Long, catchily-titled briefing paper from the European Council on Foreign Relations looks to be well worth a read in full as we start heading towards next year’s German federal elections amidst ever-increasing frustration with Merkel’s apparent lack of flexibility on austerity. PDF download here – it provides what looks to be a very handy overview of the political/economic positions of the various Germany parties vis a vis the EU and eurozone.
Some highlights from a quick skim, to give a flavour:
“it has often been pointed out that German solutions to the euro crisis are quite different to those demanded by the financial markets and the international press. Germany has been widely criticised for its monetary policy, its inflexibility on austerity measures, its rigid legal approach to treaty change and its selfish view of trade imbalances. Much of what Germany has done to solve the euro crisis has caused concern and drawn criticism from its European partners.
“Germany has also been widely criticised for what it has not done. In particular, both the Christian Democrats and the Free Democrats, the two coalition partners in the German government, rejected two possible solutions to the euro crisis that were proposed by others in Europe: Eurobonds and the idea of turning the ECB into a lender of last resort for the eurozone along the lines of the US Federal Reserve. Both were seen in Germany as undermining the principle of monetary stability and creating moral hazard. Principles such as monetary stability are seen as sacrosanct by both the Christian Democrats and the Free Democrats. But where do they come from? Are they somehow rooted in the German psyche, as some claim, or are they liable to change with electoral majorities?”
And a summary of the conclusions:
“…the political landscape in Germany is more complex and diverse than is sometimes realised elsewhere in Europe. This means that the German negotiating position in Europe could shift significantly should there be a change in government. The extent and nature of the shift will depend on who the coalition partners in the new government will be…
“When negotiating with Germany, its European partners should focus on issues where some movement in the German position can be expected, rather than expect a change on issues on which there is a consensus in Germany. For example, instead of attacking excessive austerity and demanding a renegotiation of the new fiscal treaty, a more promising strategy would be to demand pan-European growth and investment programmes with more spending and taxation power shifted towards the European level. One approach would be to demand the channelling of unused EU funds into investment programmes for the ailing eurozone periphery to provide a short-term stimulus and build a more permanent institutional structure later. Similarly, instead of opposing balanced budgets, asking for more time in reaching them might be met with more understanding from Berlin. And instead of pushing for large ECB interventions, constructive proposals for Eurobonds are more likely to be accepted by the German political elite. From an outside perspective, the final outcome might still look very German. But it might still make life easier for Germany’s European partners.”