This week's EU summit has again illustrated that austerity continues to be Berlin’s only response to the crisis, ignoring social issues and a rising tide of euroscepticism and anti-German feelings among the population, writes Susanne Gratius from Madrid-based think-tank FRIDE.
Susanne Gratius is a senior researcher at FRIDE, a Madrid-based think-tank specialising in analysis of international relations. She contributed this commentary in exclusivity for EURACTIV.
Another summit in Brussels has done little to change the new overarching EU crisis landscape. Germany has gone from paymaster to master of discipline. All but two European countries (the Czech Republic and the UK) agreed on the so-called fiscal compact based on a maximum of 0.5% public deficit and 60% debt/GDP ratio. The proposal to withdraw Greece’s fiscal sovereignty and the new treaty’s sanction mechanism illustrate that austerity continues to be Berlin’s only response to the crisis.
Apart from already existing funds and a declaration to promote new efforts to restart growth and combat unemployment, no further real commitment was adopted in this area. Germany’s export model might soon prove that growth without consumers is possible, but is not necessarily something that can be applied to other countries. Moreover, given that two thirds of its exports still concentrate on Europe, recession in the eurozone will most likely affect Germany too.
But the euro crisis also inspired some outbursts of unexpected German creativity. While some defended an ordered bankruptcy of Greece and its exclusion from the eurozone, others proposed a North-South euro divide, and others even argued for Germany’s exit. Germany’s EU commissioner Günther Oettinger suggested flying the flags of the “Euro-sunders” at half-staff. Following years of sustained economic growth, German nationalism is back in vogue. German “retrenchment by neglect” cannot be ruled out.
Berlin has no roadmap for Europe’s future. The lack of political solutions beyond Milton Friedman is not a coincidence. Germany, like the EU, is an economic giant but a political dwarf. Being the world’s fourth economic power and the second export nation does not automatically qualify for European leadership. In the absence of a discernible German foreign policy, national economic interests and electoral concerns have become the motor driving Berlin’s EU policy.
Applauded at home, Chancellor Angela Merkel’s pressure for fiscal austerity is seriously damaging Germany’s image abroad. The price of economic strength and political weakness is high: the decline of European integration, a creeping north-south divide and the loss of global influence over trade liberalisation, development and climate change.
In times of crisis, many in Germany no longer see the EU as a political model but as an economic problem. Now dissociated from its former historical burden, a new self-confident Germany is prioritising its own economic interests – to avoid inflation and maintain a weak euro good for exports – over those of its Southern European neighbours that wish to stimulate demand and Eurobonds.
Germany’s increasing reluctance to pay the price of solidarity to address euro area asymmetries could result in a serious polarisation between some stable economies – Austria, Germany, Finland and the Netherlands – and the so-called PIIGS. A less European Germany seems to be seeking to bring about a more German Europe.
Seemingly, over 60 years of European integration have not helped to create a common European identity in Germany. A new political elite less committed to the European project has come to the fore. Like Merkel’s Liberal and Social Christian coalition partners, 67% of German citizens were against the rescue package(s) for Greece.
The chancellor’s severe demands to Greece, Ireland, Italy, Portugal and Spain will push these countries into recession in 2012. According to public opinion polls, Germany is the most disliked country in Greece; Mario Monti warned of mounting resentment in Italy; and Spanish media often criticise Merkel’s adjustment policy.
The summit on 30 January proved that internal divisions on austerity vs. growth are increasing. And to follow a combined policy does not seem to be on Germany’s radar. It is unlikely that the fiscal union promoted by “Merkozy” will pull Europe out of crisis. First, fiscal discipline will not reduce the risk of recession and higher unemployment rates in the PIIGS. Second, beyond the UK and the Czech Republic, more countries could opt-out of the somewhat legally controversial deal. Third, there is a problem of credibility: the fiscal pact foresees sanctions and economic adjustment policies against the countries that do not meet the criteria, but France and Germany were the first ones to break the rules. Fourth, the idea of the original founders of integration was to avoid a German Europe, not to promote one.
At this stage, Germany’s new power has not translated into European leadership, but has given rise to unpredictable and economically driven decisions from summit to summit. The imposition of Germany’s economic hegemony is changing the power balance within the EU and undermining the European project. To prescribe fiscal austerity by law is not the solution to the crisis, and only contributes to increasing euroskepticism, social protests, unemployment and anti-German feelings.
In dealing with the crisis, one thing should not be forgotten: the EU is not just an economic stability pact, but primarily a project for European citizens who so far have been completely absent in the dilettante Germany-led crisis management.