the joint French-German initiative for a European Recovery Fund propose? Common funding and joint bond issuance, under the seven-year EU budget. For a European economy of 14 trillion euros, in the greatest recession since the 1930s, 500 billion euros in grants, distributed over a three-year period, is no huge fiscal stimulus.
But it is a leap towards closer integration, particularly since it overturns two hitherto persistent German refusals: joint issuance of debt and cross-border transfers. It echoes a resource allocation principle of “from each according to their abilities, to each according to their needs.” Even if a significant part of these resources ends up in the strongest economies, the importance of this development remains emblematic.
An outline for an EU Ministry of Finance able to borrow and spend, possibly to tax in the name of the Union, is being created. It is not by chance that many, with an air of wishful thinking, have talked of Europe’s “Hamiltonian” moment. Under Alexander Hamilton in 1790, a newly formed Federal US Treasury took over the debts of the American states.
It is not a Eurobond, as the Euro-South would like, as it constitutes a one-time joint debt issuance. But it is as close to this as possible, reducing the chances of it being canceled by the North’s “frugal four.” True to her political habit, Chancellor Merkel is “leading from the center.”
During the previous eurozone crisis, Germany relied on a satellite coalition of member-states, eschewing a frontal conflict with countries such as Greece. When things got rough, there was always a Slovak finance minister to use the undiplomatic language. At the time of the previous joint Franco-German proposal for euro reform (Meseberg, June 2018), many considered that the joint proposal was submitted with the certainty of its subsequent cancellation by the New Hanseatic League, the then version of today’s coalition of the “frugals.”
But there are strong reasons why this time could be different, including the chancellor’s strong popularity. The German Constitutional Court’s decision was a communication fiasco for the country, a decision rife with institutional complacency and legal solipsism, a gift to anti-Europeans of all kind, from the AfD to Viktor Orban. It likely accelerated developments in the opposite direction.
First, by forcing the Merkel government to actively demonstrate her commitment to Europe. Second, by depriving her of the ability to rely (as in the previous debt crisis) on European Central Bank initiatives, making up for the reluctance of eurozone governments to activate a common fiscal response. After Karlsruhe, Berlin could no longer rely on Frankfurt to do the job on its behalf.
The German government is probably acutely aware that the current crisis is widening the North-South gap (which had opened up over the past 20 years) to such an extent that it will be impossible to reverse further divergence without additional joint eurozone interventions.
In a period of gradual deglobalization, with the clear emergence of three increasingly competitive economic blocs (USA, China, Europe), Germany as Europe’s foremost export engine realizes the need to invest in shoring up the European Union. Fortunately, a generation of German leaders continue to sustain a visceral commitment to Europe as an intrinsic part of the post-war German democratic identity. The German president’s formidable speech on May 8, the anniversary of the end of World War II, served as a powerful reminder.
It is possible that the moment Europe discovers Hamilton coincides with the moment Germany meets France in a geopolitical appreciation of the significance of European unity. In a world of steady disintegration of international multilateral institutions, organizations and agreements (against which Donald Trump rants on a weekly basis), the European Union will end up heteronomous, a victim of heightened US-China rivalry, if it does not reinforce its internal unity and protect the cohesion of its common currency and the single market.
This Southern outpost of Europe, Greece has reacted with admirable self-restraint with regard to the coronavirus pandemic, its government demonstrating professionalism and effectiveness, on top of the far-reaching economic adjustment implemented over the previous decade. As Greece now slides into its second painful recession, shortly after having emerged from the equivalent of a Great Depression, it can nonetheless look more confidently to a European Union for providing solidarity, coherence, and a rediscovered sense of common purpose.
George Pagoulatos is professor of European politics and economy at the Athens University of Economics and Business, visiting professor at the College of Europe in Bruges, and director general of the Hellenic Foundation for European & Foreign Policy (ELIAMEP).