Hopes fade for meaningful eurozone reform

Hopes fade for meaningful eurozone reform

In July I wrote that in the general election that took place on September 24, Chancellor Angela Merkel could be “re-elected with a mandate to say no to Macron.” What I meant was that the German public looked set to give an endorsement to Merkel’s approach to the eurozone and reject the alternative offered by Social Democrat candidate Martin Schulz, who was (slightly) more open to the new French president’s proposals for reform of eurozone economic governance. In that sense, I expected the German public to send a message that they wanted more of the same.

My prediction turned out to be even truer than I had anticipated. In fact, in so far as German voters sent a message about eurozone policy in the elections, it was that they wanted not more of the same but rather an even tougher approach. The Social Democrats did as badly as predicted – their worst result since the creation of the Federal Republic in 1949. But the Christian Democrats also did much worse than expected – their second worst result since then. In particular, they lost 1.3 million votes to the economically liberal Free Democrats and 1 million votes to the far-right Alternative for Germany (AfD).

The two big election winners were the two parties that campaigned on a tougher approach to the eurozone. During the campaign, Free Democrat candidate Christian Lindner had proposed giving Greece a “new start without the euro” – in effect a resurrection of the idea of a “timeout” that Finance Minister Wolfgang Schaeuble proposed in July 2015. The AfD, which started out in 2013 as a party of economists and constitutional lawyers angry about eurozone bailouts, which they considered a breach of the rule of law, has since become more focused on immigration. But it has hardly softened its position on eurozone policy.

What all this means is that the chances of the breakthrough on eurozone economic governance that many had hoped for are now close to nil. Many in Europe – and beyond – hope that Merkel, with an eye on her legacy, will see sense and push through concessions against the opposition of the Free Democrats, who are widely expected to occupy the all-important Finance Ministry in a “Jamaica” coalition. But this is largely a case of projection. Even if Merkel were personally inclined to make concessions to Macron – something that is far from clear – she has been weakened by this election.

This puts Macron – who said little about reform of the eurozone in his big speech on Europe at the Sorbonne on Tuesday – in a difficult position. He can either make ambitious demands (such as a significant eurozone budget), which Germany will likely reject, or make modest demands – such as turning the European Stability Mechanism into a “European Monetary Fund,” which even fiscal hawks in Berlin such as Schaeuble are in favor of because they see them as a way to increase over other EU member states’ budgets – and claim this as a victory. Either way, the prospects for a real breakthrough, that would help overcome the fault lines within the eurozone and make the single currency sustainable, are dim.

* Hans Kundnani is a senior transatlantic fellow at the German Marshall Fund and the author of “The Paradox of German Power” (Hurst, 2014).

Subscribe to our Newsletters

Enter your information below to receive our weekly newsletters with the latest insights, opinion pieces and current events straight to your inbox.

By signing up you are agreeing to our Terms of Service and Privacy Policy.