Ever since the global financial crisis erupted in September 2008, the European Union has been in turmoil. On the one hand, the euro protected the eurozone, particularly Germany's export economy, from speculative attacks and the chaos of currency volatility. On the other hand, the second phase of the crisis mercilessly exposed the euro's Achilles heel: the absence of economic or financial unification within the eurozone. Rising tensions within the EU have been the inevitable result.
Germany's actions throughout the crisis have been plainly contradictory. Rather than moving forward in the direction of an economic union, it reverted to a policy favouring national solutions. But that position is difficult to reconcile with Germany's inability to call into question the euro or European structures and treaties.
The contradictory stance of Chancellor Angela Merkel's government was exacerbated by the transition from the grand coalition during her first term to the current conservative/liberal coalition. At that point, self-inflicted domestic political weakness collided with the fiscal constraints of the euro rescue.
At first, Merkel had a hard time getting the Bundestag — and even the parties in her government — to approve the initial ‘small' rescue package for the euro, promising that Germany would not have to pay any more than that. By nightfall on the same day, however, she had to assent to the much larger 750 billion euros (Dh3.9 trillion) rescue package in order to prevent an EU-wide disaster. That created a multi-layered credibility problem for Merkel that continues to haunt her.
Merkel still hasn't figured out how to explain the consequences of the financial and euro crises to the German people. That is not only because she is a poor public speaker, but also because she herself does not seem to know how to resolve the contradictions between national solutions and European constraints. Her style of leadership, which has mostly consisted of taking a wait-and-see approach to issues, fits this uncertainty well. Only at the last moment, when it is clear where the majority lies, does she embrace a solution. Even when times were better, Merkel's passive political style allowed vacuums to form, which were filled by other political forces within her party.
As a result, while Merkel may appear to be in charge of things in the EU these days, in reality she is no longer driving events, but rather being driven by them.
Without regard for the political consequences, Merkel is trying to escape the specifically German contradiction between national solutions and European constraints by advocating a rigorous fiscal-consolidation programme, severe punishment for non-compliance (including loss of EU voting rights), and a trigger mechanism for member states that lag in meeting their obligations. In Berlin, the term for this is "a Europe of stability and solidity." It is a credo for which Germany will have to pay dearly in the future.
Merkel now feels the fatal consequences of her "leadership without leading" approach. One cannot shake the impression that the European soul of this government is devoured by angst. As for Germany's ability to assert itself, there is not much evidence of it, despite the vigorous rhetoric. At the latest meeting of the European Council of Ministers, Germany's "Iron Chancellor" hobbled home.
It was French President Nicolas Sarkozy who, in the run-up to the last EU summit, called a halt to Merkel's attempt to introduce an automatic response to member states that violate the stability criteria. Her second sweeping proposal, the withdrawal of voting rights in the Council, was abandoned at the Council's recent meeting in Brussels.
In fact, Merkel's ‘triumph' consisted of nothing more than a Council promise to ‘review' a change to the Lisbon Treaty — albeit a change below the level that might make referendums necessary. In simple language: forget about any punishment or automatic trigger mechanisms that might affect a country's sovereignty.
So, as Germans once again see their ‘Iron Chancellor' deliver butter-soft results, they are increasingly likely to trust those who warn that the government is being tricked into a ‘transfer union' that uses German money to finance handouts for fiscally lax EU members. Disagreement with this criticism is difficult, because the German federal system itself relies on transfers.
The more the EU is forced by Germany to become a union rooted in ‘stability,' the more pressing it will become for eurozone countries that cannot conform to the new, stricter rules to receive some sort of financial compensation. It is, after all, unrealistic to assume that all members can profit to the same extent from this hard-line approach; that is not achievable even among the 16 federal German states.
With Merkel's active help, the eurozone is (in effect) moving towards becoming a transfer union: the stricter the new rules and the larger the interest-rate spreads among eurozone countries, the faster that will happen. At home, though, Merkel fears this debate like no other — a debate that the financial markets and the crisis in many European countries will ensure cannot be avoided. Faintheartedness comes at a price.
— Project Syndicate/ Institute of Human Sciences, 2010
