Friday, November 11, 2011

So what exactly is the CDU’s policy on the eurozone?


Of all the political-party actors in the long-running yet constantly mutating eurozone crisis (as opposed to governments and institutions), Angela Merkel’s CDU is probably most important, given that it forms the bulk of Germany's three party coalition government. So it surely cannot be a good thing that the party’s policy for addressing the eurozone crisis seems to be all over the place.

Broadly speaking, in trying to further the German national interest, the party is torn between two strong yet opposing instincts; the traditional German commitment to sound money and price stability on one hand, and the need to save the single currency (and the strong commitment to 'Europe') on the other . The first instinct involves:
  • Protecting German taxpayers, the ultimate guarantors of the eurozone bailouts, from taking on further risk. The FDP has tried to claim this mantle within the coalition, but a number of CDU MPs also rebelled during recent Bundestag votes on increasing the effective lending capacity of the EFSF and leveraging it up to a value of €1tr.

  • Fiercely guarding the independence of the Bundesbank, as well as it’s not insubstantial gold reserves; mindful of the reaction in Germany, Merkel moved quickly to quash a proposal at the recent G20 summit to sell of a portion of Germany’s gold in order to inject capital into the EFSF.

  • Keeping the European Central Bank on a tight leash; the party has resisted suggestions made by many observers that the ECB should be made the lender of last resort to struggling eurozone members, insisting that it maintains its original mission of maintaining price stability within the eurozone. The idea of the ECB pursuing monetary policies that come anywhere near triggering serious inflation, remains a clear red line for the Germans. The same applies to possible sovereign debt pooling via the mechanism of Eurobonds.
However, the German government, of which the CDU the main component, is also advancing an agenda of greater European integration (read: exporting German-style budget discipline to the rest of eurozone) in order to try to cope with the crisis and save the euro. There have been some concrete examples of what this would entail, for example making the spending and budget rules legally binding (with the ECJ having the final say). But in terms of credible proposals, it's still pretty thin on the ground.

And they're really all over the place. Die Welt today compiled a piece entitled “Race in the CDU – who is the best European?”, with examples of leading CDU politicians falling over themselves to promote further EU integration, and - interestingly - not only for the purposes of imposing tighter budget rules and oversight across the eurozone.

We have Merkel herself reiterating her call for treaty change, arguing that it is time for “a breakthrough to a new Europe", in which member states integrate further, and national sovereignty is limited. She claimed that:
“Irish worries are Slovakian worries, Greek worries are Dutch worries, Spanish worries are German worries, or Italian… our responsibility does not end at the border of our countries”.
Environment Minister Norbert Röttgen also supported "more Europe” claiming that there should be a transfer of sovereignty in nothing less than the policy areas of Economic and Monetary Affairs, Defence and Foreign policy, climate change and biodiversity from nation states to the EU. Pretty impressive list. He argued that:
“This is no loss of nation-state competence… nation states will lose nothing they have not already lost due to globalisation. One cannot defend national competences as they have been proven to be 'empty shells' anyway".
However they were both trumped by Ursula von der Leyen, Minister for Employment and Social Affairs who reportedly used the term “United States of Europe” in a TV interview (although this was apparently too much for Merkel).

Meanwhile, while CDU politicians were publicly trumpeting the virtues of further integration, the same Welt piece reported that behind the scenes, Peter Hintze, a close confidant of the Chancellor in the Ministry of the Economy, clashed with Finance Minister Wolfgang Schäuble over German policy vis-à-vis the ECB; Hintze wanted to prevent the ECB purchasing bonds of indebted states in the future without German approval, and also to change the voting weights in ECB’s governing council from one vote each, to a reflection of the economic strength of national economies (which would hugely benefit Germany), both of which were opposed by Schäuble.

Is it just us or is CDU sending out mixed messages?

Ultimately, the CDU must reach some sort of internal compromise (easier said than done we know) between protecting German taxpayers/commitment to price stability, and basically accepting that Germany underwrites the eurozone indefinitely. If they settle for the latter option - which could involve the ECB effectively becoming the lender of last resort or German taxpayers being asked to cough up the equivalent of one-third of the countries' GDP to equip the EFSF with the necessary lending capacity to back stop Italy et al. - it will be a huge challenge to communicate that to the German electorate.

This internal CDU debate - and indeed the wider, highly fluid, German debate on the future of the eurozone - is all part of democracy of course. But sooner or later, the CDU, and the rest of the German political establishment, will have to make a decision what its exact eurozone policy is.

Whether German voters will put up with that decision in the long-term is a different matter all together.

1 comment:

Rollo said...

The ECB cannot save the eurozone. Its remit is to control inflation and not to make bad loan purchases. It has not got a big bazooka, for which about 4 trillion euros are needed: it can only muster a tenth of that. The Germans will not want to put themselves into hock for it, and the other big player, Minny Mouse Sarkosy, cannot even fund his own government. But all that is irrelevant: the ECB cannot save the Euro becuase it is unsaveable. Nothing could make it work.