January 15, 2018
Is the section on Europe for real?
There seems to be a consensus in Germany that the SPD did not gain much in the pre-coalition talks. But this is not true in our view. The first and by far most radical section of the agreed document contains a blueprint for reform of the EU and the eurozone. It contains much of what we ourselves have been demanding over the years - such as a fiscal union anchored at the level of the EU. Before we discuss whether any of this is for real, it is worth summarising the main points to get an idea of the enormity of the policy shift:
- enlarged EU budget, enlarged German contribution;
- eurozone budget, within the EU's budget, with special focus on macro stabilisation, support for structural reforms, and repair of social imbalances;
- turning the ESM into an EMF (without further details), and anchoring the lot in the EU (not intergovernmental);
- strengthening the European Parliament, including in respect of eurozone governance (this is a point on which Germany and France disagree, but this is not insurmountable);
- total agreement with Macron on tax avoidance and tax evasion;
- support for a common corporate tax base and a minimum corporate tax rate;
- a new attempt to legislate for a financial transaction tax.
This section clearly has the handwriting of Martin Schulz all over it. There was almost complete silence about this aspect of the agreement. The eurosceptics in the CDU and CSU did not say a word. Nor did the euro enthusiasts in any of the three parties. The debate was about taxes, pensions, health insurance, and the solidarity surcharge - a remnant from the days of unification. We assume that Merkel agreed to this on the grounds that none of it will ever happen. Instead of vetoing it at the coalition talks, she can rely on the Dutch, or the Hungarians, to veto this when it comes to treaty change negotiations. But it is possible to accomplish much of this under the treaty's chapter on enhanced co-operation, which was written specifically for this purpose.
Also noteworthy are some of the omissions. There are no specifics on the EMF. Can it intervene in member states economic policies? Can it trigger a debt restructuring? There is no mention of European deposit insurance in the document. Both major German parties have a problem with this. Even the SPD insists on the principle that banking systems have to be cleaned up before deposit insurance is possible.
Also consider the limits imposed on the entire process by Germany's constitutional court. A fiscal union of the kind described in the document is no problem. But the Bundestag cannot agree to interstate fiscal transfers, nor to any form of uncapped liabilities that bind future parliaments. None of these legal constraints will change as a result of this agreement, if indeed it is implemented.
We are left, therefore, with a stark choice in German politics. On the one hand the SPD party congress, or later the party members in a referendum, could reject the agreement. The result of this would be new elections; probably a new, more conservative, CDU/CSU leader; and a coalition between CDU/CSU, FDP, and the Green Party. This coalition would be a shift to euroscepticism.
On the other hand, the SPD could support this agreement, and Schulz manage to implement the sections on the EU. This would constitute the biggest integrationist move since the Maastricht Treaty. So, we have finally reached the stage of bifurcation in German politics. The era of managed procrastination, a hallmark of Merkel's reign, is ending.