The European Council on Foreign Relations

Germany in Europe: Rebuilding European democracy

Date: 19th August 2011 | Author: Ulrike Guérot,

Categories: Germany in Europe,
Tags: , euro zone, eurocrisis, merkel, germany in europe

George Soros wrote in Handelsblatt this week that the fate of Europe depends on Germany. That sentence resonates heavily if you are a German. Yet the political willingness of Germany to boost the economic integration of Europe through the introduction of Eurobonds also depends on the good fiscal behaviour of other EU countries. Only this might create the political room in Germany to move towards Eurobonds (which obviously are not a panacea). Germany cannot jump into Eurobonds before getting guarantees that the others won’t fool around with their finances – to do so would be economically dangerous (a ‘poison pill’ according to chief economist of Deutsche Bank, Thomas Mayer, in an interview with German news radio DL F) and politically infeasible, as the FDP, the smaller coalition partner, vociferously argues (including Minister for economics Philipp Rösler).

Tragedy comes when both sides are right and when there is no good solution. In the current institutional set-up of the eurozone, there is no reallegal way, let alone a democratically legitimate way, for states to have a say in the expenditure of others without treaty reform. The time has come to realise that the no bail-out clause was a mistake in the first place. In the German political discourse, this truth still seems unbearable. Yet without Eurobonds, the euro might collapse. In short, Germany cannot accept Eurobonds under current conditions, but has no alternative ace up its sleeve. Joseph Stiglitz’s scenario of Germany leaving the eurozone is nice, but there is no such solution.

The good news from the Merkel-Sarkozy meeting last Tuesday is not the common letter to van Rompuy, and the rather poor triad they cited of economic government, golden rule and financial transaction tax, but the very fact that Germany has finally engaged in a serious debate about Eurobonds; about what that would mean and how they could work. Roughly speaking, the social-democratic opposition SPD and the Greens are in favour, the CDU and large parts of the business and industrial establishment are awaking to their charm – and the FDP is still in denial.

If the commonly-held view is that Germany will ultimately accept Eurobonds, the million euro question is how to get a watertight legal framework to ensure that Germany could, if necessary, restrict the expenditure of other countries. The ‘golden rule’ is not sufficient, because implementation and respect of it are in the hands of the member states. Can Germany trust her fellow Europeans? ‘Trust is good, control is better,’ is a German saying. The problem is that this control cannot be organised without blowing up the current democratic structure of the EU, which is based on national budget sovereignty.

This is the situation in which Europe finds itself. Assuming for an intellectual second that Eurobonds are now the least cost-intensive solution for Germany among many other worse solutions – above all a break-up of the euro – then the devil is as always in the detail. The crux is that communitarising the European debt would need, in essence, the communitarisation of expenditure, or at least a common decision on who has the right to spend how much and on what. After month of discussion, the German discourse is beginning to grasp reality, which is that a monetary union that obviously needs a fiscal entity in order to function cannot allow full budgetary sovereignty for each nation state.

This will not be accepted as things stand. What Europe should now engage in, therefore, is major surgery on the democratic structures of the EU, before the euro-cancer worsens. The question is just about economic government, but about government as a whole, because politics is, in essence, decisions about preferences for societies for which money is needed. Those who talk about economic government ultimately mean common decisions about social expenditure or costs for education or defence. In an ideal world, any significant expenditure by any EU member state should therefore be screened and approved by the Commission for its compliance with the Agenda 2020, then co-signed by a Euro-Parliament (the MEPs of the eurozone/ Eurobonds member states) and then voted on by national parliaments. This would make sure that all countries issuing Eurobonds have a say via the Euro-Parliament about the right of an EU member to draw on them to finance its domestic needs. For this to happen, the EU would also need the right to tax.

The other option is the more technical one of Thomas Mayer, which would be creating an EMF that could as a last resort draw on the ECB and then lend money to a state based on severe conditions – or choose to deny credit. This solution has the charm of avoiding both moral hazard and the inherent tendency of politicians to always spend more. But is clearly dismisses the democratic component. If Europe does not want to administer itself out of the crisis through an IMF-modeled ‘European consensus’, then a profound rethinking of European democracy is necessary.

As Emma Bonino just argued in Il Sole 24 Ore: “We cannot go on forever doing things in reverse order – the EU provides only financial stability and a stable macro-economic framework and member states provide all the other public goods. It cannot work this way. Eventually, the EU too should work in the logical way: taxing and spending to provide some functions of government and on this basis having a Treasury to accompany its Central Bank.” It’s time to accept that Europe, through the euro, has long since become a state-like entity around which we must now build democracy.

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9 comments

Eric Bonse 22nd August 2011 at 09:08pm

What make you so sure that Germany will ultimately accept Euro-Bonds? My impression is that the conservative government is not willing and - due to the liberals - not able to accept the necessary. In my view (more details on lostineurope.posterous.com), Germany under Merkel is an obstacle to the solution of the Euro-crisis, not the solution

Jean-Guy GIRAUD 22nd August 2011 at 10:08pm

In theory the EMF solution could even stand alone : the “European Monetaty Fund” would act as the IMF and provide all necessary help under strict and conditional terms. The democratic aspect of this system is de facto irrelevant. The difficulty is that - for reasons known to themselves only - EU govenments will hardly accept an EMF tutelage whereas they accept the IMF one (or at least its principle). The other problem is of course that a profound modification of current treaties would be necessary to install such a EMF. But we are slowly (too slowly) coming to accept that any durable solution to the present conundrum requires such a revision.

Jean-Guy GIRAUD

Übersetzung 25th August 2011 at 12:08am

The difficulty is that - for reasons known to themselves only - EU govenments will hardly accept an EMF tutelage whereas they accept the IMF one (or at least its principle). The other problem is of course that a profound modification of current treaties would be necessary to install such a EMF. But we are slowly (too slowly) coming to accept that any durable solution to the present conundrum requires such a revision.

Fritz 28th August 2011 at 07:08pm

Sehr geehrte Frau Guerot,
bei den einfachen Leuten ist Herr Soros nicht so gut gelitten, dessen Meinung stellt eher einen Contraindikator dar.
Im übrigen: Sollten die Pleiteländer zu einer soliden Haushaltspolitik gelangen, ob durch eigene Initiative oder durch Druck von außen, brauchen wir keine Eurobonds mehr, weil dann dafür kein Bedarf mehr besteht.
Und warum soll ein Land innerhalb der EURO-Zone nicht pleite machen können? Das geht in den USA doch auch.
Prof. Hankel hat schon 1998 zu Recht festgestellt:“Der Hebel zur politischen Union soll die Währungsunion sein. Der Bundeskanzler und viele andere Politiker haben das immer wieder ausgesprochen. Nachdem der Weg von einer politischen Union und damit vor allem von einer Wirtschafts- und Sozialunion zur Währungsunion, den die Ökonomen als Krönungstheorie konzipieren, nicht durchsetzbar war, versucht die deutsche Politik den umgekehrten Weg zu gehen, nämlich den von der Währungsunion zur Wirtschafts- und Sozialunion, letztlich zur politischen Union. Der Hebel ist gut angesetzt; denn die Währungsunion erzwingt die Wirtschafts- und vor allem die Sozialunion. Sonst kann sie nur scheitern.”
Darum gehts!

Ulrike Guerot 2nd September 2011 at 08:09pm

@Eric: perhaps, the wish is father of ny thoughts and, yes, the FDP is a huge problem, but truly, what are the other options? Losing some 20% European GDP through Euro-break up? My bet is that the FDP is out of government soon and then different moves are posssible.
@Mr Giraud: oui, la difference/ decision est problablement d’administrer la sortie de la cris, un EMF ėtant la solution technique; ou si in ose (et rėussi) une sortie parlementaire = dėmocratique.
@Herr Fritz, genau darum geht es, und genau seit 1992: politische Union (jetzt!) sonst wird es wohl tatsächlich scheitern und es gibt letztendlich auch keine ‘Wirtschaftsregierung’, sondern nur Regierung, denn Politik ist nichts anderes als die gesellschaftliche Präferenzen für die Allokation von Ressourcen, und das geht weit über Wirtschaft hinaus…...
Herzliche Grüße an alle und vielen Dank für’s Mitdenken!
Ihre Ulrike Guėrot

Übersetzer 8th September 2011 at 12:09am

EU govenments will hardly accept an EMF tutelage whereas they accept the IMF one (or at least its principle). The other problem is of course that a profound modification of current treaties would be necessary to install such a EMF. But we are slowly (too slowly) coming to accept that any durable solution to the present conundrum requires such a revision.

Kimi 8th September 2011 at 09:09pm

“Es ist insoweit auch dem Bundestag als Gesetzgeber verwehrt, dauerhafte völkervertragsrechtliche Mechanismen zu etablieren, die auf eine Haftungsübernahme für Willensentscheidungen anderer Staaten hinauslaufen, vor allem wenn sie mit schwer kalkulierbaren Folgewirkungen verbunden sind.”

Das hört sich jetzt natürlich so an als wenn der deutsche Bundestag nicht dasselbe wie der deutsche Reichstag machen dürfte, nämlich seine eigene Selbstentmachtung beschliessen. Aber:

Wer in Europa schert sich schon um Gesetze und Regeln? Ich glaube also eher daran das die deutsche Verfassung einfach gebrochen wird und die Judikative von der Exekutive entmachtet wird. Die Legislative wird sich schon selbst entmachten. Folglich bleibt dann alle Macht im Staate bei der Exekutive versammelt. Zum Wohle Europas natürlich. Und natürlich zum wohle der europäischen Bürger! Lassen sie uns also weniger Demokratie und einen kräftigen Schuss mehr Totalitarismus wagen.

Es ist dem Untertanen untersagt, den Maßstab seiner beschränkten Einsicht an die Handlungen der europäischen Obrigkeit anzulegen. Es währe also einfacher wenn die EU einfach das deutsche volk auflösen würde und sich ein neues wählen.

Forfait mobile 25th March 2012 at 03:03pm

Übersetzung 29th June 2012 at 05:06pm

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