The EU’s transformation into a more integrated bloc centred on the eurozone will be a key part of the German election campaign, according to Karl Aiginger, director of the Austrian Institute for Economic Research (WIFO). But politicians will probably give in to “populist statements”, he warns, saying the debate on Europe is currently “very irrational” in Germany.
When it comes to European matters, election campaigns rarely provide a stage for level-headed discussion among politicians struggling for voters’ attention.
And Germany’s September election is unlikely to prove an exception to the rule.
“I think the question of Europe and its transformation will be part of the election campaign because there are different views on it,” Aiginger said in an interview with EURACTIV.
But the renowned Austrian economist believes the debates are unlikely to be reasonable. “The debate in Germany is very irrational at the moment,” he said explaining that German people have emerged from the eurozone debt crisis with a high opinion of their country’s strength in Europe.
“They think that they are going for the best strategy and that Europe has opted for the worst strategy. German people think they already pay a lot and they don’t want to pay more instead of seeing that working together could be a progress.”
According to Aiginger, “campaigns usually give way to populist statement” that won’t help push forward European debates on issues that are sensitive for the German public, like the banking union.
Skies should clear up after the September poll, when the dust starts settling down, Aiginger predicts.
“Being pro-European is not a vote-winner in Germany,” he said.
Budget consolidation necessary but insufficient
Yet there are plenty of European issues to talk about in the campaign, starting with the eurozone’s economic governance and plans for further integration in the 17-country single currency bloc.
Germany’s views on the economy have triumphed during the sovereign debt crisis, with almost all European countries compelled to follow Berlin’s push to rein in public spending and consolidate budgets.
But while Aiginger believes consolidation efforts were necessary, he says European leaders have failed to complement them with a clear promise to the people that better times were ahead of them.
“It has to start with a vision of where we want to go and why we have to go through hard times. And this vision is in principle missing, specifically on the national level,” he said. “If you ask the Greek or Italian people what the European Commission is doing, they will say Brussels is asking them to consolidate their public finances.”
The ‘Europe 2020’ strategy, adopted in 2010, did list a series of goals on increasing employment levels, boosting education and reducing poverty. But Aiginger says these goals were “forgotten” and not enforced.
“If you look at the European semester, governments are reprimanded if they don’t stick to the consolidation goals but no government is reprimanded for failing to combat poverty or raise spending on research and development”.
According to Aiginger, “fairness is all important in consolidation periods” and the European Union should complement austerity with growth-promoting measures aimed at restarting the production base in Southern European countries.
Germany's working poor
Simultaneously, he urges countries like Germany to increase workers’ salaries to boost domestic demand after the wage moderation years of the “Hartz” reforms introduced under Gerhard Schröder in 2003.
“At that time I think it was necessary because Germans had wages which were higher than their productivity. And they stuck to that strategy which made sense in the first part of the last decade,” Aginger said, noting the positive results on reducing unemployment.
However, “on the negative side, you now have working poor and there is a shortage of qualified people preventing stronger growth,” he said. “And currently Germany has a low-wage sector which does not benefit its own people and makes larger transfers to southern Europe necessary in the long run.”
German companies now have more profits but they don’t use it for investment in Europe because they are too uncertain of the future, he added. ”And if one of the leading economies in Europe does not boost domestic demand, consolidation in other countries will not work.”
“But my point is not that Germany should boost domestic demand because it is good for the Greeks – Germany should do it because it is good for the German population.”
What’s more, Aiginger doubts that the sovereign debt crisis has ushered convincing governance reforms in the eurozone, saying the fiscal discipline treaty “should be complemented with investment incentives and a social pact”.
According to Aiginger, such a “Social Compact” should contain goals like for example reducing the spread between the high-income and low-income countries, tackling youth unemployment or boosting education levels.
“A 12% unemployment rate is not something that Europe can stand for a long time.”