German policy leans towards federalism

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There is something in me that would prefer the members of the German Social Democratic Party to vote against a grand coalition with the center-right Christian Democrats of Angela Merkel. A permanent coalition would eventually strengthen the far left and the far right. We know that in a democracy, governments tend to produce opposing forces of equal or greater strength, with sufficient time. It would be the third German grand coalition in 12 years. Better to get it over with sooner rather than later.

But there’s also something about me that says this particular coalition might actually be doing something useful. The chapter of the preliminary agreement on Europe is astonishing. The CDU and the SPD accept the principle of a fiscal union for macroeconomic stabilization and transform the European Stability Mechanism (ESM), the rescue fund, into an EU institution.

What really surprised me was the initially low-key response from the usual suspects on the right. The Eurosceptic backbenchers of the CDU and their Bavarian allies, the Christian Social Union, were unusually silent. Economic commentators in the media too. My only explanation is that they didn’t read the section or didn’t understand it.

The silence ended abruptly last week with an article by Otmar Issing in Frankfurter Allgemeine Zeitung. Mr Issing, a former member of the executive committee of the European Central Bank, rightly recognized the importance of the EU section in the agreement. As an economic conservative, he was appalled by the ease with which Germany hoisted the white flag in the eurozone debate. Banking union, fiscal union, transfer systems, it could all happen very soon. This is what the conservative and ordoliberal German establishment has always fought against. Personally, I do not agree with their world view, but they are correct that the preliminary coalition agreement matters.

This course of events will not remain unchallenged. For starters, SPD members could vote against the coalition deal. The Europe section matters more to Martin Schulz than to the average party member. The SPD leader failed to campaign on this issue during last year’s election campaign. He has lost much of his authority since leaving the post of President of the European Parliament to enter German politics a year ago. His supporters are growing weary of his broken promises, such as his promise to never serve under Merkel and his promise not to enter a grand coalition as a junior member.

The SPD leadership and the outside world are too complacent about the next coalition vote. Referendums in parliamentary democracies are inherently unpredictable. With this vote, the party is offering its members an opportunity that they had not had before. Suddenly they can get rid of both their own and Ms. Merkel. For some, it is a temptation that is difficult to resist.

Another source of obstruction to euro zone reform is the rise of opposition within the CDU. Mr Issing’s article sparked debate within the party group in the Bundestag, with MPs signaling that the grassroots were particularly unhappy with the section on the MES. Ms Merkel stressed that the Bundestag would retain its right of veto over all ESM programs even if the rescue fund became a European institution. She said the ECB is also anchored in EU law, but independent.

His answer is both true and misleading. Anchoring the MES in EU law will not alter the national veto right over programs funded by existing MES facilities. But it opens up new funding channels and new decision-making procedures in the future. It is necessary to examine the proposed change in the legal basis in combination with the plans for a fiscal union. If a newly created fiscal capacity were to support the ESM in the future, then surely national governments would no longer have a veto? It would no longer be their money.

Mr. Issing and other conservatives see the measures proposed by the CDU / CSU and the SPD as a slippery slope towards a regime no longer based on fiscal and financial sovereignty, anchored at the national level, but towards mutual governance. This is what the debate on the euro area has always been about. It is a variation of the old conflict between federalism and intergovernmentalism. On the specific issue of governance of the euro zone, German policy tilts the balance in favor of the federalist vision. For that, and that alone, I would probably join the grand coalition, but perhaps not for a full term.

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