However the Germans vote on September 22nd,
Berlin’s attitude to the EU is not going to change much. The opposition Social
Democrats call for a bit less austerity in Southern Europe but otherwise
support most of Chancellor Angela Merkel’s policies. Nonetheless German policy on
Europe is evolving – independently of the elections – in some important
Germany is making a new effort to revive its
damaged relationship with France. It is moving towards accepting a full banking
union, including a resolution regime, though not, for now, on terms acceptable
to most of its partners. It is recognising – with some regret – that there will
not be a significant revision of the EU treaties in the coming years. And it is
increasingly critical of the European Commission and the European Parliament.
The big strategic decisions on Germany and the
EU are taken by politicians like Guido Westerwelle, the foreign minister, and
Wolfgang Schäuble, the finance minister, and, above all, Merkel. But the key
officials in the Chancellor’s office, the foreign ministry and the finance ministry
are hugely influential on EU policy. That is not surprising, given that they –
unlike most politicians – understand the technicalities of the EU’s inner
These officials are more relaxed about the
euro than they were six months ago. They think that modest progress in Ireland,
Portugal and Spain is vindicating their insistence on austerity in these
countries. They regard Greece as a hopeless case, but too small to threaten the
euro’s survival. Italy is a much bigger worry, because its political system
seems to make structural economic reform impossible.
As for the Official Monetary Transactions
(OMT) – the bond-buying scheme unveiled by the European Central Bank a year ago,
which reduced the cost of borrowing for the Southern Europeans – it should be “a
bazooka that is left in the cupboard”, according to one official. If ever used,
the ECB’s independence could be compromised: politicians would put pressure on
the bank to deploy the OMT to achieve a particular spread for a country’s bonds,
he says. And what would the ECB do if, once an OMT programme had started, its
beneficiary stopped reforming? This official thinks that if a country applies
the right policies, as Spain has done recently, it does not need OMT. And if a
country chooses the wrong policies, OMT cannot save it.
Germany’s constitutional court in Karlsruhe is
due to rule on the legality of the OMT this autumn. The view in Berlin is that court
is unlikely to ban the OMT outright, though it may set conditions for its use.
German officials think that France, unlike
Italy, is capable of reform. But in his first year as president, President François
Hollande infuriated German officials: he tried teaming up with Spain’s and
Italy’s leaders to oppose Merkel at summits, and did very little to revitalise France’s
economy. The Germans talked of moving ahead without France. The French found
the Germans’ tone patronising.
But this summer the atmosphere between Paris
and Berlin has improved a little. The
Germans understand that they cannot lead Europe on their own. They say they
have learned that lecturing France will not persuade it to reform. Only if
France believes that it is an equal partner of Germany’s, they think, is there
a chance if it reforming. Meanwhile Hollande has not tried to manoeuvre against
Merkel in the European Council since February (when he was in a minority of one
over the EU budget). At the end of May, a joint Hollande-Merkel letter floated
ideas such as a eurozone budget, a bank resolution regime, contracts for
economic reform and a permanent president for the Eurogroup (which brings
together the countries in the euro).
German officials hope that after the general election
they can restart the Franco-German motor with a grand bargain. France would
accept Merkel’s idea of contracts – it would have to negotiate structural
reforms with the Commission – and Germany would agree to a modest eurozone budget,
to reward countries that undertake painful reforms. Some Germans believe that
these contracts would be the most effective means of getting France to reform.
The bargain would also cover a bank resolution regime, which France is keen to
see implemented. None of these steps would require treaty change.
Despite their new, softer line on France, some
Germans still worry that the French will exploit Germany’s willingness – in the
event of a serious crisis – to do whatever is necessary to keep it in the euro,
and that they will therefore shy away from difficult reforms. France would then
slowly drift into Southern Europe and Germany would find it hard to lead the EU
on its own.
Banking union is currently a major bone of
contention between Berlin and Paris. Schäuble wants a resolution regime with a
first phase “based on effective
co-ordination between national authorities; and effective fiscal backstops,
also including the European Stability Mechanism (ESM) as last resort.” (
see FT article
The Commission, however – backed by most member-states, including France –
wants to run a centralised system that draws on a new resolution fund. The
Germans think the Commission would not be capable of acting quickly to resolve
a bank, and that, given the fund’s initial small size, they might end up having
to pay to clean up others’ banks. They also argue that the Commission is
abusing the treaties by using a single market article as the legal base for its
At the moment, the two camps are far apart.
But German officials are convinced that the EU needs a viable resolution regime.
A possible compromise, one suggests, could involve Germany accepting the Commission
as the resolution authority, provided the ESM is the backstop. Germany likes
the ESM because it is run by a German and it has an effective veto over its
money being spent.
Many German politicians, being committed to a
federal Europe, retain some affection for the Commission and the European Parliament.
But the key officials have become very critical of both bodies. They say that
the Parliament has too much power and is out of touch. So when it comes to the proposed
‘new’ method of choosing the Commission president – the idea is that after the
2014 European elections, the party with the most MEPs would appoint its
designated candidate – German officials are wary. They fear that this method could
lead to a powerful Commission-Parliament alliance against the Council of
Ministers (in which Germany is a dominant force). This wariness extends to
senior German politicians. Without the co-operation of Angela Merkel and her
European People’s Party, MEPs may struggle to impose the president of their dreams
on the European Council.
Officials complain that the Commission lacks
economic expertise, that it produces too many meddlesome rules, and that it spends
too much time worrying about its own power. It annoyed them recently by pushing
ahead with a directive banning certain greenhouse-gas coolants that are used in
Mercedes air conditioners. And they are frustrated that the Commission gave France
extra time to meet the 3 per cent budget rule, without first extracting
commitments on structural reform.
Some German officials are keen to build up the
ESM as an alternative to the Commission for eurozone governance. They admit
that the ESM currently lacks economic expertise but think that in the long run
it could evolve into a European Monetary Fund. They believe that in contrast to
the Commission it is not subject to political pressure. However, some foreign
ministry officials understand that Germany is rather isolated in its desire to
bash the Commission. For example, Poland – an important German ally – is
usually supportive of the Commission. These officials therefore believe that any
German attempt to promote the ESM as an alternative will not get very far.
Another source of tension between Berlin and
Warsaw is the Eurogroup. The Poles – like the British – want the key body for
taking decisions in the EU to remain the 28-member Council of Ministers. They
worry that building up the Eurogroup could hurt countries outside the euro, as
well as the single market. Some German officials are ready to go along with France’s
wish to develop eurozone-specific institutions. Merkel, however, is keen to maintain
the importance of the 28, partly because of her warm relations with the Polish
and British prime ministers.
Twelve months ago, German officials were all
for treaty change; six months ago, they really hoped it would be possible, but
recognised that it might not be. Now they think that in an ideal world, treaty
change would be desirable, but they are mostly reconciled to its postponement
for a long time. The reason is simple: the only other member-state that wants treaty
change is the UK, which means that the chances of the whole EU adopting a new
treaty are zero.
The top officials say that if there is to be a
new EU treaty, it would have to be negotiated in 2016, as the various election
and referendum calendars allow no other possibility. Any new treaty would be a small,
“surgical” change that would not require a convention (a suitable model may be the
fiscal compact, last year’s non-EU treaty that did not require ratification by all
signatories before entering into force). But these officials acknowledge that
there may well be no new treaty of any sort, and they say that the EU can cope
perfectly well with the existing ones. (The finance ministry would still like a
treaty amendment to strengthen the independence of the EU’s new banking supervisory
mechanism, but that is a long-term objective. Its own plans for a resolution
regime would not require an amendment in their first phase.)
Germany’s recoiling from treaty change will be
unwelcome news to some British Conservatives. They have been counting on the EU
needing a new treaty, and thus a British signature, in order to extract
concessions – such as the repatriation of powers – from Britain’s partners. It
seems unlikely that the British government will enjoy that kind of leverage
before the referendum that David Cameron has promised in 2017.
Charles Grant is director of the Centre for