The Greek crisis has put Europe in a trap. The conflict over how to solve it has eroded trust and accelerated the renationalisation of policymaking all over Europe. It has distracted politicians from the challenge of reforming Europe’s architecture and making it fit for the longer term. Meanwhile, Germany has started disengaging from the European project. Many Germans feel victimised by international criticism.
European reforms will fail if they do not address Berlin’s deepest fears. The rest of the European Union (EU) must take such concerns much more seriously — starting now.
Germany’s biggest fear is that the Eurozone is becoming a transfer union, with Berlin as the paymaster. Remember that Germany is the main contributor to the latest Greek bailout and has €240 billion (Dh973.7 billion) outstanding in official loans or guarantees to Greece. Demands by France and others for debt mutualisation have deepened those suspicions.
Germany’s second fear is that common European rules are circumvented all too often — as is the case with the stability and growth pact and the fiscal compact, intended to ensure debt sustainability among all members. Although Berlin itself broke the pact last decade, a strong German consensus reigns that compliance should not be a matter of discretion.
Germans reacted with disbelief when Manuel Valls, France’s Prime Minister, refused last year to comply with common fiscal rules, declaring: “France must be respected, it is a big country ... We are the ones who decide on our budget.”
Germany’s third fear is that national sovereignty is being eroded without Europe delivering more stability and prosperity. Today Europe cannot credibly enforce common rules, but all members are jointly responsible for bailing out individual member states when their policies fail.
The creation of a proper fiscal union is the most urgent reform and a rare opportunity for Europe to get Germany back on board. A fiscal union should include a Eurozone finance minister — an idea long favoured by Wolfgang Schauble, Germany’s Finance Minister. Such a person would be accountable to a strengthened European Parliament with a new chamber for euro area issues. He or she could have the right to intervene in national budgets if these violate European law, such as the fiscal compact, and have a budget financed through a European tax as an add-on to either the value added tax or the corporate tax of euro area member states.
The minister could have the ability to issue some jointly guaranteed debt within narrow limits. This ability to tax and borrow could be limited to two purposes: To provide unemployment insurance and to support investment.
A European finance minister would address all three of Germany’s fears. The EU’s boosted fiscal capacity would explicitly avoid serving as a transfer union, but operate instead a fair insurance mechanism.
Member states would receive net payments in bad times — the only circumstances when debt would accumulate — but make net contributions in good times. The minister’s right to intervene in national budgets would strengthen common rules without eroding national sovereignty.
Such a post would deliver concrete benefits to EU citizens and strengthen European identity while making it harder for national politicians to blame Europe for their own failures.
The Greek crisis shows that Europe urgently needs deeper integration. Stronger solidarity should be accompanied by more shared sovereignty, as exercised by a Eurozone finance minister. This would provide a mechanism to protect against recessions and crises, foster productive investment and support European workers. It would address Berlin’s deepest fears and could be common ground for France and Germany to lead Europe jointly once again.
— Financial Times
Marcel Fratzscher is president of DIW Berlin, a think-tank.
