Waiting for German voters to deliver is like waiting for Godot

There is less to Merkel’s support for Macron’s eurozone reforms than meets the eye

by: Wolfgang Münchau




Estragon: “Let’s go.

”Vladimir: “We can’t.

”Estragon: “Why not?”

Vladimir: “We are waiting for the German elections.”


The German elections are the Godot of 2017. There has hardly been a political debate in Europe this year that does not end with some delusional reference to the September 24 poll. Once the elections are over, everything will become so much easier.

The truth is that right now is as good as it gets. The two largest parties are in government. They are both pro-European. Together they have 80 per cent of the seats in the Bundestag. They have a majority large enough to change the constitution. No matter which of the polls you believe, their joint share of the vote is about to fall dramatically. One possible outcome is that the present grand coalition of Christian Democrats and Social Democrats will return to power with a reduced majority.

Alternatively, chancellor Angela Merkel’s CDU/CSU might form a coalition with the liberal Free Democrats, or with both the FDP and the Greens. The FDP wants to reduce the lending capacity of the European Stability Mechanism, the eurozone rescue umbrella, and phase it out in the long run.

And it wants Greece out of the eurozone. What exactly, I wonder, is going to get easier?

The truth about the German elections is that nothing much will change. Greece did not get debt relief because the German political system as a whole rejects transfers of any kind. Also German legal interpretation of EU law is that debt relief is illegal. There is not one conceivable election outcome that could soften the current position, but one or two that could harden it.

The same goes for reform of the eurozone. When Emmanuel Macron was elected French president in May, he promised to pursue his eurozone agenda — after the German elections. I can see why he wants to focus on domestic policy first, like last week’s labour reforms, but the German vote is, again, entirely irrelevant.

The problem has never been Germany’s lack of interest in reform, but the kind of reforms it wants: stricter fiscal targets, stricter implementation, fewer exemptions, penalties for non-compliance, and outside interference in the policies of countries that do not follow the targets. Berlin wants to reinforce the EU’s no-bailout rules through a sovereign debt restructuring mechanism. That would leave the burden of adjustment with the sovereign bondholders, many of which are the domestic banks and insurers of eurozone member states.

Ms Merkel has expressed support for a European finance minister. By this she means a full-time chairman of the eurogroup of eurozone finance ministers, rather than the part-time one we have now. Not quite as big a deal as it sounds.

President Macron has not yet said what he really wants. His advisers have backtracked on earlier support for a common eurozone debt instrument. This is the crucial issue, not because the eurozone should incur more debt, but because a robust monetary union will, in the long run, require a common safe asset to function.

German government bonds are an insufficient Ersatz. They are neither a common instrument, nor sufficiently available. After the bond purchases by the European Central Bank, there are not enough of them left. And their stock will fall further as Germany continues to run persistent fiscal surpluses.

If one excludes the common debt instrument from the discussion, you are left with a hyperactive public relations exercise that hides the lack of a genuine economic union. I would not be surprised if France and Germany divert some of their domestic spending into a common investment fund, and label it a eurozone budget. I can hardly wait.

The eurogroup and its upgraded chairman will be in charge. The unelected ESM will turn into a monetary fund that will impose conditionality for any financial assistance. It will not answer to the European Parliament because it is an intergovernmental institution outside the scope of the EU treaties.

Wolfgang Schäuble even wants the ESM to disburse disaster relief, but beware a German finance minister bearing gifts: the ESM will become the de facto fiscal authority of any country that takes the money.

Maybe Mr Macron can soften some of the edges of all this. My reading is that the primary purpose of his eurozone agenda is not to fix a suboptimal monetary union but to strengthen the Franco-German partnership. The fact of the agreement will be more important than the content. I expect he will get his deal — but with Germany’s agenda.

Or as Estragon said: “Nothing happens. Nobody comes, nobody goes.”

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