By Christopher Caldwell
‘Europe is
speaking German now,’ said Volker Kauder, parliamentary chairman of German
Chancellor Angela Merkel’s Christian Democrat party, about a year ago. He was
urging Britain to back Merkel’s plans for saving Europe’s rickety banks and
state budgets. Last week, the Chancellor herself arrived in London to dine with
David Cameron and deliver the message in person.
Cameron is in a
tricky spot. The summit to determine the EU budget for the next seven years
will be held on 22 November. A coalition of opportunistic Labour MPs and dug-in
Tory rebels has just passed a non-binding amendment in parliament urging that
the government accept nothing less than a cut in real EU spending. Cameron has
tried to win himself a bit of wiggle room. ‘If there isn’t a deal that’s good
for Britain,’ he has said, ‘there won’t be a deal.’ But Merkel wants to pin him
down. ‘One can be happy on an island,’ she said at the European parliament in
Brussels before she arrived in London, ‘but in this world they can’t be happy
on their own any more.’
For Tories, a
productive relationship with Europe’s leaders has always seemed to depend on
breaking parliament’s attachment to its ancient sovereignty. If you are being
told to throw away the most precious treasure you have, you are either reading
the gospels or being played for a fool. Merkel, as it happens, is in a similar
fix. She faces her own rebellion in the Bundestag, Germany’s lower house, where
Eurosceptic Christian Democrat renegades, two dozen and growing, have deprived
her of partisan majorities on votes involving the euro bailout. Few of them
object to Europe in principle. It’s just that there have been too many bailout
votes, and Germany’s liabilities now stretch into the hundreds of billions. The
German high court insists that funds can be appropriated to bail out foreigners
only by a vote of the Bundestag. A September poll on the euro in the newspaper Die Welt found two thirds of Germans wish they’d
never joined.
Merkel is thus
caught in a tug-of-war between German voters and various Eurocrats, bureaucrats
and kleptocrats abroad. The voters, just like their British counterparts, want
to make sure she doesn’t send any more of their money abroad than is strictly
necessary. Their idea of how much is strictly necessary is zero. European
officials, on the other hand, are intent on reminding Germany of its debt to
history, which they would prefer to collect in cash. Merkel faces an election
next September or October against the Socialist Peer Steinbrück, who was her
finance minister when Socialists and Christian Democrats governed in a grand
coalition. Steinbrück is a protégé of Helmut Schmidt, and is similarly at ease
talking and thinking about economic concepts. That Steinbrück agrees with
Merkel on most euro matters is both his strength and his weakness. A recent
Emnid poll showed Merkel would thrash him, 51-26 (61-18 in the former East
Germany), if elections were held today, even though the public trusts
Steinbrück more on the economy.
The big difference
between Merkel and Cameron is that, for now, Merkel has more to fear from
Brussels politicians calling her a bad neighbour, or Greeks marching through
Athens wearing pickelhauben and Hitler
moustaches, than she does from an uprising among voters. She is mixing
voter-pleasing rhetoric about fiscal responsibility with indulgence to those
who fail to practise it. The Socialists are trying, earnestly and in vain, to
convey this point to the electorate. ‘Germany is going to incur more debt in
the Greece affair,’ said a frustrated Steinbrück at a special Bundestag session
on the euro crisis in mid-October, ‘why don’t you just come out and say it?’
Party chairman Frank–Walter Steinmeier complained in the same debate, ‘You
haven’t drawn a single red line that you haven’t crossed within six months.’
Merkel is not too
far from Cameron in this respect. Britain and Germany do not have radically
different ideas of the European economy, in the way Britain and France did when
Jacques Delors was shaping it. ‘We know from our own experience,’ Merkel said
in October, ‘that only by reforming the labour market can we get growth again.’
When the wheelchair-bound finance minister Wolfgang Schäuble came to meetings
with George Osborne in London in late 2011, one aide was struck by the
similarities in the two ministers’ economic philosophies. Both were ‘students
of Rogoff’ — more specifically, of the lessons laid out in Carmen Reinhart and
Kenneth Rogoff’s history of financial crises, This Time is Different.
And both were interested in ‘Ricardian equivalence’, the idea that economic
stimulus never works as well as envisioned because investors and consumers,
knowing the government must borrow to stimulate, cut their own spending to
prepare for higher taxes down the line.
What divides
Merkel’s crowd from Cameron’s is not their economic worldview but their
experience of history. Schäuble was the heir apparent to Helmut Kohl until he
barely survived an assassination attempt in 1990. Like Kohl he is a
conservative who feels that, in the wake of Germany’s Nazi past,
neighbourliness is the highest form of German patriotism. Good for Schäuble.
The Germans have stirring, generous, romantic ideas of what the euro
represents. These ideas, though, are occasionally wrong. Last winter I asked a
senior Bundestag member, a euro supporter, what Germany was getting out of the
single currency. ‘No Wall,’ he said. ‘Sixty years of freedom and peace.’ It was
hardly worth reminding him that the Berlin Wall not only came down before the
euro, it came down before the Maastricht treaty that envisioned the euro.
Merkel, although trained as a physicist and possessed of a steel-trap mind,
speaks of the euro in similarly treacly ways. ‘At its heart, the crisis of the
euro is a crisis of trust,’ she said recently. But she thinks ‘trust’ is
something vaporous and subjective, like a whimsy. Investors see it as something
-physical and verifiable, like the density of a gas.
Europeans have
never really been able, even after long explanation, to understand that the
essence of British Euroscepticism is constitutional, not economic. One of the
crazier aspects of the run-up to this European summit is the articles in
various continental publications suggesting carrots in exchange for which
parliament might allow an increase in the EU budget. A salary freeze for
Brussels officials, perhaps? New EU-funded programmes in the UK? This approach
works where the argument is over costs. But in Britain the argument is over
sovereignty. A bigger budget will allow the EU to provide what Walter Bagehot
called the dignified part of government. A smaller budget simply means charging
Britons a bit less to take their sovereignty away.
Germany, however,
lacks sovereignty to begin with. For historical reasons, it has developed the
habit of not governing itself, and its neighbours are shocked when it even
makes the pretence of doing so. (When Gerhard Schröder, for instance, said
during the Iraq war that Germany’s foreign policy would be made ‘in Berlin, and
only in Berlin’.) Germany cannot act forcefully on the international stage.
What it can do is guard vigilantly against people picking its pocket, something
of which the French have given them ample experience over the decades. That is
why the country is sceptical about eurobonds, debt instruments that would make all
Europeans in principle — and Germans in practice — responsible for debt run up
in any European country. As a matter of constitutional theory, Germany’s
opposition is warranted. Since Germans did not incur Greek or Spanish or
Italian debt, they cannot pay it. That would be taxation without
representation. These are the sort of airtight points that Merkel tends to make
at European summits shortly before she makes concessions.
Merkel was quoted
in one recent newspaper profile as saying that eurobonds ‘would turn mediocrity
into Europe’s yardstick’. She constantly suspects economists and other
interlocutors of trying to trick her out of her debt-cutting virtue. The key to
her majority is that her party abhors all ‘mutualisation’ of debt in principle
but consents to it in practice. Her opposition has never been able to get this
point across. Green leader Jürgen Trittin has recently accused her of approving
eurobonds ‘through the back door’.
In June, Merkel
agreed to use the European Union’s rescue fund, the European Stability
Mechanism (ESM), to recapitalise banks. This autumn, though, she and the
leaders of other triple-A-rated countries tried to renege on the agreement.
Yes, they would bail out troubled banks, but not banks that have already been
bailed out. That dampened Irish hopes of getting out from under a mountain of
debt. Evidence of the rapport the Irish business press has developed with Mrs
Merkel includes this editorial in Dublin’s Sunday Business Post:
‘The politics for our government of putting money into our banks is bad enough
— imagine how it plays in Westphalia or Munich.’ A cold-eyed and true
assessment.
Germany wants to
provide other governments with solidarity, not welfare, even if, to Anglo-Saxon
ears, the former is just a euphemism for the latter. The upshot of the euro
crisis will be some kind of fiscal union, but what fiscal union means is not
clear. Germany believes it means sending tax inspectors to Thessaloniki.
Brussels believes it means sending cheques to Thessaloniki. In the October parliamentary
debate on the euro, Merkel said: ‘We are of the opinion — and I speak for the
whole of the German government on this — that we could go a step further by
giving Europe real rights of intervention in national budgets.’ That is why
Anglo-German relations are in for a rough patch. Some EU countries will be able
to swallow this. Britain will not be one of them. It is the newest tragedy of
German history that the rules of 21st-century sovereignty are being set largely
by a country that has little sovereignty to lose.
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