Angela Merkel’s interview last week-end, in the Frankfurter Allgemeine Zeitung, doesn’t not really change the usual German answer on the renewal of European institutions. Her responses remain at odds to Macron’s proposals.
The main difference between France and Germany on the European question is that France thinks that there is an advantage in explicitly coordinating economic policies. A budget can and must do that. This implies a significant intervention capacity which can
be measured by several points of GDP as it has been stressed by Macron and Sarkozy before him.
On the German side, co-ordination is implicit if one respects the defined rules, in particular those which could be taken in the case of a help from the EMF (European Monetary Fund which would take over the European Stability Mechanism. It would be different from the IMF which has a too friendly approach to the Greek debt restructuring). In other words, the adjustment mechanism requires respect for the “right rules” (budgetary austerity) and therefore deeply reducing the need for state intervention.
The coordination advocated by France is the vision of risk sharing within a political entity (the Euro Area) while the German option is that of not sharing the risk because if everyone behaves “in the right way” no country has a risk to share.
Sharing risk is also a question of public debt. In Macron’s view there is a necessity for a common debt at the Euro area level. This doesn’t fit the German perception of European institutions where the public debt is never a good solution.
This difference in approach has been observable for a long time and nothing really changes in the German discourse. We can also doubt its effectiveness.
In August 2011, Sarkozy already wanted a cooperative approach and Merkel, at a meeting at the Elysee Palace on August 16 (from memory), said it was out of the question. Her message was that every government had to be strict in managing its fiscal policy. All imbalances would then resolve spontaneously. It was the beginning of large-scale austerity and six quarters of recession in the Euro zone.
The strategy envisaged for the EMF cannot be perceived as very different from what led to this long period of austerity.
The German proposal for a larger budget (on investment) is limited because its amount would be reduced to a few tens of billions. This is not much. It would be just cosmetic reflecting the absence of cooperation.
No, Merkel has not really changed, creating the perception that it could not be otherwise.
The tone of the interview suggests that the discussion is now closed. It’s problematic as the Europeans are to meet on 28 and 29 June in a Council to decide on options for new institutions to be set up. Merkel suggests that there will be no break and Macron can repack his proposals.
If the risk cannot be shared then what is the point of an economic and monetary union? Usually in Federal States, there are strict rules for local states but also a federal budget that helps to absorb shocks. The Euro Area would not have this kind of safety net and Europe cannot work in the long run if risk sharing is not a component of the union.
It cannot be ruled out that such a non-cooperative behavior may further favor the populist vote since no country can count on the others in case of a blow and the ECB cannot be the only European institution to play simultaneously integration and risk sharing.
This was not a problem when growth was strong. Now prospects are weaker therefore is it time to reject tensions with a negative impact when they can be avoided. Germany, on a mistaken idea of the European model is taking excessive risks to all, thus promoting a more selfish behavior that could be a deep source of inefficiency in the EU.