The political will to keep the eurozone together is eroding inexorably, warns Leo Hoffmann-Axthelm from Transparency International. In an interview with EURACTIV.com, he reminds German politicians about their responsibility in the eurozone crisis, calling for vital governance reforms to be adopted after the September election.
Angela Merkel’s growing chances of being re-elected for a fourth consecutive term as Chancellor is quickly making the 2017 German election one of the most unexciting in recent history.
Although Merkel’s prospects are being helped by Germany’s brightening economic outlook, this should be no reason for complacency when it comes to eurozone reforms, warns Hoffmann-Axthelm from Transparency International, a global watchdog group.
“Politicians must be naïve if they believe that an economic governance system that is perceived to be illegitimate by both the north and south can be politically sustainable much longer than the medium term,” Hoffmann-Axthelm told EURACTIV.
“The political will to keep the euro together is eroding, and if it is not kept up, then there are limits to what the European Central Bank can do to tape things together,” he warned, referring to the ECB’s government bond-buying programme.
TI published a report earlier this year, detailing how the ECB was forced to accept a political role for which it was not equipped, without the necessary democratic oversight.
“The ECB’s discretionary powers allowed it to put pressure on Greek banks while negotiating bailout reforms with the Greek government as part of the Troika of international creditors,” TI said in a statement published with the report, in March.
The debate over the increasing politicisation of the European Central Bank (ECB) has become a recurring theme in German elections since the eurozone crisis broke out eight years ago.
German criticism of the ECB reached new heights last year when Finance Minister Wolfgang Schäuble publicly blamed the bank’s president, Mario Draghi, for the quantitative easing (QE) program, which is largely credited for saving the euro from collapse.
But as election day nears, Germany’s strong economy and the eurozone’s overall positive outlook are making ECB critics less audible. As a consequence, the anti-euro Alternative for Germany (AfD) and the Conservative CSU party have tended to aim their criticism at Merkel’s immigration policies, relegating eurozone reforms to a secondary debate.
“We can surely expect a harder stance from the CSU, we’ve been seeing that for a long time,” said Hoffmann-Axthelm. “But their tough talk is also focusing on migration mainly, while individual CSU parliamentarians are suing their own government in the constitutional court over eurozone reforms.”
As for the Eurosceptic AfD, he says it might take 10% of seats at best in the current parliamentary system, meaning they will be shut out from government.
In many ways, German critics of the ECB are right, however, he says.
“We do agree that the ECB has gone too far and stretched its mandate, but we don’t agree with the German officials who complain about this because they created the situation in the first place,” says Hoffmann-Axthelm.
“Basically out of political inertia, the member state governments – first and foremost Germany – were not willing to do the necessary reforms and thereby forced the ECB to pick up the pieces and take the heat,” he reminded.
“Member states have conveniently hidden behind the technocrats at the ECB in order to kick the can down the road and avoid difficult political compromises and trade-offs,” Hoffmann-Axthelm said. “And now to turn around and criticise the ECB from the perspective of, let’s say, a German finance minister, is quite amazing. The ECB just bought time, it didn’t solve the problem.”
TI doesn’t take a stance on how to put things straight. But it does point out to fundamental flaws in the construction of the euro, which it sees as problematic for democracy.
“All we’re saying is that if you have monetary policy at the EU level, then it has traditionally made a lot of sense to have fiscal policy coordination at that level as well,” said Hoffmann-Axthelm, adding this could be done via an EU-area finance minister who is at the same time vice president of the European Commission and chairs the Eurogroup meetings of national finance ministers.
Troika “not responsible for austerity”
From a democratic point of view, he says the main issue is to ensure decision-makers are held accountable for economic outcomes.
“An impression has been created that the EU, the ECB, and the Commission are dictating austerity, but this is not true at all. The ECB is not responsible for austerity,” said Hoffmann-Axthelm. In fact, he says the ECB has been calling on countries like the Netherlands and Germany to use their fiscal space to relaunch the eurozone economy. And the European Commission has been bending EU budget rules as far as they could to prop up the single currency.
According to Hoffmann-Axthelm, a democratic low point was reached with the creation of the EU bailout fund, the European Stability Mechanism (ESM) – an institution created outside of the EU that is directly controlled by the member states, and on which the European Commission has limited influence.
“So this is once again the member states hiding behind something that looks European to impose reform conditionality – austerity, structural reforms, etc. – and basically blame ‘Brussels’ when the ESM is not even an EU institution.
“All of these things are then channelled through the Eurogroup, an informal club chaired by a finance minister who has a built-in conflict of interest, which is really quite an amazing arrangement. So turning around and criticising the ECB for all of it I think is a tad dishonest.”
Turning back to the German election, Hoffmann-Axthelm expressed hope that a re-elected Angela Merkel will keep an eye on her legacy and press ahead with eurozone reforms, such as the creation of a eurozone budget and an EU finance minister.
And with the pro-European Emmanuel Macron now leading France, he believes there is a window of opportunity.
“If on the other hand, Schulz wins, then all stars could align with what President Macron in France has been advocating,” he claims, saying the pair would probably drive a multi-speed EU with the eurozone at its core integrating further.
However, he acknowledges this is a highly improbable scenario. “In the context of Macron’s European convictions, I would say both France and Germany need to go beyond focusing on their national self-interest in designing a system that all countries of the eurozone should regard as legitimate.”