The euro crisis has made Germany so important that anyone interested in the future of Europe – or even of economies outside the eurozone like the UK – now has to spend a lot of time trying to understand German thinking. As discussions continue about the details of the “fiscal compact” that will be agreed at the European summit at the end of this month, we all seem to be reading between the lines of public statements made by German politicians and officials and quizzing them in private about what is really going on behind the scenes whenever we get the chance. Such is the necessity of understanding the internal dynamics of the German government (who is in and who is out? who has power over what? who does the Chancellor listen to?) that everyone is becoming an expert on German domestic politics.
It strikes me that it’s all a little like Kremlinology – that is, the study of the Soviet leadership during the Cold War. Back then, the lack of reliable information forced Western analysts to attempt to understand possible shifts in Moscow by decoding what they thought were secret signs such as the position of leaders at parades. We now seem to speculate about what is really going on in Berlin in almost the same way – what you might call Kanzleramtology. Of course, the Federal Republic is a democracy that is much less opaque than Soviet Union was. German politicians and officials give interviews to journalists to explain their thinking. Yet somehow we all still seem to playing a guessing game about German policy. For example, the FT suggests today that German resistance boosting the firepower of the eurozone’s rescue funds is softening – but there is no confirmation of this.
Perhaps the best example of this is the debate about Eurobonds last year. In the second half of the year, there was much speculation about whether German opposition to Eurobonds was softening. Many assumed – without any real proof except whispers from those in the know – that Germany was considering Eurobonds but, fearing moral hazard, wanted the rest of the eurozone to make commitments to maintain fiscal responsibility before it publicly agreed to them. But although the eurozone made some of those commitments, Germany never agreed to Eurobonds. As Wolfgang Münchau argued in his column in the FT last week and German officials confirm, the loss of France’s AAA rating will now make it much harder for Germany to accept eurozone bonds in any form. As one official put it, the discussion in Germany is “not dead, but mute”. But was it ever a possibility or did we all simply imagine it?
The next debate among Kanzleramtologists may be about whether Germany may be becoming more open-minded on the role of the ECB. No German politician or official will admit in public that the ECB should become a lender of last resort, as many Anglo-Saxon economists think it should. But in private there is talk of a “de-ideologisation” of the debate about the ECB. Some officials even admit that they are relieved to see the ECB building a “wall of money” – something to which German economic orthodoxy is opposed – since Mario Draghi took over as its new president in November. But will this translate into a commitment to be a lender of last resort that, in order to convince the markets, must be public? Even if it will, what will Germany demand in return? Who knows.
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