Tag Archives: Germany

Death of a Chancellor and the struggle to maintain the European dream

 

JR Max Wheel

6th July 2017

 

On the 16th June 2017 Germany mourned the death of Helmut Kohl, the Chancellor who oversaw the reunification of Germany; perhaps he was not the greatest German post-war Chancellor, but one who will be fondly remembered for his down to earth qualities, domestic political acumen and the extraordinary responsibility of integrating the two Germanies of West and East into one cohesive country. His place in history will nevertheless be secure. Significantly he chose to be buried in the cathedral of Speyer in the heart of the Palatinate (Rheinland-Pfalz), by the Rhine and not in his native City of Ludwigshafen, further upstream.  The reunification, presaged by the implosion of the Soviet Union and the collapse of its vassal states in central and eastern Europe marked the true end of WWII and 1989 should rightly be seen in the same light as 1789.

Speyer Cathedral: Courtesy Wikipedia

After Germany’s disastrous history in the 20thC, the creation of the largest and most powerful economy in the EU was not greeted with universal enthusiasm by the former Allied Powers, in particular, France, the UK, Netherlands and Poland as well as in Israel. Indeed, the notion of unity – or “Einheit” was a near toxic word with its quasi Third Reich overtones, such that “die Wende” or change, transition was preferred.

Whilst the unification preceded the Maastricht Treaty of 1992, with its ambitious political and monetary aims, it placed France and Germany, effectively Kohl and Mitterand as the key representatives of the proto European Union. In the following years the costs of reunification meant Germany exceeded the threshold levels for debt enshrined in the Growth and Stability Pact: the first of many to violate them over the next 25 years.

Fast forward to 2017, and after years of feeble economic performance from France, it was now crystal clear that the leadership of Europe was de facto in German hands. It was not meant to be so, since it was rashly assumed, at least by France, that the EU would be a “German horse with a French rider”, reflecting France’s long-honed diplomatic skill and expertise and as the designer of many of the EEC institutions, which subsequently morphed into the EU.  This Franco-German axis has always been the core with other member states being important but peripheral, especially the UK, with its radically different history, political systems and law.

Why is this important? Mainly because the EU is now notably unbalanced in terms of relative economic strength and influence. It’s eastward and south eastward expansion to include Poland, Czech and Slovak Republics and the Baltic states to the Balkans and admission of Greece, Romania and Bulgaria has tilted it towards members whose history, culture and identities vary notably from the largely contiguous borders of the founding six. Those member interests are not necessarily those of the core, this is especially true of the Central European [Visegrad] Four, as well as the UK.

One is loath to add to the entire and poisonous Brexit debate whereby the UK voted to leave in a hotly disputed referendum, but it has to be understood that the desire if not the reality of a shared federal future, long a cherished dream of its founders, Monet and Schuman was never shared by the UK. Here lies an important ironical twist, the quasi Constitution, opposed by France, Ireland and the Netherlands and then hastily cobbled together as the Lisbon Treaty 2007 was never offered to the UK in a referendum. This was a major missed opportunity, since a putative EU constitution should have always been offered up to all member states’ electorates, but was cynically avoided in the UK or meekly accepted elsewhere.

Thus, no proper debate was ever held in the UK until its own in/out referendum. The British, ever the unplanned pragmatists thus did not get to engage on this fundamental aim which was always the core of the European Project. It is remarkable, but inexcusable that the powerful British media never elevated European matters and aspirations as either important enough to warrant serious discussion or to inform its electorate appropriately. Its outcome and consequences were both dramatic and less surprising in retrospect.

The UK is the first member to voluntarily withdraw from its membership. There has always been a long streak of Euroscepticism in Britain, but the fallout demands more than its tortuous disengagement under the one-sided and deeply flawed Article 50 procedures, it argues for a radical shift in British politics away from the adversarial first past the post system to a more consensual PR system and an overhaul of the Commons (viz. a massive reduction in numbers) and Lords ( abolition and substitution by a Senate comprised of all devolved administrations and England) which would reflect the wishes of all the constituent countries of the UK.  It is astonishing that the UK played a leading role in constructing a successful federal constitution for the then West Germany, but failed to recognize any need for change in its backyard.

The outcome for the UK is highly uncertain, as it is for much of the EU, but a collective failure of imagination and will may result in a sub-optimal solution for both, weakening both parties at a time when the old order and institutions that have prevailed since the end of WWII are reaching the end of their life span and usefulness.

 

 

Death of a Chancellor and the struggle to maintain the European dream

Big Deal for Greece, Bad Deal for Europe?

JR Max Wheel & Graham Reid

12 Feb 2015

 

The EZ’s stand-off with Greece is so far going entirely according to plan. They have told the Greeks that they must abide by their arbitrary rules, drawn up under the terms of the bailout, the self-same ones the Greeks specifically rejected at the election. The EZ’s finance committee chaired by Jeroen Dijsselbloem has managed so far only to repeat the usual mantra of sticking to the agreements, which unsurprisingly has left the negotiations in limbo. He is just doing his job of course, however in a crisis this is insufficient. This is NOT about some technocratic fix to assuage a recalcitrant Greek Government; it is (another) existential crisis for the single currency, at worst one which it will not survive.

 

Irrespective of the past misdemeanours, not merely those of Greece but other over-borrowed EZ periphery members, what the Greek election has done is to fire a torpedo at the heart of the whole EU project. Ultimately, who rules? Is it democratically elected Governments of Nation States or unelected Euro apparatchiks and their backers from other member Nations? It is always very revealing to step back, go to the Lisbon Treaty (2004), in effect a draft EU constitution, but one to which not even the most committed Europhiles could bring themselves to agree. That is why of course it is a “treaty”, a typical sleight of hand manoeuvre to impose the constitutional conditions over and above those of the member states. This fundamentally anti-democratic jiggery-pokery was actually intended to make the EU more democratic! God spare us from people whose idea sets created qualified majority voting and double majorities, based on population size. Unsurprisingly it was roundly rejected by EU founder members France, the Netherlands and by Ireland. As it required unanimity to be a credible constitution the then 25 members had subjected it to their various domestic political processes, either via national parliaments or in the case of Spain and Luxembourg by referendum. Following 3 years of hiatus, the constitution was recreated as a treaty, to which member states –often with some considerable reluctance were required to sign up. Why is this important? Firstly, because it is a jumble of amendments to prior treaties of Maastricht, Nice and even the founding treaty of Rome, it is highly doubtful whether any of the directly affected Euro citizenry could remotely fathom the complexities and trade-offs inherent, but it establishes a power structure in the EU institutions, especially the Parliament and Commission which can trump decisions of the member nations’ own demos. This is why the sudden re-emergence of the Greek challenge is so important. It is less about economics alone, although any sane person would have realized that imposed austerity on a country in desperate straits like Greece (and others) is a shameful reflection on the priorities of this Club.

 

What remarkably this odd Greek coalition of left and right has done is to scythe through the suffocating tide of Euro speak and refuse to cooperate on the basis imposed, but rather to offer a radical national solution which the Greek electorate clearly feel to be more important, than externally imposed austerity .

It is the principle that matters here not the past economic dodgy dealing.

 

The laughably named Growth and Stability Pact has been broken so many times by member states, we used to nickname it the Stagnation and Instability Pact, now unwittingly the daily reality of most of the Eurozone economies.

 

At the heart of the dilemma is of course the single currency and its catastrophically deficient fiscal arrangements. The gamble was of course to create EMU (monetary union) and thus force political union as a consequence ( for fear that the currency would not be capable of stability without fiscal transfers, and tax harmonization). We know this because it was constantly preached for years by inter alia, Jacques Delors.

 

Lest this should all sound merely like British Schadenfreude, the Brits learned a very costly lesson from the fore-runner of EMU the exchange rate mechanism –ERM. Britain had entered into this arrangement partly to avoid Franco-German pressures for adoption of monetary union and partly for the largely mistaken view that shadowing the old DEM was going to create a low inflation Britain. Britain was ejected from the ERM after a prolonged period of currency instability in September 1992. Being stuck with an excessively high exchange rate and forced into a currency straitjacket by ERM, itself dominated by the Bundesbank, virtually nullified any chance of Britain wishing to enter the nascent Euro. The launch of the Euro in 1999 locked in the member countries at the then prevailing exchange rates; any student of the gold standard would immediately focus on the fact that the differing economic make-up of member countries’ economies and their interest rate and FX needs over time would diverge. If no transfer mechanism existed, then the internal imbalances could or most likely would increase. To call this in economists jargon a “non-optimal currency area” is to admit the bleedin’ obvious, adjustments will be needed, what was not said, although it could easily be picked up from any economic history book, was that the only adjustment mechanism available was in real terms, reductions in national spending, wages, falling output and misery, the exact recipe that ensured the collapse of the gold standard.

 

What we have today is a dominant German economy with a huge advantage of an undervalued FX rate and a massive and growing trade surplus equivalent to 7.5% of GDP. So important is the currency project and so much political capital has been invested in this project that trying to reverse its shortcomings demands as Alan Greenspan has argued that there is either full political union in Europe, not merely fiscal union or the currency cannot work. Greece will have to go as may many other member states.

 

That this currency construct could be let loose on Europe by a mixture of over mighty and idealistic bureaucrats was grossly dishonest: it has never been made clear to the electorates just what a gamble they were taking, or what grotesque suffering would result from its inflexibility.