A Strong Europe?: What the Grand Coalition has in store

Two months after the German elections the Grand Coalition deal between Merkel's CDU (and their sister party, the CSU) and the SPD has been signed. It's not a done deal until the SPD membership has endorsed the coalition treaty, and there is some resistance to it given their anti-Merkel election campaign and the frequency with which Merkel's coalition partners have the political life sucked from them. Still, the SPD leadership are likely to have their way, and with a membership vote on the deal the coalition will have a firm foundation for the next 4 years.

The headline policies, such as the minimum wage and reduced pension age (SPD) and road tolls for foreigners (CSU) have tended to be driven by the junior partners of the coalition. It's been suggested that the leadership style of Merkel's CDU (focusing on her leadership rather than policy) may have worked well in the campaign, but was a weakness when it came to coalition negotiations. So how is Germany's Europe policy shaping up?

The coalition agreement can be read here (PDF - in German), with the European policy at pp.15, 156-167.


Eurozone and the Single Market

The big one and, despite the hopes that the SPD may have moderated the austerity-centric policy, there is really no change here. In fact the strongly conservative tone is startling - there's plenty of talk about reducing debt and deficits and working on competitiveness, but when you turn to the "social Europe" section the rhetoric is pretty much repeated: austerity is the only way to ensure a social Europe seems to be the message.

On banking union there is little new. Yes, there must be banking union, and, yes, private banking debt must be separated from public debt (with banks taking the hit first). However the deal underlines that releasing funds under the European Stability Mechanism (ESM) or otherwise will remain subject to a vote by the Bundestag and emergency credit lines are a last resort only. The agreement both stresses that there will be no common liability at the European level since budgets are a national competence, and that budgets must be effectively overseen and co-ordinated at the European level. (It appears that the joined-up thinking demanded of Brussels has not similarly been applied here...). The SPD's leanings towards Eurobonds have apparently been stamped out altogether for the purposes of coalition.

On the future of emergency credit and the "reform contracts" that are supposed to accompany them, the German government supports the contract idea, though such deals must be "democratically legitimised". Presumably this means that the national parliament of the bail-outee will have to ratify the contract before being lent money.

Interestingly, the agreement states that there will have to be changes to the treaty basis of the currency union - a bit hint in favour of treaty change.

The new German government will support the completion of the single market, to which you can add the usual talk of both requiring further harmonisation to help create a level playing field and also ensuring the reduction of red tape, etc., etc., that always bolted on statements about the single market these days (and apparently copy-pasted here for emphasis). The stand out policy here is on posted workers, which should be "developed" to ensure that posted workers work under the same pay and conditions as nationals of the host country would.


Social Europe

Not much here at all. Under this heading the austerity rhetoric is repeated, perhaps on the basis that since times are tough austerity will have to stand in to reduce the number of policies, ironically causing a policy deficit in the process. There's not much here that isn't already long-standing policy at the EU level. Youth unemployment is bemoaned (the answer is held out to be structural reform and making free movement of this young educated workforce easier). Social and wage dumping are to be fought, and the new government will be supportive of tax harmonisation, which will have the alarm bells ringing from Dublin to Helsinki.

Money from the European Investment Bank has been promised for several types of projects and policy. Honestly, so many people have promised EIB money for so many things at this point that I'm starting to wonder if the next financial crisis will be when it collapses. It seems that when the EU budget is so small and you're cutting it, the answer is to promise to get the EIB to lend money for it. Just wait til the Europarty manifestos come out....


EU Democracy and foreign Policy

Enlargement, while supported, will face a tougher Germany: criteria must be more strictly applied, and Turkey's accession process won't "automatically" end in membership. Berlin also wants to beef up EU foreign policy through its humanitarian and development aid policies - and even military planning. It foresees a close cooperation between the EU and NATO here, which is probably something that would happen to a certain degree, directly or indirectly, though the neutral Member States may not be so happy with this.

When it comes to EU Democracy, there is nothing new: more education about Europe and supporting a more uniform electoral code seems to be the extent of the coalition's thinking here. There's not even a mention about how the 2014 elections can be used, never mind how they might affect the formation of the next Commission. Berlin will, however, want to see German on a more equal footing with French and English as a working language of the EU - it will be interesting to see how it pushes for this in practice.


Overall, very disappointing, if not entirely unexpected. For those of us on the left, the agreement's European paragraphs appear to contain no "social democratic handwriting". For those hoping for a change to Germany's Eurozone policy there is not only nothing, but a vigorous restatement of that nothing. For those looking for renegotiation there is an encouraging hint here, though the passage on social standards and the attitude towards the posting of workers will - or should - worry some British politicians who perhaps project too much of themselves into Germany's pro-single market outlook.

Bundestagswahl 2013 - Merkel stays in control

The big headline - that Merkel remains in prime position after the German federal elections - isn't a big surprise, for Germany or for Europe. The shape of the next governing coalition and the impact on German and European politics, however, it a more complicated matter. As a parliamentary election, the German media have been calling the election too close to call, despite Merkel's CDU (and sister party CSU) having a 17% gap from its nearest rival, the centre-left SPD. Still, the Christian Democrats are within a few seats of an overall majority by themselves, so they are clearly in the driving seat for the next parliamentary period.

The SPD have improved on their electoral performance since the last elections, but it was nowhere near enough to challenge the CDU, with the Christian Democrats also increasing their share of the vote (and by an even greater amount than the SPD). The Christian Democrats have done extremely well, particularly given the leftwards drift of German politics. Over the last parliamentary term, there has been Fukashima (which tarnished the image of the nuclear industry and caused Merkel to U-Turn on the issue by promising the phasing out of nuclear power), the end of conscription (something the opposition wanted, and which shocked CDU traditionalists), and a sharp increase in the inequality gap in Germany.

But for each of these issues, Merkel has moved into the territory of her centre-left opponents, and essentially prevented them from making political capital out of these issues. The CDU has even gone into the election supporting a minimum wage! When Merkel has come to embody prudent management (despite passing remarkably little of her programme over the last two governments), the opposition has to offer change to get in. And if Merkel steals their policies for change...?

The Left Party and the Greens have lost votes in this election. While the Left Party had been in decline throughout the last few years, the Greens had been riding high, having even taken the senior coalition partner position in the Baden-Wuerttemberg Land government. Controversy over their tax policies has played badly in the media despite their best efforts to explain them, and has been a factor in losing support.

The biggest losers though are the junior coalition partners of the current government: the market liberal FDP. They have not met the 5% hurdle necessary in order to get into the Bundestag. CDU voters have not given their second vote to the FDP to make a right-wing coalition possible. On the other hand, the Eurosceptic party, Alternativ fuer Deutschland, has done quite well, and might just make it into the Bundestag.


Coalitions and Political Courses

All this means that a centre-left government is not going to form. The SPD have not done well enough, and the Greens have lost support, making the opposition coalition-in-waiting without a majority. If they add in the Left Party, they could forma majority, but the Left Party, with its East German Communist roots, is still not trusted on the federal level by the centre-left parties. Peer Steinbrueck, the SPD candidate for Chancellor, has ruled a coalition with the Left Party out, confirming that the CDU will lead the next government.

Therefore the CDU/CSU will probably form a Grand Coalition with the SPD (without the SPD candidate for Chancellor serving in the government, but that's not such a big problem for the SPD). There is the possibility of a CDU/CSU coalition with the Green party, as the Greens have gone into coalition with the CDU in Hamburg before, and the SPD are wary of Grand Coalitions since their experience in the first Merkel government, with Steinbrueck sounding negative about the idea. I still think that a Grand Coalition is the more likely outcome, however.

So what will be the effect on German and European politics? On the Eurozone, the opposition were in favour of Eurobonds and more radical action, so this option may find more favour with the next German government, though strong conditions would no doubt be attached. Within the next coalition, this could cause problems with the Christian Democrats' right wing, and the (relative) success of the Eurosceptic AfD might encourage more backbench rebellions from the CDU/CSU's right. (Notably, the AfD has claimed to be the inheritors of the FDP's political space).

That said, the good performance of the AfD probably won't have the same impact on the German political scene as UKIP have had in Britain. First of all, the AfD have only gained around 5% of the vote, and secondly, the CDU/CSU have increased their share of the vote by more than that - and specifically for the reason of Merkel's leadership, which includes the Eurocrisis. Finally, small parties tend to have a tough time in Germany. Though the Greens have done very well in becoming established, the rise and fall of the Pirate Party, and the more obvious collapse for the FDP, shows for the CDU as a Volkspartei (broad-church type party), that they can wait small parties out.

Continuity will be the watchword in German politics. The coalitions may chance, but Merkel remains in control. she dominates the political scene, and has set the pace of European politics. Freed by this win the speed of EU institutional reform may speed up, but I don't expect much divergence from the Merkel plan.

Merkelpolitik remains.

SPD Manifesto: A different course for Europe?

It's no secret that the European left are depending on a victory in Germany in this year's federal election before there can be some change of course on the Eurocrisis. With French, Italian and German elections within 18 months of each other (though the Italian one was more unexpected), the hope must have been to capture the big 3 Eurozone Member States to change the currency's political direction. It's an uphill battle: Hollande is struggling in the polls, the Italian centre-left failed to win a parliamentary majority, and at the moment Merkel's CDU are ahead of the SPD in the polls.

John Palmer over at Social Europe Journal, has questioned whether the SPD really do have the policy prescriptions that might help the Eurozone. Are the SPD putting forward vague promises or a more substantive platform for Europe? The SPD has published its election manifesto (PDF in German), where you can find the relevant European sections on pages 21-23 and 89-92.

Miteinander fuer mehr Soziale Marktwirtschaft in Europa - Working together for a more social market economy in Europe (pp.21-23):

"Wir wollen kein Europa, das Spielball der Maerkte ist, sondern eines, das im Interesse der Menschen handelt. Nur geeint und im festen Zusammenschluss der Europaeischen Union hat Europa eine Chance im globalen Wettbewerb von Ideen und Werten, von Politik und Wirtschaft. Aus diesem Grund wollen wir die Politische Union Europas weiter vertiefen.

[We don't want a Europe that is a plaything of the markets, but one that works in the interests of people. Only with a united European Union does Europe have a chance to compete globally when it comes to ideas, values, politics and economics. For this reason we want to further deepen the political union - (Own translation)]"

 

The SPD essentially agree on the need for a Banking Union with the ECB as a regulator for the big banks (but with national oversight for the medium and small banks), and are for a Bank Fund, funded by the banks, that will deal with future financial crises. They also want more harmonisation when it comes to taxation (including corporation tax). The commitment to Social Europe is repeated, with support for investment through a European Investment Fund and a further strengthening of the European Investment Bank.

Finally, the manifesto sets out the SPD's support for a European Debt Fund to ensure the capacities of the Eurozone members, in return for a binding debt reduction and reform plan.


Ein anderes und besseres Europa - A different and better Europe (pp.89-92):

This section is mostly rhetoric setting out the SPD's European identity and credentials in comparison to the governing parties. The SPD supports the development of the Commission as the executive of the EU, but with a stronger role for the European Parliament in electing it and holding it to account. The manifesto also highlights the PES primaries for their Commission president candidate. I'm glad to see the SPD explicitly support creating a parliamentary tradition on the European stage ("Auch so wird ein Stueck Parlamentstradition die in den Mitgliedsstaaten selbstverstaendlich ist, auch auf die EU Ebene gebracht" - Thus will a part of the parliamentary tradition of the Member States be brought to the EU stage).

Strikingly, the SPD places a "competence division" at the heart of the reform process - though the manifesto clearly aims towards a more European economic policy, the possibility for the return of powers to the national level is left open. Cameron's renegotiation policy may find more success if the more federalist opposition is elected than if his ideological neighbour is.

The SPD calls for a strong European Social Union, and an European economic government subject to European Parliament control, but these concepts remain vague (no doubt leaving more room for negotiation if the other Eurozone Member States accept the idea).


Conclusion

A victory for the SPD-Green opposition this autumn is not going to be revolutionary: the SPD support a lot of what is already in place or what will be put in place in terms of the Banking Union, Financial Transaction Tax and the bail-outs. But it would signal to the rest of the EU that a second pillar could be negotiated alongside the rigid rules for fiscal rigour.

It's still quite a vague vision, and a limited one. No mention is made of the possibility of a Eurozone budget and a Eurozone Parliament (or part of the European Parliament) when it comes to economic government, so investment funds, bonds and banks are the vehicles for economic investment. This means that essentially additions to the institutional architecture are being envisaged rather than a more flexible (and electorally responsive) vision of a central budget subject to the European Parliament. The manifesto may be more realistic when it comes to winning electoral support, but the worry on the left must be that these new bonds and institutions may not generate enough investment to counter the depressive effect of fiscal rigour in a recession.

A much needed referendum debate

Sigmund Gabriel of the German opposition SPD (PES) has called for Eurobonds as a necessary part of the solution to the Eurozone crisis, and for the referendum required to permit German participation. Although Gabriel is just one of the Troika that heads the SPD (Steinbrueck and Steinmeier are the other two), the - increasingly frequent - judgments from the German Constitutional Court in Karlsruhe have made it clear that further integration may require a referendum. So there has been a bit of a debate lately on when and how a referendum should be held over Europe - notably coming from the Finance Minister.

The German Constitution can be changed by the German Parliament (which is why it could be argued that the independence of the Bundesbank from political interference and pressure is slightly mythical), but Karlsruhe has essentially stated in its Lisbon Treaty Judgment that at some point a referendum would be needed. So despite the outcry from the governing parties that the SPD are being irresponsible in backing Eurobonds:

"Merkel spokesman Georg Streiter said the a German referendum "lies a very long way in the future"..."

Any fiscal union will need explicit consent from the people of the Eurozone, and there has to be an open political debate about the alternatives with competing proposals. The step-by-step approach that has been taken so far (in Europe generally, but in Germany and by Merkel especially) has a corrosive effect on the confidence in national and European political leadership and ability, and in the idea that there is a solution. What we have now is a strategy that breeds cynicism, to the extent that it's hard to know if there is a strategy at all and we have to engage with a new type of Kremlinology centred entirely on the contents of Merkel's head! Without even a debate on the future of fiscal union, it's hard to see any political deal produced at the end of this process being accepted after all the suspicion and bickering that will likely continue for another 2 years, if not longer.

So the debate is necessary for any plan to have a hope of working. Speaking in favour of Eurobonds is not the same as making an open commitment to Eurobonds to be introduced as soon as possible (the SPD are still quite close to the government on conditionality, but with more solidarity); it needs to be part of a deal that covers conditions and democratic oversight. It cannot be a technical fix introduced at breaking point, but the product of an open political process. Utopian to hope for given all the summitry, but necessary if we're to have any hope of creating a workable compromise.

Note: Juergen Habermas' (et al) article in the Frankfurter Allgemeine Zeitung (here in German) has been linked to the SPD's move, and Habermas will be involved in the SPD's manifesto for the next German elections. Other interesting articles on the SPD's website on Eurobonds and meeting their Spanish counterparts here and here.

Choppy waters for the Fiscal Stability Treaty in the Bundestag

BY CC norbert_blech

It's interesting to see the politics of passing the Fiscal Stability Treaty in the German Bundestag over the last few weeks. Angela Merkel's government needs the opposition for the two thirds majority needed to pass the Treaty, and the opposition Social Democrats and Greens are trying to extract concessions on a growth agenda for Europe that echoes some of François Hollande's proposals.

The opposition wants:

- The strengthening of the European Investment Bank.
- Bonds for the indebted countries of the EU (I understand this to mean bonds that cover the debts in excess of the 60% of GDP-limit).
- Better use of the EU structural funds.
- Project bonds.
- A financial transaction tax.

(There is also an issue of how it will affect the Bundesländer, or the states, and local government).

The biggest clash lately has been over the financial transaction tax (FTT). Initially the government said that it would be impossible for an FTT to be brought in before the end of the legislative period, but now the Commission has come out contradicting the German government. The Süddeutsche Zeitung reports that it could be possible to pass a law on FTT by the end of the year, and collect the tax in 2014 (in the next German legislative period). If the FTT is to pass this year, it will be under enhanced cooperation between at least 9 Member States, given that taxation is still subject to the veto and the UK refusal to sign up to an FTT. Die Süddeutsche notes that the finance ministers of Germany, France, Spain, Italy, Greece, Portugal, Finland, Belgium and Austria signed up to the principle of an FTT in February, though obviously there would be a lot of detail to hammer out between them, and there's no guarantee an FTT coalition will look the same when it comes to passing the law.

It's worth noting that the Süddeutsche also reports that the German finance minister, Wolfgang Schäuble, seems to be considering another extra-EU treaty if it would be a faster way of achieving an FTT. What could this mean for the talking point of the month, the Banking Union? If an FTT was seen as a way of financing support of the financial sector without burdening the taxpayer, then it could be dangerous for other Eurozone countries to sit out talks on this FTT if it could be expanded to fit into the Banking Union or be taken as a model for it. Another extra-EU treaty would be a bad direction to go in: the EU provides a procedure for further integration of a group of Member States, and circumventing the EU institutions further poisons the trust in the rules and procedures agreed to by all Member States being respected.

The Fiscal Stability Treaty is part of a piecemeal approach that is rightly open to criticism: it doesn't solve the crisis in itself, and without a comprehensive deal on what a fiscal union will look like, these half-measures will erode confidence in the ability of the Eurozone to get its affairs in order. Hopefully this initiative of the German opposition will help push a more balanced and fairer approach to the Eurozone crisis, but it would be better if the left started cooperating across borders on what it wants to see from a fiscal union.

SPD: EU must be more cohesive

The SPD (the German Social-Democratic Party, the main opposition party at the federal level) has called for more cohesion in Europe, speaking about a quantum leap towards political union (though it doesn't seem to be advocating that just yet):

"The SPD leader has said the euro-zone crisis had proven the need for a dynamic European social democracy with a clear focus on future progress.

The only sensible way out of the crisis, he said, was to impose more EU regulation and to sideline the “congenital defect” of the euro: the lack of a common economic and financial policy.

“We need a quantum leap on the way to political union in Europe,” wrote Mr Gabriel in the Frankfurter Allgemeine daily yesterday.

“The first step is an economic-political co-ordination and co-operation that earns the name. Particularly for us Germans, who feel the tremors in world trade, this development is finally evident. For that reason we have to be the motor of this progress in the EU.”

Europe’s social democratic parties are best-placed to bring about this change, Mr Gabriel said, because they are historically concerned with “sharing fairly the economic fruits of progress”."

The SPD has decided to support Eurobonds (Tagesschau):

"Anders als die Bundesregierung macht sich die SPD für gemeinsame europäische Anleihen - so genannte Euro-Bonds - stark, um die Schuldenkrise in der Euro-Zone einzudämmen. Den Ländern der Euro-Zone könne damit ermöglicht werden, sich bis zur Maastricht-Schuldengrenze zu refinanzieren.

[Own Translation: Unlike the Federal Government, the SPD is for common European bonds - so-called Eurobonds - in order to dampen the Eurozone crisis. The Eurozone countries would then be enabled to refinance to the Maastricht debt limit.]"

Now that the crisis is at Portugal's door, and it looks like there will be another bail out soon, it's increasingly clear that the current mechanism not only doesn't solve any of the underlying problems (after all, the facility is just another lender), but it has failed to sufficiently restore market confidence to prevent the crisis spreading. The PES also back Eurobonds, and there are voices in France's UMP party calling for Sarkozy to drop France's resistance to the idea. With an election coming up in Ireland, it's a question we should be considering more seriously.

The Stability Fund has given the Eurozone some breathing space to decide what to do next. Hopefully these voices will encourage real consideration of where to go from here - otherwise we might find ourselves with an empty piggy bank, and nowhere to go.

Further boost to Barroso as the SPD fold too

The leader of the SPD, Franz Muentefering is reported by EurActiv to have told reporters that:

"Müntefering told reporters that Barroso, backed by his party, the European People's Party, had done a competent job as head of the EU executive and had the support of some centre-left governments in Europe, including his native Portugal, neighbouring Spain and the UK."

And that:

"...there was little point in the European Socialists naming their own alternative candidate in an attempt to halt the incumbent's re-appointment."

This is a massive blow to Rasmussen, who still has some hopes that the PES can prevent a second Barroso term if they do well in the elections, since the SPD would be one of the (if not the) biggest national delegations to the PES group.

It's very disappointing that Muentefering (and apparently the SPD) can't see the "point" in running an alternative; presumably the basic need for a political choice for voters in the make-up of the next Commission is not sufficient for the SPD. And though Muentefering is right that the member state governments are mostly conservative-controlled, it shows a depressing continued attachment to the diplomacy of intergovernmentalism instead of a much-needed shift to more democratic politics.

And how does this play in the SPD's election campaign? They've been running a poster campaign for a while now claiming that financial sharks would vote FDP and those who want wage dumping would vote CDU - but who would the SPD vote for?

Sadly, it will probably be Barroso.

So the question is, what would "more SPD for Europe" actually do?

Hessen Vote.

The FDP (and the Greens) have been strengthened in Hesse following the state elections on Sunday.

This makes a CDU-FDP coalition almost a certainty, and poses big questions for the SPD, who are down 13% since the last state election in Hesse last January. While this was widely predicted, elements of the SPD have reacted by proposing a change of the voting rules in the Bundesrat, which represents the 16 states of Germany, following the FDP's increase in power there. The reasoning behind this seems to be that the federal Grand Coalition will find it harder to pass legislation, which is especially dangerous in a time of recession, when governments may need to act quickly.

There may or may not be valid reasons for a constitutional change, but these suggestions can hardly be taken as anything but a power play by the SPD (and a very poor one at that). It smacks of desperation when a political party, even if just elements of it, start talking of constitutional change straight after an election defeat. The SPD needs to get itself sorted out, and fast. Franz Muentefering thinks it can be done. But I can't see it happening.

*All links are in German.