Foreign Policy: It’s a New Europe—if You Can Keep It

 The lockdowns that stopped the virus in Europe have had a devastating economic impact. Again, the American habit of dramatizing data by means of annualizing rates of change disguises the fact that economic implosion in Europe has been every bit as bad, if not worse. The U.S. economy fell 9.5 percent in the second quarter of 2020. Germany’s contracted by 10 percent. In Spain, the collapse was twice as bad, at 18.5 percent. (If Spain reported its data in the American style, it would be down 65 percent on the year.) [...]

In the process, the more conservative voices of Northern Europe extracted serious concessions. Unfortunately, those came at the expense of some of the more progressive and innovative budget elements, including spending on joint efforts in the areas of health care and green investment. Thankfully, the package is up for debate in the European Parliament, which is, step by step, asserting leverage over Europe’s politics. Earlier in the crisis, the Parliament favored a far more expansive plan, and hopefully it will make adjustments to the July compromise. [...]

This summer, there was certainly nothing inevitable about the way the deal was done. It did not seem likely. Credit goes to the European Commission for raising the stakes, upping the original suggestion by Merkel and Macron to an ask of 750 billion euros, on top of the regular 1.1 trillion euro ($1.3 trillion) multiyear budget. (It was the Commission’s officials who dug up the legal precedent that would allow the EU to justify massive borrowing.) Among national governments, one has to admire the Spanish and Italians, who began the long march toward a constructive European response back in March and suffered through the demeaning objections of Northern Europeans without walking away. The best that can be said for the Dutch and the Austrians is that they gave way in the end. Perhaps the shameless defense of the narrowest conception of national interest by Dutch Prime Minister Mark Rutte and Austrian Chancellor Sebastian Kurz will serve some useful purpose in dampening criticism from their domestic populists. [...]

It was not by accident that as the crisis deepened, the French government started its latest approach to Berlin not via the chancellery but by working its connections to the Social Democrats in the German Finance Ministry. In a desperate effort to revive the flagging political fortunes of the Social Democrats and his own chances of party leadership in 2019, Finance Minister Olaf Scholz had become the leading German proponent of European reform, pushing ideas both for unemployment insurance and banking. Both had been met by stony disapproval from the CDU and a nein from the chancellery.

read the article

Social Europe: German court decision ends treaty pretences

In one relatively brief decision, the court struck a double blow. It asserted the power of itself, a national institution, to overrule the European Court of Justice on an EU-level issue, and it denied the political independence of the European Central Bank. [...]

The first was the conviction that there existed a coalition with the centre-right European Peoples’ Party for greater EU integration within a progressive framework. That conviction was closely related to a second—that concessions by the centre-left on fiscal rules would gain proportionate concessions from the centre-right on social protection. [....]

While the German constitutional court operates independently of the federal government, the recent decision by the former sets limits to the decisions the latter can make. These bind all the more because the decision affirms the longstanding opposition of the Bundesbank to ECB monetary-expansion programmes—the appropriateness of which the ruling explicitly mandates the Bundesbank to assess. [...]

Methods to confront this dilemma fall into three categories, increasingly radical in nature: 1) devise schemes to bypass treaty rules, 2) take measures which openly challenge the treaties or 3) break with the EU. I exclude the last, since it would create for any such government unmanageable short-term problems exactly when a solution is needed.

read the article

Social Europe: Eurobonds: why they are needed, how they would work (10th April 2020)

The ECB enjoys the power of monetising public debts—a privilege most eurozone members would not enjoy if they kept their pre-euro national currencies. The PEPP is a step in the right direction, granting fiscal space to the governments of the euro area. [...]

First, as with the ECB, the finance ministers grouped in Ecofin could decide to enforce the SGP after 2020 and thus force countries on to an austerity path of adjustments once again. Secondly, increasing fiscal deficits means increasing bond spreads between eurozone countries. The temporary character (and limited scope) of the PEPP does not guarantee public debts in the long term and it opens the door to solvency problems, as in the 2010-12 crisis, for most eurozone members. What we need is a financing mechanism which guarantees no austerity in the future. [...]

Two institutions are already in place. The European Stability Mechanism (ESM) has announced that it has at its disposal €410 billion (3.4 per cent of eurozone GDP), to be lent to euro-area members in amounts up to 2 per cent of their GDP. To finance the rescue packages of Greece or Spain, the ESM has already been issuing de facto eurobonds, guaranteed by all eurozone members, to the extent of their share in the ESM capital. The problem is that countries gaining access to the ESM funds would do so through the Precautionary Conditioned Credit Line, conditioned by a memorandum of understanding (MoU).

read the article

Social Europe: EUR-bonds in the corona crisis and beyond (10th April 2020)

In crisis times like these, sovereign debt is of pivotal importance as safe assets. Due to their countercyclical price movement, safe sovereign bonds serve as an anchor of macroeconomic stability. In an economic downturn or after an exogenous shock, a flight to safety increases the price of these bonds, simultaneously lowering their yield. The lower financing costs increase the fiscal space, while the higher price improves the banking system’s balance sheets. [...]

It is debatable whether the president of the European Central Bank, Christine Lagarde, acted wisely when she said that ‘we are not here to close spreads … there are other actors to actually deal with those issues’. Yet, despite the unfortunate timing, she raised a valid point: it was the responsibility of governments in 2010 to dispel fears of a Greek default and it is their responsibility to have each other’s back in today’s crisis. In the same vein, Lagarde called upon euro-area governments to act and issue eurobonds, a demand also formulated by groups of economists on March 20th and March 21st, as well as by nine of the 19 euro-area governments on March 26th. [...]

The governments simply agree, in this time of crisis, to ask the ECB to package their bonds into EUR-bonds as a signal and an instrument of solidarity, unity and determination. The ECB could even buy these bonds on the secondary market as part of its purchase programme. Ideally, however, EUR-bonds would be purchased by banks and other investors as safe assets, whereas the ECB would focus its purchasing programmes on eliminating any sovereign-yield differentials which may persist—despite the signals sent out by euro governments in issuing debt together.

read the article

Social Europe: Not (yet) up to the task: how eurozone members are gambling away post-Covid economic recovery

Action at the European level is key to rein in the economic shockwave following the Covid-19 outbreak. As the former president of the European Central Bank, Mario Draghi, recently affirmed, economic recovery will be easier the more public treasuries step in and relieve the private losses of workers and firms. The goal is to ‘keep the lights on’— to prevent the production system sinking under the accumulating burden of debt and losses until workers can get back to work and consumers can buy again under safer conditions. [...]

While these measures allow public and private debt to increase, the Eurogroup was supposed to provide a final safety net for public finances as the linchpin of the package. Such a safety net would have to meet two bottom-line requirements. [...]

Stagnation and further macroeconomic divergence will be the most likely outcome. Besides the predictable upsurge of political discontent and populist temptations, financially weaker members will likely be subject to speculative attacks, and therefore be even more dependent on long-term ECB support than before.

read the article

Politico: Merkel changes target in quest for German EU dominance

“It’s certainly plausible that Germany has an interest because it has not held the Commission president post since Walter Hallstein in 1967,” said Elmar Brok, a veteran center-right MEP who also sits on the executive committee of Merkel’s Christian Democrats (CDU). [...]

Merkel’s preference would be to nominate her economy minister, Peter Altmaier, for the post. A longtime Merkel confidante who served as her chief of staff until last year, Altmaier, 60, worked for the Commission early in his career and speaks several European languages. [...]

Merkel’s rethink was spurred by the likely resistance her preferred ECB candidate, Bundesbank President Jens Weidmann, would face elsewhere in the eurozone. A monetary hawk deeply skeptical of some of the moves current ECB President Mario Draghi has taken to combat the euro crisis, Weidmann has earned a reputation as a hard-liner. [...]

Another question is whether Merkel would succeed in convincing the rest of the European People’s Party to support her candidate. Doing so could mean shoving aside Manfred Weber, the German leader of the EPP’s parliamentary group.

read the article

Bloomberg: The Macron-Merkel Euro Plan Is Released. Here's How It Stacks Up

While the two sides agreed to set up a euro-zone budget and beef up the role of the European Stability Mechanism -- the euro-area bailout fund -- they postponed decisions on some elements which could prove consequential. Chief among them: specifics on the size and conditions of the euro-area budget.

“There is a general feeling that there is some momentum, not towards a complete reform package but towards progress,” said Nicolas Veron, a senior fellow at Brussels-based think tank Bruegel. “It’s a political fact that what you have in the German Bundestag and in Italy has created a less favorable environment.” [...]

According to a roadmap endorsed by Macron and German Chancellor Angela Merkel, the budget should promote competitiveness, convergence and stabilization in the euro area, with resources coming from national contributions, Europe and revenue from taxes including a financial transactions tax or a levy on digital companies. The budget aims to help investment in innovation and human capital while other options examined include allowing nations in trouble to suspend their contributions, or establishing a European unemployment stabilization fund. [...]

In the roadmap, France and Germany agree to maintain a decision-making process where national government have a say. This seems to be a win for Germany, even though it should happen “while ensuring an effective, credible and rapid decision-making of the ESM backstop to fit the timing of a resolution case.”

read the article

Jacobin Magazine: The Portuguese Myth

Portugal asked for a bailout in 2011, one year after Greece, and from the beginning, it was treated as “the good student.” “Portugal is not Greece” was repeated over and over again. And it’s true. From the end of 2014 the European Central Bank, through the Bank of Portugal, was allowed to buy Portuguese public debt bonds directly, in a form of quantitative easing. This had two positive outcomes: it lowered the interest rates on the debt, and a part of the interest rates paid by the Portuguese government could thus be paid to the Bank of Portugal, therefore re-injecting money into the Portuguese economy. The European institutions never allowed the Syriza-led government in Greece to resort to such quantitative easing. [...]

The agreement allowed the left-wing parties to vote against some of the government’s measures, since they are not subject to the same discipline as in a real coalition. They insisted that this was not their government and that it wouldn’t solve the country’s fundamental problems, at the same time as they tried to answer the popular hopes of an end to the most damaging austerity measures. [...]

This is no miracle: it is the combination of internal factors (small income growth, a shift of the narrative around austerity and, therefore, in consumption patterns) and most importantly, external political factors. Not only do part of the European institutions support this government, but the country has also benefited from the political crisis in the Middle East, in the sense that it has driven a fall in the price of oil (an important factor for an import-based economy) and pushed tourism away from this region in favor of destinations like Portugal.

If we look closely, we can see other problems with this government. The troika labor laws were left untouched, collective bargaining has almost vanished, and precarity is on the rise. A study by the Observatório das Desigualdades places the real unemployment rate at 17.5 percent — much less than the 28 percent in 2013 but far above the official government numbers (8.5 percent). Almost all the new jobs that have been created are precarious. Public services are crumbling: both health and education are heavily underfunded and on the verge of collapse. The Portuguese banking system is a ticking time bomb, with more banks bailed out with public money but not under public control, leaving it more vulnerable to shifts at the European center than in 2008. The central question of the debt has in fact disappeared from public debate.

read the article

Bloomberg: The Logical Next Step for Europe's Integration

The European Council at the end of June is widely seen as the last opportunity for some time to agree on an agenda of reforms. Afterwards, politicians will start to campaign ahead of the elections for the European Parliament next spring. With euroskeptic forces on the rise across the currency union, mainstream parties will have little appetite for negotiations over institutional reform in the run up to the vote. [...]

The creation of joint deposit insurance has been on the agenda at least since European leaders agreed to transfer responsibility for banking policy from national to EU level in 2012. This project -- referred to as Europe's "banking union" -- is formed of three pillars: the joint supervision of significant banks, a framework to wind down failing lenders and the creation of a European pot of money to guarantee deposits of up to 100,000 euros ($122,000). While the euro zone has taken the first two steps, the third has proven elusive. Germany and other low-debt countries such as the Netherlands fear they could be on the hook for troubles in banks in weaker member states.

These concerns are largely misplaced. Germany and the Netherlands have had their own recent history of severe banking crises. Joint deposit insurance would benefit them as much as Italy or Spain. A common safety net would also reassure all depositors that they will see their money back in case of a crisis; that helps reduce the risk of bank runs in all euro-zone countries. [...]

Leaders are discussing others ways to deepen monetary union ahead of the June summit too. There is talk of providing a backstop to the Single Resolution Fund (SRF), the pot of money used to wind down banks in crisis. At the moment, this is capped at 55 billion euros, an amount which will only be reached gradually. A meaningful backstop would see, for example, the SRF able to take money from the European Stability Mechanism (ESM), the much larger euro zone rescue fund. The EU would then have significant firepower to deal with a large bank in crisis (though, in the case of a very large lender such as Deutsche Bank there would remain concerns over the impact of a failure on the rest of the financial system). Another idea is to turn the ESM into a more flexible institution, which is capable of lending money to countries without them committing to fiscal adjustment and a full set of structural reforms.

read the article

Independent: The EU is ready to reap the profits from our financial services and there's nothing we can do

Phillip Hammond reckons it is in everyone’s “mutual interests” to include financial services in the deal but it most certainly is not. Now the UK is leaving, the EU has no incentive to ensure London’s financial district continues to thrive, which is why Europe has repeatedly rejected any suggestions of London having access to the single market. [...]

The City of London is an integral part of the UK economy. More than one million people work in finance-related jobs and estimates put the sector’s contribution to the UK economy at £124.2bn in gross value. These jobs and this contribution are now in serious jeopardy and a number of major banks are quite openly making plans to move to the continent. JP Morgan has warned of 4,000 UK job cuts, Goldman Sachs has started to move people abroad, taking up space in Paris and Frankfurt, and Swiss investment bank UBS said the bank “will definitely” be moving people out of London. [...]

During the eurozone crisis, having euro clearing taking place in London proved to be a major difficulty for the ECB as it tried to mitigate and control the crisis. There will soon be nothing stopping Europe from enforcing a policy like this and it works massively in their interests to pursue it. Manfred Weber, the head of the European People’s Party, the largest group in the European Parliament and a political ally of German Chancellor Angela Merkel and European Commission President Jean-Claude Juncker, has openly said that it was not conceivable that euro-denominated business could remain in London.

read the article

Jacobin Magazine: The Void Stares Back

Don’t get Blinder wrong. He didn’t want to disenfranchise the population, but, rather, to give their values and long-run welfare more effective expression in government. In his scheme, “value judgments” would still be made by elected representatives, but “technical judgments” were left to the technocrats, allowed to pursue the broad objectives set by the representatives who appointed them. The voters were cast as both Ulysses’ sailors and the sirens: binding government to the mast so it couldn’t respond to them later. In case of regret, they could always choose to undo the shackles, though that process should be neither easy nor quick. [...]

What if, Zakaria asked, racists and fascists prevailed in the free and fair elections of the Balkans? Would you rather live in democratic Haiti or the “liberal semi-democracy” of Antigua? Should we promote the spread of democracy in the Middle East if this created regimes that “would almost certainly be more illiberal than the ones now in place?” In Zakaria’s account, it was the liberal part of liberal democracy that had led to the flourishing of the West, and when the two sides come into conflict, it was the liberal part that should be defended. [...]

It may seem odd to forecast the end of “the age of party democracy” at a time when, by many measures, democracy is more pervasive than ever before. In 1900, almost no country in the world extended universal suffrage. By 2000, almost two-thirds did, covering 58 percent of the world’s population. [...]

In theory, there is nothing stopping sovereign power from altering or repealing the legal framework on which capital depends. Once upon a time, democracy was seen as a genuine threat to capitalism. This fear motivated the composition of all the eighteenth- and nineteenth-century classics Zakaria draws from in his defense of the “basic liberties” against the encroachment of “illiberal democracy.” The prospect of extending the vote to the propertyless terrified the propertied. And not without reason — redistribution and regulation were the point of getting the vote for many who fought for it. [...]

Mair helps us understand the decline of the social-democratic party, and therefore the conditions for its potential rebirth. Parties do not simply reflect a set of preferences that are out there in the electorate — they help shape and articulate those preferences. Parties have to be successful on two fronts: they must build and maintain electoral popularity, and they need effective policy strategies that account for the economic context in which the capitalist state is embedded.

read the article

The New York Review of Books: A Modern Greek Tragedy

If one asks European officials, the consensus is harsh: Varoufakis was a self-aggrandizing time waster who helped ruin the Greek economy before Tsipras got rid of him. The hard-edged intellectuals of Popular Unity agree that Varoufakis was as much a part of the problem as he was a part of the solution. They also agree that it was a mistake for Syriza to have haggled with the eurozone creditors. Their preferred option was for Syriza to have broken with the creditors from the beginning.2 A “rupture,” an exit from the eurozone, in January or February 2015 might have sustained the momentum of Syriza’s election victory. [...]

To understand Varoufakis’s motivations, we have to understand how he defines what was at stake in the battle between Greece and its creditors. For many on the left, the struggle was between the “forces of capital” and democracy. That made a good rallying cry. But it is far from the situation that Syriza actually confronted in 2015. Due to the 2012 debt write-down, when Syriza took power three years later only 15 percent of Greece’s debts were owed to banks, insurance funds, or hedge funds. Eighty-five percent were debts to official agencies and other European governments. The struggle was not with the capital markets but with official creditors and the other national governments assembled in the Eurogroup. [...]

By buying sovereign and private bonds, the ECB propped up their prices, pushed interest rates down, and flushed hundreds of billions in euro liquidity into the financial system. The primary aim was to stimulate the eurozone economy, but quantitative easing also had political ramifications. As long as the ECB kept buying their bonds, Spain, Italy, and Portugal were immune to contagion from the uncertainty surrounding Greece. Quantitative easing thus deprived Syriza of one of its chief bargaining weapons. Ironically, it was the ECB’s action—made in defiance of the conservatives in the Eurogroup—that freed those conservatives to lay siege to the left-wing government in Athens. They could force Greece to the brink of a disorderly Grexit without fear of destabilizing the rest of the eurozone and fight Greece’s political contagion without having to worry about the financial kind.

At the height of the crisis—between 2010 and 2012—there was indeed a spectacular confusion in the eurozone that might have been resolved by means of a grand bargain. But even then, the idea that the solution could have come from Greece was fanciful. In 2012, it took the combined weight of France, Italy, Spain, the European Central Bank, the European Commission, and the Obama administration to convince Germany to accept the ECB’s commitment to do “whatever it takes” to save the eurozone. What emerged in the aftermath of that crisis was neither a muddle—as Varoufakis suggests—nor a conspiracy. Europe’s political economy came to be dominated by the “reform” project first launched by Germany’s main political parties in the early 2000s, which centered on labor market liberalization and fiscal consolidation.

read the article

Social Europe: Why Greece Could Have Returned To Financial Markets Much Earlier

Those developments come into sharp contrast with the pursued objective of a nominal debt haircut in spring 2015 when then finance minister Yanis Varoufakis called for various changes in European monetary architecture through the issue of Eurobonds to resolve the Greek crisis. He sought a New Deal-type of solution via an international debt reduction conference reminiscent of the 1953 German arrangement of its post-war debt and perpetual bonds. All those proposals were rhetorical exercises because they shared the same fatal flaw, that is, they depended on the willingness of international lenders to concede favors without achieving any fiscal discipline on the part of the Greeks. Finally, Varoufakis and his team pushed for an unconventional double system of domestic payments with a shadow currency, contrary to ECB rules, which was massively risky for liquidity and would inevitably result in a Grexit and a return to drachma, while its possible implementation would have strained democracy in the country with unpredictable consequences. [...]

Diverting from this impassioned chapter in recent Greek history, we here highlight instead a policy lesson that was never discussed before: that back in 2015, the option of a return to international financial markets, which is now central to seizing political and economic gains, was wide open. However, blind with maximalist posturing and wasting time with vain plans, the Greek government failed to capitalize on this path because the blame was conveniently put on “others”, that is, on lenders.

In retrospect, the return to financial markets was the sensible approach to follow although it would have involved the adoption of structural adjustments dictated by the lenders. Was there an alternative path to liberate the country early on from lenders’ demands in return for their financial support lines? In my view, there was further room for maneuver through the issuance of structural adjustment-linked bonds based on policies determined by the Greek government alone.

read the article

Quartz: Europe’s central banks are starting to replace dollar reserves with the yuan

For the past 70 years, the US dollar has been the world’s dominant currency. Two-thirds of the world’s $6.9 trillion allocated foreign exchange reserves are held in US dollars. The yuan took a major step towards broader international adoption in 2016 when the IMF decided to include it in the basket of currencies that make up the Special Drawing Right, an alternative reserve asset to the dollar. [...]

The Chinese yuan hit a two-year high against the US dollar this week, after the German Bundesbank said that it would include the yuan in its reserves for the first time. “The notable development from the European point of view over the past few years has been the growing international role of the renminbi in global financial markets,” Andreas Dombret, a member of the central bank’s executive board, reportedly said at a conference in Hong Kong (paywall). The decision was made last year and no investments have been made yet, as preparations are still in process. The French central bank then revealed that it already held some reserves in yuan.

As most central banks’ reserves are held in dollars, any shift into other currencies, such as the yuan, will come at the expense of the greenback. In June, the European Central Bank announced that it had exchanged €500 million ($611 million) worth of US dollar reserves into yuan securities. This was a small shift—the ECB has €44 billion in foreign exchange reserves—but nonetheless it reflects China’s growing prominence in the global financial system.

read the article

Politico: Why Mario Draghi’s success could galvanize critics

According to the ECB’s new economic forecasts, released Thursday, inflation in the eurozone could reach 1.7 percent in 2020 — close to the central bank’s near 2 percent target that it has been trying in vain to reach since 2013. As other institutions such as the International Monetary Fund and the OECD did in recent weeks, the ECB also upped its forecast for GDP growth in the eurozone to 2.3 percent next year and 1.9 percent in 2019.   [...]

But the ECB president, who has now entered the last two years of his mandate, could face in coming months the paradoxical situation of being criticized for pursuing policies that have succeeded — or are about to — to the point that his detractors want to stop them. [...]

But the hawkish wing of the governing council, led by German central bank chief Jens Weidmann, may seize on that as a proof that now is the time to get more aggressive in unwinding the loose-money policies with which Draghi has been associated ever since he took over in 2011. [...]

A major problem is that the ECB is running out of bonds to buy under the limits it set itself to avoid the type of “monetary financing” of governments banned by the eurozone’s founding treaty. To that effect, it cannot buy more than 33 percent of the debt of a given government — and never more than 33 percent of a specific bond issue.

read the article

Politico: Germany’s biggest Brexit boon: Immigrants

Germany is enjoying a growth spurt that has legs: The European Central Bank’s monetary policy remains accommodative and the next German government will have a €30 billion to €60 billion surplus to spend, adding further economic stimulus. But the biggest economy in Europe is also a ticking demographic time bomb: Germany’s median age is now 47, compared with 40 in the U.K. and 38 in the United States. And the number of Germans approaching retirement is growing strongly. [...]

Job openings, of which there are currently a record 780,000, have been difficult to fill in some professions, such as in engineering, software and health care. Unions are adding to the shortage. The metalworkers union IG Metall is demanding work time reductions instead of hefty wage increases. Employers, already struggling to fill jobs, have roundly rejected such demands, which may well lead to the first strike in the sector in 15 years.  [...]

In theory, moving to Germany has become easier for highly educated workers from outside the EU since the country loosened its immigration laws. What are deemed to be “worker shortage jobs,” as defined by Germany’s state employment agency, are also open to migrants from outside the EU who have completed apprenticeship-type training. [...]

Chancellor Angela Merkel’s party has long struggled to accept the reality that Germany is a “country of immigration.” Some 18.5 million people in the country either were born without German citizenship, or have at least one parent who was born without German citizenship. German language, culture and bureaucracy also represent hurdles for many would-be immigrants. Unsurprisingly, Germany attracted just 40,000 “qualified” workers (those with a degree or apprenticeship) from outside the EU in 2016.  

read the article

Social Europe: Jamaica And The Eurozone (26 October 2017)

The source of this disturbance is the Free Democratic Party (FDP) which is prepared to follow a radicalized Schäuble strategy.  The FDP manifesto is clear: in order to avoid permanent wrong incentives, ‘we want to continuously reduce the lending capacity of the ESM (European Stability Mechanism) until it comes to a long—term end‘. Of course, this statement is not meant as a serious economic policy statement that aims to improve the eurozone’s institutional setup. First, , it is an expression of an ideological fixation which plays with a deep-seated narrative in German politics. In this sense such a policy proposal is not unique to the FDP but can be found in many segments of German political opinion: it is the German taxpayer who paid for the fiscal profligacy of the eurozone’s southern periphery, and this must come to an end. And it is the Free Democrats who see it as their task to do just that. [...]

Of course, Schäuble, the politic pro that he is, did not lose any time in securing backing for his tough line by leaking the ‘non-paper’ ‚Paving the Way to a Stability Union’ of his experts in the Finance Ministry which reflects the FDP program 1:1. Chances are that this may soon become official German policy. When it comes to the eurozone, the difference with the proposals of the AfD is extremely slight. And so is the difference to the current policy stance of CDU/CSU, both of which are very much in favor of stamping German interests on the eurozone’s architecture. Programmatically, the Greens have different views on eurozone reforms but for them getting into power may override all else. In the past, the Green Party did not try to differ from the mainstream pack when it came to crisis management in the eurozone. Seen in this light, the FDP is only spelling out what a majority of parliamentarians thinks and what three of the four Jamaica parties favor. [...]

The question, though, is why the block of CDU/CSU/FDP takes such a harsh stance? The best answer is given by Schäuble in his long interview with the Financial Times where he again and again stated that the rules-oriented austerity policy was a huge success. And indeed, this view is deeply entrenched in German public discourse, and even more so in Germany’s economic branch. In the US, the recession lasted about a year and a half – from December 2007 to June 2009.  By way of contrast, the eurozone recession started technically in January 2008, ending April 2009 only to turn into a long recession from Q3 2011 until Q3 2013. The eurozone thereby on average lost substantial amounts of income in comparison to the US, largely because of different fiscal policy stances. Moreover, without the intervention of Draghi and the policy change of the ECB (QE), the outcome would have even been worse. The attempt to declare the crisis strategy of Schäuble & Co a success story has no empirical base whatever German public discourse asserts.

read the article

Social Europe: Macron’s Challenge For Europe

Macron’s speech was a welcome call to arms for a European Union that is confronting many crises and threats. But on the crucial and controversial question of fixing the eurozone, his proposals were disappointing. And he will have a hard time winning over his more cautious European counterparts, not least German Chancellor Angela Merkel, whose room for manoeuvre was crimped by her party’s poor showing in last weekend’s federal election. [...]

The ball is now in Germany’s court. Europe could very well succumb to nationalism if Macron’s plan fails. That would be devastating for Germany, a country whose economic success, political identity, and security are based on a strong, functioning EU.

Macron is the most pro-German French president imaginable, and he has boosted his credibility by pursuing difficult labor-market reforms and unveiling a Teutonically prudent budget. Germany would be committing a monumental strategic blunder if it did not engage seriously with his proposals. [...]

The danger now is that Macron will achieve only a token eurozone budget in exchange for even tighter controls on national budgets, which would prove economically harmful and politically poisonous. He would also miss his chance to enact the reforms that the eurozone actually needs. These include deeper financial-market integration; an easier process for writing down bank and government debts; greater fiscal flexibility; and more balanced economic-adjustment mechanisms.  

read the article

Politico: Hail Schäuble!

Investors are also cheering Schäuble’s exit. (He’ll now preside over Germany’s Bundestag.) They hope that whoever replaces him will be more willing to spend the country’s large surplus, to the benefit of all eurozone members. Yet if anything, Schäuble’s departure introduces substantial risks. [...]

Despite his reputation, Schäuble is staunchly pro-European. The Liberal Free Democrats (FDP) — now most likely to claim the finance ministry given the recent election result — support more pan-European security and defense cooperation. But under its new leader, Christian Lindner, the party has veered sharply to the right on issues related to the eurozone, performing well with parts of the electorate as a result. [...]

Schäuble knew how to manage his troops and keep them in line, even as his government supported three bailouts for Greece and one each for Spain, Ireland and Cyprus. He was also able to keep an even keel when European Central Bank President Mario Draghi turned his institution into a fiscal backstop with his commitment “to do whatever it takes” to keep the eurozone intact in 2012. This went well beyond what most Germans believe the bank’s mandate should be.

read the article

Politico: Tajani wants to turn European Parliament into a global stage

Accepted practice at present is that only heads of state can be invited by the president to speak to MEPs at the full session of Parliament in Strasbourg. But recently, MEPs have begun to bend their own unwritten rules and have allowed religious leaders and prime ministers such as Hungary’s Viktor Orbán to come and speak to MEPs. [...]

Tajani wants to encourage this trend and expand the group of people permitted to speak and debate with MEPs to include EU leaders such as Council President Donald Tusk or European Central Bank President Mario Draghi — in effect turning the Parliament into “the center of the debate” on the future of Europe, according to a document obtained by POLITICO. Crucially, he also wants MEPs to be able to quiz their guest speakers rather than just listening passively.  [...]

According to other documents obtained by POLITICO, Tajani’s conservative European People’s Party and the Greens group proposed in a recent meeting of the Conference of Presidents (the Parliament’s decision-making body) to invite Jerry Brown, the governor of California, to speak and debate with MEPs. [...]

MEPs have come in for criticism for not turning up in sufficient numbers when the Parliament has had high-profile speakers. In July, Commission President Jean-Claude Juncker called the Parliament “ridiculous” because the hemicycle was close to empty during a speech by Malta’s Prime Minister Joseph Muscat.

read the article