French President Emmanuel Macron will be joining Angela Merkel in Berlin in an attempt to reaffirm the Franco-German consensus on Eurozone reforms. That is a tall order.
The Chancellor is under pressure to amend or discard President Macron’s agenda on political consolidation.
No debt mutualization
Ahead of the EU Summit in June, Macron’s stated priority is to defend the Eurozone against the next financial crisis. Germany seems reluctant to concede to any proposal that requires debt mutualization or social transfers, although it is willing to pick up its own share of budget contributions, the German public broadcaster DW reports.
Peculiarly for the Franco-German axis, the emerging disagreement is framed as a conflict between an intergovernmental and a federalist approach to the EU.
Critics of the Macron reform agenda in Germany see calls for a Eurozone finance minister, a budget, a banking union, a parliament, investment and social transfer policy tools as violating German sovereignty. Merkel’s conservative hardliners, both in the CDU and the Bavarian CSU, are reluctant to accept a eurozone finance minister, managing a “federal budget,” mostly paid for by German taxpayers.
Commenting on President Macron’s address to the European Parliament on Wednesday, Alexander Dobrint, of the Bavarian CSU, clearly objected to the idea of a Eurozone finance minister. In the past, the Bavarian CSU has frequently objected to the redistribution between the German south (i.e. Bavaria) and states with a deficit, including Berlin.
The political cleavage is widening
Macron, an investment banker, has a macroeconomic perspective and is eager to ensure that the Eurozone is ready to counter downturns in the economic cycle by means of investment and quantitative easing. That is an anathema to the German rules-based economic management approach, which insists on a surplus come what may,.
Christian Democrats want first and foremost for EU member states to agree to more contributions to the EU budget, filling the gap opened by the UK’s decision to leave the EU, currently the second biggest contributor after Germany.
German Christian Democrats are equally reluctant to accept the notion of a banking union that would pool insurance deposits from European lenders to provide a solid guarantee across the Eurozone.
Germany is reluctant because a single guarantee scheme may be interpreted as a form of debt-mutualization. The new German finance minister, Olaf Scholz, hinted Berlin may be willing to concede on this point, if and when European lenders were effective in offloading non-performing loans (NPLs). Scholz, a Social Democrat, is referring to countries such as Greece, Italy, and Portugal, where NPLs have a double-digit share of lenders’ total portfolio. That could take the best part of the coming decade.
The changing nature of German politics
The transformation of Germany from an enthusiastic advocate of federalism to an advocate of intergovernmental approaches has been gradual, but best exemplified by the Free Democrats (FDP). The traditional party of German business was for fifty years the reliable Euro-enthusiastic advocate of political integration and the second pillar to centre-right governments.
In September 2017, FDP campaigned on a pro-Russian, anti-immigration and Eurosceptic platform that was hardly distinguishable from the discourse of the Alternative for Germany (AfD). It should be recalled that under Bernd Luke, AfD joined the British and Polish Conservatives (Pis) in the formation of the European Conservatives and Reformists Group, placing an emphasis on intergovernmentalism.
Macron no longer deals with the political landscape he found in Germany prior to the September 2017 elections. In her fourth term, Chancellor Merkel is being pressed to address the German national interest, leaving behind the long-held belief that the German interest is the European interest. And the mood appears to be the same in the Netherlands, Finland and the Baltics. In sum, the Franco-German axis comes to embody a North-South divide with political substance that calls into question Europe’s political engine.