Eurozone and the German elections

This box accompanied my Fund Strategy cover story on the current state of the eurozone.

There is a sharp divide among experts on whether there will be a dramatic leap towards eurozone integration following the German elections on 22 September. Many argue that German politicians have postponed decisive action till after the polls while others contend any elected government will carry on muddling through.

Ulrich Beck, one of Germany’s leading public intellectuals, spoke for many when he argued that: “Even if there is no discussion on the moment of decision, the most likely outcome of the elections is going to be in favour of the next step towards a political EU. This is because most likely [Chancellor Angela] Merkel will return to the chancellery for a third term. Under her, I expect that there will be a silent turn to a politics of more Europe” (Guardian, 2 September 2013 ).

In contrast, others argue equally forcefully that there is no reason to expect any dramatic turn just because the elections are over. Charles Dumas of Lombard Street Research talks wryly of the: “smoothly diplomatic types who blithely assume that Mrs Merkel will give them the money [they want] once she does not have to explain it to the electorate.”

It is certainly true that all of Germany’s main political parties are in favour of the eurozone and the EU in principle. If anything the main opposition party, the Social Democrats (SPD), is more pro-EU than the ruling Christian Democrats (CDU). So any government involving either party, or a grand coalition including both of them, would also be pro-EU.

Germany’s 5% election threshold, under which parties must get at least 5% of the total votes get any seats, complicates matters. The Free Democrats (FDP), currently the junior partner of the CDU in government, could conceivably fall just above or just above the threshold. At the same time a new anti-euro party, the Alternative für Deutschland (AfD), is hovering slightly below 5% in the polls. So the difference between either party having or not having representation in parliament could amount to relatively few votes. This in turn could affect the electoral arithmetic of forming any new ruling coalition.

However, looking at the question simply in terms of the policies of the main political parties misses the bigger question. It is striking how little debate there has been about eurozone reform over the last few months of the German election campaign.

German political parties seem to have colluded to keep it out of the headlines. As Neil Dwane at AGI, observes: “The Germans have quite successfully managed to keep Europe off the agenda for their election”.

The point was made even more strongly in a commentary in Der Spiegel by the publication’s Washington correspondent. He accused the chancellor of “behaving in a particularly egotistical way”. He went on to argue that: “Out of fear of voters, she has placed numerous European issues on the back burner. The German election campaign has paralyzed the Continent in a way never before seen in EU history.” (Spiegel, September 10, 2013). His examples included decisions on Europe-wide joint debt liability and a youth unemployment programme.

Indeed other eurozone leaders seem to have been happy to cooperate with German politicians to suppress discussion of eurozone integration. As Oliver Marc Hartwich, an expert on the German economy and director of the New Zealand Initiative, a think tank, has written: “Nobody dares to interfere with Merkel’s campaign for re-election, not even other European leaders” (Business Spectator (Melbourne) 18 July 2013). They are apparently anxious not to upset any potential future paymaster in Berlin.

Inside Germany it is remarkable how little discussion there was of the eurozone in the hustings. Peer Steinbrück, the SPD candidate for chancellor, did raise the question in his one television debate with Merkel but that was the exception rather than the rule.

An opinion poll conducted in late August by YouGov Deutschland for Open Europe, a think tank, showed ambivalent attitudes among the German public. This might help explain why German politicians were reluctant to get drawn on the subject. On the one hand, 60% of voters opposed reverting to the Deutschmark while 32% supported it. On the other hand, 55% said they would support membership of the eurozone being restricted to a smaller number of countries. There was also a clear majority opposing any forms of increased assistance by Germany to other eurozone states.

But it is unlikely to be the public that is the main brake on any future drive towards further integration. The Bundesbank, although formally under the shadow of the ECB, still has considerable influence. Germany’s basic law (Grundgesetz) also gives its constitutional court considerable leeway to declare legal measures unconstitutional.

Ultimately it is unlikely that any particular institutions will be decisive in any move towards further integration. The impetus towards a more unified eurozone tends to emerge in response to unexpected crises.