Tag Archives: Germany

To Amend or Not to Amend? That is the Question

Today EU leaders will discuss a very important proposal put forward by France and Germany. It’s all about fiscal supervision and bail-outs, and the question is whether an amendment of the Treaties is necessary or not. Germany insists that a credible system of fiscal monitoring needs a credible sanctioning mechanism in order to keep EU Member States’ spending in check. To do that, Germany proposes the introduction of new texts in the Treaties. In exchange Germany would support a permanent bail-out mechanism. But it turns out that many are opposed to this proposal.

A number of media (EUobserver, Euractiv, FT’s brusselsblog) report that a number of Member states are very critical of the proposal. Viviane Reding has called the plans “irresponsible” and has been immediately reprimanded by France’s State Secretary in charge of European affairs, Pierre Lellouche. But that’s another story.

The important debate here is not whether an amendment is achievable in the medium term (it will probably be put to referendum in Ireland and possibly the UK and Denmark). The conceptual shift in the coordination of economic governance is where interests of Member States diverge.

Germany wants to impose strict fiscal discipline on all eurozone members, including the possibility of removing a Member State’s voting rights. But many argue that such budget austerity may not be the solution to the problem. George Soros himself has compared the proposals to the 1930s, where some countries became overly focused on balancing budgets during a depression. Other go further and note that it is Greece, in fact, which is bailing out Germany – in the form of an annual trade deficit that has averaged 5 billion euros, stimulating German jobs but destroying them in Greece. That is why many economists advocate for measures to stimulate demand in trade surplus countries – Germany, Netherlands, Denmark, etc.

Axel Weber, president of the German national bank, disagrees. He says that the proposal of raising wages to support domestic demand and reduce competitiveness neglects that wages are not a political control variable. Moreover, according to him simulation studies show that the effects would be confined almost entirely to the home economy in the form of changes in employment.

So who’s got it right? I’m not sure, and I am (thankfully) not an economist. But the German position will not be easy to defend unless it addresses the concerns about German policies that stimulate the aggregation of a trade surplus.

On Turkey and the Criteria for Accession

In recent days both Turkish and European politicians have spoken in favor of the Turkish accession to the European Union. Egemen Bağış, Turkey’s chief EU negotiator, sought to unblock Ankara’s accession bid by calling on European Union countries to call referenda on the country’s EU membership. Germany’s ex-foreign minister Joschka Fischer has predicted that Austrian, French and German opposition to Turkey joining the European Union will melt away with time.

In both cases the main argument is the strength of the Turkish economy and the demographic profile of the population – Turkey’s median population age is just 28 compared to 42 in the Union and its economy grew by around 11 percent in the first half of this year compared to the EU’s 1-2 percent.

But this will not suffice. The criteria for accession are now legally binding (art. 49 TFEU), and they include the so-called “political criteria” that are especially hard to meet. The “political criteria” include stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities.

Turkey must strive to cover these criteria in the first place. No level of economic development can substitute for the lack of democracy or respect of human rights. The Turkish narrative must be centered on the promotion of democratic values, and only after that – on economic development. Otherwise Turkey will only position itself as a valuable trading partner and an immigration source, but not as a potential Member State.

German Constitutional Court Avoids Direct Collision

The German Constitutional Court (GCC) in Karlsruhe is well known for its particular posture on questions relating to the European Union law. Now it has made a step sideways, saying that it has only limited jurisdiction in cases of ultra vires decisions of the EU institutions.

The GCC says that acts of EU institutions and bodies can only be reviewed by it “if the breach of EU competences by the EU body is obvious and the act in question leads to a structurally significant shift in the arrangement of competences between the member states and the European Union to the detriment of Member States”.

So the GCC implies a test for the seriousness and structural impact of breach of competences of the EU institution. I am not sure how this test can be made operational, though.

Also note that the decision relates not only to decisions of the EU Court of Justice (as suggested by EUobserver), but other EU institutions as well.

The Political Salience of the Burqa Ban

Henning Meyer from the Social Europe Journal turned my attention to this report of the Pew Global Attitudes Project measuring the public approval of the ban of face-covering veils (burqas). What I did was to compare the data for the approval rate with the percentage of the Muslim population in the respective countries (data was obtained from the 2009 report of the Pew Research Center). Not surprisingly, there is a strong positive correlation between the percentage of Muslim population and the support for the burqa ban (correlation= 0,84, R2=0,71).

The US citizens are somewhat more tolerant than the average and Britons somewhat less, but the overall correlation is quite strong.

This post is cross-posted on Think 3: Developing World.

What Act of the Greek Tragedy?

It looks like the markets don’t really buy the “end of the Greek tragedy”. At the same time the eurozone member Slovakia will only vote on financial aid for Greece after the June national election.

Meanwhile the New Democracy party in Greece (the opposition to the left PASOK government) has obviously decided NOT to support the austerity measures.

So what is going on??? I am not sure.

Martin Wolf says that it is hard to believe that Greece can avoid debt restructuring. He also notes that several eurozone Member States have unsustainable fiscal deficits and rapidly rising debt ratios. Wolfgang Münchau says that the bilateral loans will have the so-called junior status, meaning that they will be repaid only after the repayment of existing Greek government bonds. He believes that this represents a real financial transfer from eurozone members (and particularly Germany) to Greece. He calls this „an absolute scandal“ and believes that the Bundestag could block a junior loan agreement.

This may mean a contagion, especially if the Greek situation is not resolved quickly. Spanish Prime Minister Zapatero has denied rumours that he’s preparing an aid package for Spain.

There is too much information being withheld, I think.

Rating Foreign Policy in Public Opinion

A BBC poll among more than 29,000 adults, asked respondents to say whether they considered the influence of different countries in the world to be mostly positive or mostly negative.

The poll focuses a lot of its attention on the performance of the United States. However, I am much more interested in the relative performance of the European Union and separate Member States.

The most positive ratings in the whole survey went for Germany (an average of 59% positive). The United Kingdom (52% positive) and France (49% positive) were also high on the list. The European Union as a whole was viewed positively by 53% of the respondents worldwide.

Here’s the thing. Respondents from only one country rated quite negatively the EU (45% negative, 29% positive). That country was Turkey. Go figure.

Is Greece Really Getting a Bail-Out?

We now have the solemn statement by the heads of state and government of the euro area. It says that as part of a package involving substantial International Monetary Fund financing and a majority of European financing, Euro area member states, are ready to contribute to coordinated bilateral loans. Any disbursement on the bilateral loans would be decided by the euro area member states by unanimity subject to strong conditionality and based on an assessment by the European Commission and the European Central Bank.

Now the real question – is this really a bail-out for Greece? Not easy to say. Alan Beattie says that the IMF will be in real difficulty with Greece, since the only real instrument available is fiscal policy (since the ECB handles the monetary policy for Greece). We already know that Greece is experiencing extreme difficulties with its own population over fiscal austerity measures. So how far can the Greek government go to convince the IMF that it’s on a sustainable path?

On another level, some commentators are wondering about the new positioning of Germany in the EU. This is a very important topic indeed. George Irvin talks about “Merkel’s madness” in refusing to face the consequences of financial contagion. Philip Stephens asks the fundamental question – what sort of Germany is developing in these tumultuous times?

The internal solidarity of the European Union is not a boundless concept. From a purely legal perspective Mrs. Merkel is very much on the right track, provided that Germany was strictly pursuing the objectives of the Stability and Growth Pact. However, Germany itself breached the pact and knowingly let other countries to breach it. This important fact should be reminded to the German government.

I would definitely not want to see a further drift away from the political cohesion of this Union.

Is Germany to Blame for the Crisis of the Eurozone?

I’ve heard this many times before, and it has come from all sorts of directions. But now two people that I respect – Martin Wolf and Peter Zeihan both say that Germany has in fact a lot to do with the current financial crisis of the eurozone.

Martin Wolf talks about the strategy of “Chermany” – that is, China and Germany, to encourage deflation in countries with trade deficit during the current economic crisis. Mr. Wolf criticizes the proposals of the German finance minister Wolfgang Schaüble that include combining emergency aid for countries running excessive fiscal deficits with fierce penalties; suspending voting rights of badly behaving members within the eurogroup; and allowing a member to exit the monetary union. Mr. Wolf believes this will weaken the entire eurozone economy because of the necessary deflation in trade deficit countries. He also says that trade surplus countries (and Germany in particular) refuse to accept that their reliance on export surpluses must rebound upon their internal markets.

Peter Zeihan goes much further. He bluntly says that the Germans crafted the euro to rewire the European Union for their own purposes. He points out that European states are borrowing money (mostly from Germany) in order to purchase imported goods (mostly from Germany) because their own workers cannot compete on price (mostly because of Germany). Mr. Zeihan concludes that the European Union is becoming a kind of a Mitteleuropa.

I am not an economist and therefore I cannot evaluate in substance the arguments of the authors. I am worried, however, about the repercussions of such a line of thought.

European Monetary Fund: in the Making?

The idea for a European Monetary Fund (EMF), put forward by Daniel Gros and Thomas Mayer, is gaining new ground. FT reports that the German finance minister Wolfgang Schäuble has revealed the first details of a plan for establishing the EMF.

Mr. Schäuble said that the EMF would be an institution for the internal equilibrium of the eurozone that would have at its disposal both the experience of the IMF, and comparable intervention mechanisms. The idea is also to include tough penalties for eurozone members that fail to curb deficit spending or run up excessive government debt.

Greece Makes Strange Moves

Greek Deputy Prime Minister Theodoros Pangalos has criticised Germany’s attitude towards the ongoing Greek debt crisis, adding that Athens had never received adequate war reparations. The German foreign ministry said that a discussion about the past is not helpful at all to solve today’s problems.

Mr. Pangalos also said that the EU suffers from lack of leadership. He added to that Italy was being more inaccurate with its financial statistics.

At the same time Greece demands a debt default guarantee to calm down markets.

I am in disarray. How is Greece expecting to get support and sympathy from its peers when using such language??? The markets will not be calmed by Mr. Pangalos’ statement; that is clear. I wonder whether Kostas Simitis knew better.