Europe—the Forgotten Little Thing in the New Coalition Agreement?

One of the most ardently discussed things of the coalition agreement was the question whether or not “strangers” should pay for the use of German highways. The “Maut”question—how to install a system, which would make “strangers” pay, but would be cost-neutral for Germans (and whether administering such a system would be more expensive than the fees collected through a “Highway-Maut”) was one of the most effective blackmailing issues the CSU, the Bavarian sister party of the CDU/Conservatives, brought into the coalition agreement and conditioned its signature. The German provincialism expressed in this topic could barely be worse.

It could be an anecdote—and it surely is— and yet: it comes with a peculiar aftertaste, especially for international observers of the new German coalition. It not only fills news headlines and shapes the understanding of how Germany functions these days: very self-centered, satisfied, noble-gazing, and provincial. Germany is fine. Conflicts in Germany these days emerge around trade unions demanding extra work and Schichten in the car industry around the Christmas holidays because books are bursting with orders: it feels like the 60s, “Wirtschaftswunder”-days!

Little attention is given to the tense political situation in France, concerns over the democracy gap in Hungary and the rise of populism in the Netherlands, as well as dreadful economic situation in Greece, Spain or in Ireland, where millions are left with direct and indirect consequences of the crisis. Germany focuses on itself; it has lost sight of Europe, it seems.

The key policy the soon-to-be government is facing is the Länderfinanzausgleich (federal fiscal equalization mechanism). This policy, in place since 1950, has undergone a first round of substantial revision in the early 2000’s and is in urgent need for further adjustment. This is going to be tough: Actually, only three of the Bundesländer, Hessen, Bayern and Baden-Württemberg (all more or less in the Southern part of Germany) are net contributors to the system, all others are net receivers. Hessen and Bayern have already placed a plaint at the Constitutional Court in Karlsruhe complaining about the structural imbalance and harm to their Land through durable and systemic spending for other German regions. They question the entire system—nothing unusual around elections. But this time the criticism is more profound than in any other period of post-war Germany.

When observing Germany over the next months and years, two things will need to be understood. First, the political (voting) constellation of the Bundesrat: here, the second chamber is pivotal in the forthcoming years. Second, there are multiple Germanys: The wealthy, sparkling exporting Germany (the one international observers focus on when reading economic statistics of Germany only) is the one of the South, but only of the South. The Eastern part is still poor (and by the way increasingly depopulated), despite the Billions of financial aid after the fall of the Berlin Wall. Then there is the former wealthy West of Germany, e.g. North Rhine-Westphalia, now painfully lacking the money spent in the German East: the lamenting status of public infrastructure is the big issue there, with bridges and highways in desperate need for maintenance, and schools, libraries and other public services threatened to close. In addition, most German towns and local public entities are highly indebted, partially because their public finance system had to face huge credit losses or through high liabilities for public services. The rosy debt to GDP ratio of Germany is for the federal Bund only. This is what citizens care for and this is what drives the political discourse. How to sell money for Greece or more money for Europe in such circumstances? “Transferunion” is the word that needs to be avoided at all costs. And so, the coalition agreement did.

This explains why European policy makers may be—in vain again—waiting for a German decisiveness with respect to European integration or a clear orientation, including the most ardent topic: a banking union. This European attentisme is obviously not new. One could already observe it during Merkel’s overly cautious decision-making throughout the past three years and its continuance during the German election campaign and in the coalition talks. And it does not imply that nothing is happening at all either. Nevertheless, the wait for German clarity on what will follow now is not over yet.

The wider implications of Germany’s inner struggles are visible on the European level: both parties, CDU and SPD, have long been working on a joint understanding of what it is that they have so delicately headlined “Germany’s political responsibility for Europe.” Paragraphs have been written and pages filled: misunderstandings, differences, and banalities were found—but there is no trace of much innovative, progressive understanding of Europe’s future and the role of its biggest member country. But of course, to give the new coalition some credit at least, Germany is not the only country being hesitant on European politics and on doing what is needed. In some countries, e.g. France, the political situation looks even worse.

Hence, with a stable CDU-SPD majority and a consequently rather weak group of euro- skeptics, many expected Germany’s European policies would dare to take bold steps, but reading the agreement, this could be put into question. While Germany’s partners hoped the wait would be worthwhile and Berlin would finally change gear towards motivated determination, a first draft on European policy and banking union presented on the 22nd of November proved disappointingly superficial, amounting to a simple continuation of the past years.

If the current crisis is a symptom of institutional shortcomings, continuing with what has brought Europe into trouble and revealed the institutional flaws of monetary union, might not be enough. Hence, the coalition agreement is precisely about this: more of the same. Problem solving should not be about lip-service and generalities, but about concrete measures and actions. The disconnectedness between what should be done, e.g. with respect to deeper fiscal integration and it’s political feasibility jumps into the eyes, and is much less than especially the SPD has been asking for in its election program: While the economic union and single currency is in place, the political mechanisms to manage them are still not. This crisis has exemplified that a stable single currency must be accompanied by a joint backstop and joint fiscal policies.

The final paper offered by the new coalition proved better than the first draft, but is still incomplete. It is worth noting though that the “community method” is said to be placed again in the centre of European integration policy. And some forward looking, concrete proposals, can, indeed, be found, i.e. a single voting scheme for the EP in all EU member states. Yet, many parts of some 10 pages in total on Europe policy remain vague, pick up the usual rhetoric about subsidiarity and remember the language from the past years of the crisis management, which is the usual commitment to promote growth, competitiveness and innovation, and the strive for sound public finances and fight against youth unemployment.

Hence, with respect to common instruments, there is still a looming lack of precision: None of the former projects which especially the SPD— more or less openly—advocated for, i.e. creation of an EU finance ministry, a redemption fund or a full banking union, are mentioned in a really clear and convincing wording, quite the opposite: common liability is excluded, the Single Resolution Mechanism (SRM) is not even mentioned. Other pressing issues such as what position Germany envisions to take on how ailing banks can be stabilized through the ESM, whether and how to implement the financial transaction tax, or how youth unemployment in the EU can be decreased, are addressed in an equally vague manner. Additionally, it seems that the current draft entirely disregards the EU’s 2020 growth strategy and the Commission’s advice. The wording and semantics is again much more about the self-responsibility of each member states for its reform agenda, than about joint instruments, joint actions and appropriate European tools. With this, Europe is, with respect to schlock absorption, heading at best for individual raincoats rather than for a strong and common umbrella and transnational fiscal solidarity lays way down the road.

Germany cannot afford a continuation of the past four-year’s policies. Time is pressing for more decisive action. While hesitation may have felt safe at first, it is by now clear that it was too often shortsighted and hence damaging long-term prospects. In the current state of the European Union, where markets are poorly managed because of political under-integration, Germany has to take responsibility.

The upcoming weeks will challenge the reluctant European hegemon in two ways: First, Germany will have to overcome its inner struggle and form a viable government. Second, Germany not only has to find its place within Europe, but it also must take an active role in re-designing it. In short: Germany has to understand its political responsibilities as the biggest and economically strongest member state of the European Union. The re-design with a goal of sound, democratically and socially balanced eurozone governance starts in Berlin—or does not start at all!