(MENAFN - Gulf Times) As Germany's Christian Democratic Union (CDU) and its Bavarian sister
party, the Christian Social Union (CSU), seek to form an unprecedented
'Jamaica coalition with the liberal Free Democrats (FDP) and the
Greens, the rest of Europe anxiously awaits the government programme
that will result from their negotiations.
The stakes are high for Europe, because these are not ordinary times.
The rise of economic nationalism, growing security threats, and the
ongoing refugee crisis have made collective responses more necessary.
China is becoming increasingly assertive, and US President Donald
Trump's administration has made clear its disdain for the European Union
and its suspicions of Germany's economic strength.
At home, the EU's rationale is being tested by Brexit, and by the
defiant governments of Poland and Hungary two countries that, as
Constanze Stelzenmüller of the Brookings Institution recently noted, are
enjoying the benefits of EU membership and ignoring the corresponding
In this context, Emmanuel Macron's election to the French presidency in
May was a relief for Germany. Yet Macron has put Germany in the
uncomfortable position of having to respond to his proposals for
EU-level reforms. By calling for a common EU defence fund, tax
harmonisation, and a joint eurozone budget, Macron is upending the
European status quo.
The question now is whether Europe's largest and most prosperous country
will provide the leadership these trying times demand. Each party in
the coalition talks brings a very different perspective to the table. On
European matters, Chancellor Angela Merkel's CDU, which has been in
power for 12 consecutive years, will bring continuity. But the more
conservative CSU is being pulled to the right by competition from the
populist Alternative für Deutschland (AfD).
As for the other two parties, the FDP has adopted a tough line toward
Europe. Its leaders have suggested that Greece should leave the euro,
and that the EU mechanism for bailing out struggling countries should be
dismantled. The Greens, on the other hand, are keen on deepening
European integration; but that is not their first priority, and they are
the smallest party at the table.
Ultimately, the new government's programme will likely reflect the
suspicion that other EU member states want to solve their problems with
German money rather than domestic reforms. German politicians and
opinion makers assess virtually every proposal for EU-level reform
through this distributional prism. Schemes that are not intended to
result in structural transfers are routinely dissected to confirm that
they will not become cash dispensers for other EU members.
For example, Germans regard a joint budget not as a way to finance
public goods such as research or infrastructure, but as a device to
compel Germany to cover other countries' expenses. Similarly, common
unemployment insurance is regarded as a scheme to make Germans pay for
unemployed Spanish or French workers. And a deposit-guarantee programme
for banks is seen as a way to force prudent German depositors to pay for
non-performing loans in Italy.
To be sure, each of these concerns may be legitimate. All proposals
certainly should be scrutinised to ensure that they will not be abused
or introduce moral hazard. European solidarity is not a one-way street.
But, at the same time, German leaders must recognise that their
exclusive focus on distributional effects is poisonous. They should
recall the moment, in 1979, when British Prime Minister Margaret
Thatcher marched into a European summit and said, 'I want my money
back. The same logic was on display nearly 40 years later during the
Brexit campaign, when 'Leave politicians falsely claimed that
withdrawing from the EU would bring 'money back to the National Health
Why has Germany become obsessed with the fear of paying too much? The EU
budget contains much to criticise, but it hardly treats Germany
unfairly. Germany may be the largest net contributor, but that is
because it has the largest economy. As a proportion of national income,
countries like Belgium, France, and the Netherlands also contribute a
meaningful share of their net income.
German fears that the European Stability Mechanism serves as a channel
for hidden transfers are similarly unfounded. Yes, the ESM benefits from
low borrowing costs, which are essentially passed on to borrowing
countries. If Greece cannot repay its debt, ESM shareholders will suffer
a loss; and that risk is not priced into the interest rate Greece pays.
But, so far, the ESM has continuously posted profits, and any loss it
does suffer will be spread among all shareholders including, for
example, Italy. The ESM is a far cry from a subsidy machine financed by
the German taxpayer.
Some in Germany also decry the so-called Target2 balances, which record
bilateral surpluses and deficits of national central banks vis-à-vis the
European Central Bank. The University of Munich's Hans-Werner Sinn, for
example, argues that the Target system has become a conduit for hidden
operations to benefit debtor countries in southern Europe. True, in
September, the Bundesbank had a net surplus of €878bn ($1.2tn) vis-à-vis
the ECB, whereas Italy and Spain ran deficits of €432bn and €373bn,
respectively. These positions reflect the degree to which official flows
are still substituting for private flows.
But, again, this arrangement has not cost Germany a single euro. On the
contrary, the Target system is essentially a collective insurance
scheme: if a national central bank were to default, the loss would be
shared among all ECB shareholders. The system thus allows German
exporters to continue to sell their products in southern Europe, because
it guarantees that they will be paid. The claim that Germany loses from
this is simply false.
It will always be in a political party's interest to respond to the
electorate's fears. But politicians also have a duty to let voters know
when their fears are excessive or unfounded. Europe needs a Germany that
will veto half-baked proposals. But it also needs a Germany that can
overcome its narrow obsessions and provide leadership.
With the current coalition talks, German leaders have an opportunity to
assess new global developments that will have far-reaching implications
for Europe and Germany alike. They must decide whether it is riskier to
do nothing, or to take the initiative. No one is expecting a complete
change. But one hopes for a government that will be more forthcoming in
offering solutions. Project Syndicate
* Jean Pisani-Ferry is a professor at the Hertie School of Governance in
Berlin and Sciences Po in Paris. He currently holds the Tommaso Padoa
Schioppa chair at the European University Institute.