Will the German Social Democracts come out in favour of debt pooling in the eurozone?

Last year we highlighted the German opposition’s somewhat ambiguous position on the hugely controversial proposition of debt mutualisation in the eurozone. However, with September’s elections rapidly approaching, it seems the SPD could have nailed their colours to the mast and have come out in favour, with their draft manifesto – launched yesterday by the party’s chancellor candidate Peer Steinbrück and party chairman Sigmar Gabriel (pictured) - claiming that the subject can “no longer remain taboo” according to Die Welt.

With the manifesto not yet publicly available (it has to be approved at the party’s national conference on April 14), we cannot be sure what form this would take – more limited mutualisation via a so-called debt-redemption fund or more extensive debt mutualisation via commonly issued eurobonds. With the German electorate reamining firmly against dept pooling, we suspect the former.

The party has also come out in favour of expanding the role of the European Commission into a ‘European government’ subject to control by the European Parliament and a second chamber where national governments would be represented, although it must be said that this concept has already been floated both by Angela Merkel and also by the ‘Future of Europe’ group chaired by Guido Westerwelle.

It will be interesting to see what effect – if any – this has on the SPD's electoral fortunes (we can imagine that the new 'Alternative for Germany' anti-euro party making this a big issue). At the moment the party is struggling to break through the 30% barrier in opinion polls and has been as low as 23% in recent weeks.

In addition to the dynamics of German domestic politics, from the perspective of the UK, this debate is both interesting and relevant given that any of the changes proposed above would require changing the EU Treaties, thereby giving the UK the opportunity of putting forward some reform proposals of its own, as suggested by David Cameron in his recent speech.

BAE/EADS deal collapse shows national interests still rule when it comes to defence

A lot of people on both sides of the Europe debate got very excited last month about the ‘Future of Europe’ report produced by a group of EU Foreign Ministers chaired by Germany’s Guido Westerwelle. The report was certainly controversial, not least for suggesting “more majority decisions in the Common Security and Defence Policy sphere… and in the longer-term a European defence policy which for some members could eventually involve a European army.”

As we argued after the report was published:

“There is significant momentum for more integration in economic, fiscal and banking affairs, but its hugely unlikely to spill over into foreign policy which exists in a parallel political sphere… The context for this whole initiative is effectively German domestic politics… For Merkel this serves as a useful exercise at a time when the German government is über-sensitive to accusations that it is not sufficiently ‘pro-European’ - but without actually having to do anything."

This interpretation has arguably been supported by Merkel’s actions over the BAE/EADS merger, when she pulled the plug on the deal. As the Guardian reported:

“Sources close to the deal said that the German chancellor, Angela Merkel, had emerged as the most significant obstacle to an ambitious transaction that would have created an industrial behemoth with 220,000 employees worldwide, making products from nuclear submarines and Typhoon fighter jets to the A380 superjumbo.”

“Speaking before the deal was officially terminated, the source said: "The fundamental problem is that Merkel does not feel comfortable with the deal, full stop. The source added that the German leader appeared to have deep concerns over the notion of merging a civil aerospace manufacturer with a defence group.”

So national interest considerations when it comes to defence are not dead yet it appears… even in Germany.

Westerwelle's journey into fantasy world

The report presented by the so-called ‘Future of Europe’ reflexion group of eleven European foreign ministers, set up by Germany's Guido Westerwelle, hasn't gone down well in all quarters. The initiative was well-intentioned, for sure, but that's what you get when you suggest that Treaty changes should be decided by super-QMV, we suspect.

Der Spiegel quoted a European diplomat "scoffing" at the initiative:

"It is unimportant for the future of Europe, but very important for the future of Westerwelle."

Ouch. The recipe for this report has been largely concocted within domestic German politics with an added pinch of Polish foreign policy - and it's an odd exercise to spend valuable time on. Swedish Social Democrat MEP Marita Ulvskog - hardly anti-EU - described it best:

"I think it's regrettable that the EU spends so much time on something that by my standards are pure fantasies and so incredibly far from reality...there's no popular support [for this] whatsoever."

EU leaders have enough on their plates trying to match austerity with structural reforms and re-jigging the role of the ECB, without entering the realms of fantasy. Herr. Westerwelle might fancy himself as Narninian character but unfortunately we're living in the real world and not in a wardrobe.

Westerwelle's Future of Europe report - worth getting excited over?

The so-called ‘Future of Europe’ reflexion group of eleven European foreign ministers, set up by Germany's Guido Westerwelle, to discuss and propose ideas on organisational and structural change in the EU held its closing meeting on Monday. Yesterday it released its final report and conclusions, the broad thrust of which is that, to emerge from the crisis, Europe needs more economic and political integration.

In terms of the economic and fiscal side, the majority of the proposals in the document have already been agreed or proposed, such as the “reinforced economic governance framework” – i.e. the fiscal treaty and a single supervisory mechanism for eurozone banks. Even the possibility of making the ESM into a fully-fledged European Monetary Fund has already been voiced. Furthermore, these proposals will only apply to eurozone members and any non-euro members who participate voluntarily.

It is therefore the political/institutional side that is the most interesting and here are the key points that we’ve picked out:

• More powers for Baroness Ashton and the EU’s External Action Service;
• More majority decisions in the Common Security and Defence Policy sphere including joint representation in international organizations where possible, and in the longer-term a European defence policy which for some members could eventually involve a European army;
• Strengthening the Commission should be strengthened so it can fully and effectively fulfil its role as the engine of the Community method;
• Moving to a super-qualified majority for future EU Treaty revisions (with the exception of enlargement) which would be binding for those Member States that have ratified them;
• A more “streamlined and efficient system” of EU governance which could include a directly elected Commission President, a European Parliament with the powers to initiate legislation and a second chamber for the member states.

Most of these proposals have been around the block once before but some journalists have gotten very excited about this, with the Guardian splashing the story on its front page. Running with a "Britain is isolated" theme it also noted that:

"The likelihood is that the 11-country consensus will swell into a majority among the EU's 27. Britain also stands apart from this. The 11 include Germany and France, the big ones, plus Italy, Spain and Poland – after Britain the biggest EU countries.”

Well, not quite.

Sure, some of these proposals are conspicuous, and certainly they pose a challenge for Britain. However, many of them have almost no chance of going ahead, certainly not in the immediate future. Firstly, the report represents less of a consensus amongst the relevent states and more of a brainstorming session with lots of dissenting views. As the note itself states:

“The report reflects our personal thoughts. We wish to underline that not all participating Ministers agree with all proposals that have been put forward in the course of our discussions, and that the Member States’ individual treaty obligations and rights within the various policy areas have to be taken into account.”

As stated above, there is significant momentum for more integration in economic, fiscal and banking affairs, but its hugely unlikely to spill over into foreign policy which exists in a parallel political sphere. This is simply a way to re-state the long-standing German desire for a Europeanised foreign policy (the practical difficulties of which have been made clear many times, most recently over Libya).

Super-QMV for treaty change won't happen either - not least since Berlin itself would block it if push comes to shove, as would Paris - unless they would be willing to risk - for example - QMV on the European Parliament's second seat in Strasbourg. 

Banking union, and calls for EU treaty negotiations to be opened by 2014 - as called for by Barroso in his 'state of the union' speech last week - is where the story is at.

The context for this whole initiative is effectively German domestic politics. While no one can question Guido Westerwelle’s European credentials, he is arguably one of the most side-lined Foreign Ministers in the whole EU, and the Future of Europe group is a way for him to show he's still a player.  For Merkel this serves as a useful exercise at a time when the German government is über-sensitive to accusations that it is not sufficiently ‘pro-European’ - but without actually having to do anything. 

Finally, it is worth contrasting the lofty idealism of such - and similar - proposals with the cold, harsh realities of public opinion. As we reported on Monday, support for the EU and the euro has hit an all-time low in Germany, in France a majority of those surveyed said that given the opportunity now, they would vote against ratifying the Maastricht treaty, while the EU debate in the Netherlands is also become more complex.