Merkel accused: are EU rules fixed to favour Germany above all?

Germany’s chancellor Angela Merkel is convinced that she’s doing everything in her power to rescue the floundering European Union from its crisis, without question the most dire of its existence. Soundly pro-European, she believes, as most Germans do, that their affluent, über-­liberal nation is unthinkable without the bloc, which laid the foundations for its post-war economy and for unification, too. But a host of observers, not least United States president Donald Trump, who met with Merkel last week, accuse the EU’s powerhouse economy of turning the EU into a vehicle that perpetuates Germany’s own well-being, increasingly at the risk of the union’s survival.

The pre-Brexit EU of 28 countries, which extends from Finland’s fjords to shores of Cyprus in the Mediterranean, boasts accolades aplenty, having guided the conflict-plagued continent through an unprecedented stretch of peace and prosperity. But en route to a fully unified continent – the goal inscribed in its founding treaty signed 60 years ago today – the EU has sputtered, stalled and lost its way, just as anti-EU populists are celebrating heydays in every member country.

“Brexit was a turning point,” says Gesine Schwan, a leading Social Democrat and former president of the European University Viadrina in Frankfurt. “The EU had been in a bad way for awhile, but with Brexit it was clear that the EU was in a process of disintegration, not any longer one of integration. Something drastic has to be done.”

Giles Merritt, editor of the Brussels-based journal Europe's World and book author, most recently of Slippery Slope: Europe's Troubled Future agrees that it's a mess. "The EU has become a ramshackle monstrosity. It's not in danger of collapsing but rather stagnating to death.

“All eyes look to Germany. Not just because it’s the biggest and most successful EU country, but more importantly because it’s the most politically stable state.”

Germany has become so dominant in the EU that many now call Berlin, not Brussels, the real capital of Europe. Germany’s former partner in EU politics, France, is currently led by a left-centre government hobbled by its deep unpopularity. France’s economy is faltering and the Eurosceptic far right leads opinion polls. For now Berlin appears to be on its own.

The problem, according to critics such as Schwan, is Germany’s self-serving attitude across issues from the eurozone to trade and the environment. “Germany uses the council to further its own short-term interests,” says Schwan, referring to the European Council, the EU’s collective presidency, comprised of the heads of the member states. “Since the banking crisis, Merkel and [finance minister Wolfgang] Schäuble have acted extremely irresponsibly, fighting for power rather than for policies that benefit the entire EU. And then in their own countries, the national leaders simply complain about the EU, as if they have nothing to do with it.” It’s no wonder, says Schwan, the EU scores so low in national polls.

Germany has come under heavy fire for its economic policies within the eurozone, the subset of 19 EU countries joined in a monetary union. Leading economists such as Joseph Stiglitz and Paul Krugman contend that the euro simply cannot work in an economic zone that is not tightly bound together, both economically and politically.

“The eurozone was flawed at birth,” Stiglitz argues. “The structure of the eurozone – the rules, regulations and institutions that govern it – is to blame for the poor performance of the region, including its multiple crises”. Given the economic diversity, there needs to be mechanisms “that can help those nations for which the policies are not well suited”.

Stiglitz and others contend that Germany, which benefits enormously from the euro, has imposed its traditional economic norms – tight, low-inflation monetary policy and conservative, low-debt fiscal policy – on the rest of the eurozone. This includes the countries of southern Europe, which, with very different economies than industrial powerhouse Germany, have suffered and, in the case of Greece, is unable to recover without debt relief, public and private-sector investment, or currency devaluation.

It’s not alone in this but Germany has refused to sacrifice economic sovereignty in order to turn the eurozone into a tightly bound economic entity in which its members, like the federal states in the US, Germany, or Canada, vouch for one another. Richer states come to the aid of poorer states, until they get back on their feet. “But Merkel rules out any further form of debt or risk sharing in the eurozone,” says Giegold, who notes that the establishment of an independent central bank, the ECB, was already a step in this direction, as were the massive bailouts of the southern Europeans. For the eurozone to function it must complete its integration, which means issuing eurobonds or instituting the likes of unemployment insurance, he says.

More conservative German economists argue that it has balanced its own books through restrictive economic policies, and so should others, too. They point out that country’s economy in the 2000s was in poor shape: joblessness soared, as did the national debt. “But Germany undertook reforms that cut taxes for those who could invest and loosened up labour laws,” says Jürgen Matthes, an economist at the Cologne Institute for Economic Research, who credits the pro-market reforms of the 2000s with Germany’s spectacular recovery. “Investment and spending did increase at the same time that Germany streamlined its economy,” he states, countering sceptics who claim countries such as Greece can’t slim down and recover at the same time. “Germany’s debt came down, too.”

Matthes believes that the German prescription is now bearing fruit in Spain and Portugal, where budgets were reined in, bad banks eliminated, and labour market reforms introduced. Their economies have turned the corner, he says. “Spain’s recovery shows that the German way is right,” he argues. Greece’s problem, he says, is that the left-wing Syriza government refuses to make the reforms demanded of it.

Another bone of contention is that Germany has chalked up record-busting trade surpluses in recent years, the 2016 surplus of €253 billion (Dh999bn) exceeded that of 2015, also a banner year, by €8bn. The turnover has resulted in much higher than expected tax revenues, too, to the tune of a €20bn surplus in 2016.

But here’s the rub: German exports benefit from a euro lower than a country like Germany would normally peg its national currency to (but which fits better the poorer eurozone countries) and also from extremely cheap debt-­financing, a consequence of the ECB’s purchases of sovereign bonds. To many, it looks like Germany has the rules fixed in its favour.

Critics believe Germany should spend those surpluses in a way that would benefit deficit countries, for example in mass infrastructure projects, the over spill – in foreign tourism, import purchases, wages for foreign workers – would spur the economies of eurozone nations still languishing from the debt crisis. France, the EU’s next largest economy, recorded its biggest deficit ever in 2016: €48.1bn. Economists, multilateral organisations and the Trump administration claim that Germany’s export-led growth creates imbalances that put the global economy at risk. There are counter arguments to all of these claims.

“It would be helpful if the Germans were less rigid,” says Merritt, “but you can’t blame them for a 60-year old institution that simply wasn’t made for globalisation and other conditions of the 21st century.”

It would be ideal for all the members states to sit down together and rethink the union, asking “what is Europe?” This is unlikely to happen with so much dissension among the 28. It’s more likely that the EU will slog along in its present form, incrementally fading until what’s left is just a tattered semblance of the dream behind the Treaty of Rome.

Paul Hockenos is the author of Berlin Calling: A Story of Anarchy, Music, the Wall, and the Birth of the New Berlin (The New Press).