German public opinion hardens against Putin but business community still reluctant

An Infratest Dimap poll for Welt/ARD published today showed that 70%  of Germans are in favour of the EU's response to the crisis, with 80% thinking that Russia bears the biggest responsibility for the break-down in relations between Russia and the West, and with a slim majority (49% vs 46%) in favour tightening sanctions further, even if it has a negative impact on the German economy and jobs.

Being as ever nervous about meddling too much in world affairs, there's been a considerable shift in the German media and public-opinion regarding Russia. In March, after the annexation of Crimea, only 38% supported economic sanctions. By May this had risen to 50%. Now it's at 70%. The volte-face can be explained in part by some industry bodies publicly announcing that they would be able to weather such sanctions and the public outcry over the MH17 tragedy.

As has been noted by others, Angela Merkel was absolutely instrumental in breaking the deadlock over the sanctions, by showing willingness for Germany to bear a large chunk of the costs. This probably wouldn't have been possible absent the shift in public opinion (incidentally also illustrating how the "as Germany goes, so goes Europe" rule now increasingly also applies to foreign policy).

However, there's still plenty of opposition from within Germany. Business continue to warn against loss of jobs and profits. And today, Gabor Steingart, Editor-in-chief of Germany's financial daily Handelsblatt, laments "The folly of the West," for entering into "the politics of escalation" with Russia, on the front page of his paper today, writing:

"With its politics of escalation, Europe is missing a realistic [end] goal... Even the aim to bring Russia to its knees through economic pressure and political isolation, has not been properly thought through." 

"Even if this were to work: What good will that do? How can one expect to live alongside a demeaned people in the European house, when their elected-leader is treated like pariah, and their citizens may be committed to soup-kitchens in the coming winter?"

As Steingart sees it:  

"German journalism has switched from level-headed to agitated in a matter of weeks. The spectrum of opinions has narrowed to that of a sniper's scope... Headlines betray an aggressive tone that is usually characteristic of football hooligans."

There is clearly a growing gap in the German media, politics and public between those who want to go in harder on Putin, and those who favour Germany's 'Ostpolitik' tradition of bridge-building with the Kremlin. In turn, this reflects that on-going, grinding and drawn-out debate about Germany's role in Europe and the wider world, in which all kinds of German instincts clash.

Handelsblatt: Britain a key driver of EU Reform

Britain: The critical voice of reason?

We've been monitoring how the British Europe debate is being received across the continent throughout the Juncker episode (here and here), and already noted how large parts of the German commentariat have come out fighting for the UK to remain in the EU, especially because it is in Germany's long-term strategic interest.

Today's Handelsblatt features a joint op-ed looking at the pros and cons of British membership of the EU, with the paper's political editor Jan Mallien writing:

"The British question [EU] bureaucracy, fight against agricultural subsidies, and ensure that any transfer of power to Brussels is discussed critically. Thus, they provide important impulses -- and make themselves unpopular. In a shared house, they would be in charge of the cleaning-rota. Of course, one can kick-out the person who is charged with the cleaning rota from a shared household. But it would be an illusion to think that the others would never have to clean again."

He continues:

"With their critical attitude, the British are a key driver of reform. Some German newspapers insinuate that Cameron is on an anti-European course. Those who say something like that are simplifying matters: The Brits are in favor of another [vision of the] EU. In many ways, they are fighting the correct battles."

Mallien concludes:

 "Sure, there are some issues where agreement would be easier without [the Brits.] The Financial Transaction Tax, for example. However, these are mainly symbolic issues. The EU is not much better-off with a Financial Transaction Tax. But without the British an important drive for reform will be missing. A Brexit would therefore make the EU poorer -- and not just economically."

On the other side of the fence, Handelsblatt columnist Désirée Linde says:

"Why all the whining about the nightmare scenario of a British EU-exit? If the British want to get out of the EU, continental Europe should let them go. Because, contrary to suggestions of doomsayers and EU-haters, it would not spell the beginning of the end for the EU. Yes, it would be a shock, but one that provides an opportunity for the EU. The cost of a Brexit for the EU is undisputed. Great Britain is one of the EU's biggest net contributors paying over €7bn per year."

She continues that while a Brexit would be “uncomfortable for the EU,” it would be “fatal” for the UK, and concludes:

"From the outset, the British lacked commitment to integration... Brexit would not build a way back to the European Community for the British. So it is up for all of Europe's friends in the UK to perceive this as a cleansing thunderstorm and develop a whole new enthusiasm for Europe. The fact that Europe is not just a customs union, but also a political project is something that the British have not yet understood...It is time that the UK learns. And if it must be, the hard way."

Linde buys into the whole German "pro-integration" rhetoric. However, as we have noted repeatedly, one of the greatest ironies of the German-Europe debate is how to square the need for more integration, especially in the eurozone, with Germany's national interests. This is lost on Linde. 

As a post-script, it's not only the Germans who are coming out in favour of Britain. The French  commentariat has been speaking out too, fearful of the imbalance a Bexit would cause in the European club. In today's Le Figaro, French columnist Renaud Girard describes the appointment of Jean-Claude Juncker as new European Commission President as “an unnecessary affront” to the UK, and argues:

 “It is irresponsible to push London on the slippery slope of EU exit… As far as France is concerned, it has no interest in finding itself head-to-head with Germany.” 

The Juncker-episode has shown that the moment of truth on the UK's future in Europe is drawing closer - and it also appears to be focusing minds across the Channel that an EU without Britain may not be in anyone's interest.

Rückführung alert: CDU says repatriation of EU powers must be possible

This is interesting from today’s Handelsblatt. The paper has apparently seen the CDU’s draft manifesto ahead of the European elections. As a reminder: the CDU is Angela Merkel's party, which, along with its sister party, the CSU, won a landslide with 41.5% of the vote in the last federal election. It's what you would call the very definition of mainstream. 
 
The CDU manifesto calls for an “an effective regulation brake” with decisions needing to be “effective and more transparent.” Interestingly, the CDU manifesto suggests that the European Commission should be required to scrap an EU law if a majority of national parliaments says it could be handled better at the national or regional level . This seems to be very similar to the idea of a “red card”, which we long have argued for and which Dutch Foreign Minister Frans Timmermans, for example, has championed.

Perhaps even more interestingly, according to Handelsblatt, the CDU draft manifesto  also explicitly states that:

“a repatriation of competences to the national level should be possible.”

This is significant since German politicians tend to avoid using the word “repatriation” – or Rückführung – since it has strong connotations, instead preferring a range of other more guarded expressions including Dezentralisierung, Regionalisierung, Übertragung, Subsidiarität and Verhältnismäßigkeit.

Handelsblatt’s take on this is that that the :

“CDU is reacting to growing euroscepticism in the country” including to anti-euro party Alternative für Deutschland (AfD).

However, the take of CDU's campaigners is (as to be expected) that the party is simply becoming more realistic - which is a neat way of putting it:

 
Meanwhile, the Today programme has an interview with Hans-Olaf Henkel – formerly the head of the BDI (The German equivalent of the CBI) – now with AfD.

Henkel argues that though he wants return of EU powers, he also wants Germany to stay in the EU. Today's take on this is that "British sceptics may be disappointed" if they look to Berlin, concluding that “Even the German sceptics are not very sceptical when compared to their British counterparts.” Now, this isn't necessarily right nor wrong -- but just not very insightful.

• First, as we’ve argued before, the main clash in Germany is not between the “pro-European” and “anti-European” schism that the BBC is constantly looking for, but rather between two key pillars of post-WWII Germany: Europe and sound money.
• Secondly, is the BBC saying that the definition of “Eurosceptic” is now wanting to leave the EU?  If so -- it will have made a lot of "Better Off Outers" very happy. However, that also means that it can no longer use the "Eurosceptic" label for a whole of host of other actors, including large chunks of the current Conservative government which, irrespective of the rights or wrongs, want to stay in a reformed EU.

This isn't becoming too complicated for black-and-white labels, is it?

Handelsblatt asks, "Where is the inflation?"

That’s today’s front page of German daily Handelsblatt, with the headline asking “Where is the inflation?”

A stark reminder of what remains a key issue in German (and therefore European) politics. We could barely ever imagine such a front page in the UK, particularly when annual inflation is running at only 1.6% (August 2013).

Inside the paper there is a ten page section discussing the issue. Essentially, Handelsblatt is questioning why, when there has been such significant money printing and low interest rates in the eurozone, is there yet to be inflation. This is put in context with a comparison to the hyperinflation of the 1920’s Weimer Republic, another reminder that this episode in the country’s history continues remains firmly embedded in the German psyche.

The discussion itself is obviously hugely technical, but the paper’s explanations for why inflation is (yet) to show up is quite telling about the debate in Germany.

• Central banks only measure consumer prices – the paper essentially suggests that the usual metric of inflation, the Consumer Price Index (CPI), does not fully capture the real inflation rate since it does not include things such as asset prices and house prices.

• The increased money supply is not feeding through to the real economy – the suggestion here is that, although money supply is being increased significantly, it is not feeding through to the real economy because banks are not lending out and because people and companies are saving more. It could also be down to the fact that banks, companies and the government are deleveraging (paying off debts and reducing their size) in order to become more stable in the wake of the crisis. For these reasons, the money created has stayed within the financial system rather than leaking to the wider economy and hitting inflation – at least not yet.

• Still too early to fully judge the impact of the ECB’s policies – this seems to be linked to the argument above but the paper suggests that the low interest rates and other non-standard measures which the ECB has undertaken (such as unlimited long term loans) are yet to have their full impact. The suggestion seems to be that, as the economy recovers, the true impact of the policies will become clear.

• So, what will happen? The paper concludes that these policies are likely to have some impact and that inflation will show up at some point.

Although this is clearly just the view of one paper, the tone and line of argument here is quite telling.

Clearly, there is still concern that inflation will show up and even that it may already have and be going unnoticed. This fits with recent concerns raised by the Bundesbank that low interest rates and loose monetary policy can pump up financial bubbles and set the scene for the next crisis.

This debate is here to stay in Germany and Europe. As the ECB considers further long term lending operations (LTROs), how to deal with actions of other central banks and the large divergence in growth between Germany and some struggling countries, it could come to the fore once again.