Europe’s paymaster is on a budget

Institut für Europäische Politik

Julian Plottka
 
While the Eurozone is facing the most severe crisis since the founding of the Economic and Monetary Union (EMU), the economic situation in Germany seems to be recovering faster than expected. The newest estimations of the expected Gross Domestic Product (GDP) growth vary between 1.9 percent and 2.3 percent for 2010.[1] Experts expect the number of employees on short time work to decrease until the end of 2010 and the total unemployment to drop to the lowest level since 1991. Anyway, due to the costs of the economic stimulus programmes and decreased tax revenues, the German parliament, the Deutsche Bundestag, agreed to finance 80.2 billion Euros of the 2010 federal budget by revenue obtained by the borrowing of funds. This is the largest revenue obtained by the borrowing of funds in the history of the Federal Republic of Germany.[2] To fight the steadily increasing national debt, “limits of borrowing” were introduced into article 115 of the German basic law. According to this article, the “revenue obtained by the borrowing of funds [may] not exceed 0.35 percent in relation to the nominal gross domestic product.” To comply with article 115 of the basic law, which enters into force on 1 January 2011, the federal government agreed on an austerity programme for the next four years. Opposition parties and labour unions criticised the austerity programme as being too burdensome for people with low and middle incomes, while wealthier people hardly contributed.[3] The German debate on European economic policy and the Euro crisis has to be judged against this background.
 
Government coalition did not stand up against populist debate
 
In Germany the published opinion on the Greek financial package had a quite populist undertone. Walter Wüllenweber wrote in the magazine Der Stern a letter of complaint to Greece. He blamed the Greek people for spending German money. Furthermore, he underlined that the only reason to rescue Greece is that in a Greek bankruptcy German banks would loose 30 billion Euros.[4] Even some politicians from the governing Christian Democrats (CDU) voiced populist ideas: the Member of Parliament (MP) Josef Schlarmann proposed that Greece could sell its islands to pay its debts.[5] Causing tensions between the German and Greek government, these blindfold ideas were not the core problem. Neither the opposition parties nor the government clearly argued against this populism. Renate Künast, leader of the Green faction in German parliament, asks, where was Ms Merkel? Why did she not say: “Not this way!”[6] One interpretation was that the government coalition was afraid to lose the regional elections in North Rhine-Westphalia.[7]
 
But the votes in the German parliament, the Deutscher Bundestag, on the so called Währungsunion-Finanzstabilitätsgesetz[8] make obvious that none of the two large parties (CDU and Social Democrats – SPD) took a clear stance on the financial help for Greece: 391 MPs voted for the law, 72 MPs were against the law, while 139 abstained from the vote. From the government coalition of the CDU, the Christian Social Union (CSU) and the Free Democratic Party (FDP), which had initiated the law, five MPs voted against the law. From the opposition SPD four MPs voted for the law while the others abstained from the vote. The SPD faction decided to abstain, because the coalition government was not willing to vote for a resolution calling for the introduction of a financial transaction tax.[9] From the other two opposition parties, the Greens (Bündnis 90/Die Grünen) voted for the financial package,[10] while the left-wing party Die Linke voted against it.[11] Four SPD MPs criticised their party indirectly: e.g., Eva Högel reasoned that she had to vote for the package agreed on, because there is no alternative to this solution and that it is necessary to send a signal of solidarity to Greece.[12]
 
Another type of criticism is the constitutional challenge to the European stabilisation mechanism currently hanging on at the federal constitutional court in Karlsruhe.[13] Most prominently Peter Gauweiler, CSU MP, who already filed a suit against the ratification of the Lisbon Treaty in Germany, challenges the mechanism as not being in line with the European primary law.[14] The federal constitutional court has not finally decided on the case, but refused to issue a temporary injection on the German parliament’s agreement to the mechanism.[15] What will be interesting during the proceedings is the question, whether the German federal constitutional court will follow its path, started by its decision on the ratification of the Lisbon Treaty, to empower itself to decide on European law or not. Already in May 2010 the German federal constitutional court refused to issue a temporary injection on the first financial help granted to Greece. A group of professors, who had appealed to the German federal constitutional court in 1998 to stop the introduction of the common currency in 1999,[16] argued the financial package conflicts with the principal of the welfare state (article 20 basic law) and transforms the European Union into a federal state.[17]
 
Too late to help?
 
The evaluation of the decision making process is made on two levels. On a more general and theoretical level the trade off between output and input legitimacy is discussed. On a more concrete level the direct implications for the Eurozone are evaluated. On the theoretical level it is argued that the bargaining in Brussels and the parliamentary decisions later on take too much time to react to international financial markets.
 
Faster decisions are needed to give clear signals to the markets.[18] On the other hand, the time pressure on the German parliament was criticised: were the MPs able to deliberate and decide on the package for Greece and the European stabilisation mechanism or did they just do what the government told them?[19] Furthermore a debate on the unbalanced representation of consumers’ interests and the interests of actors on the financial market started.[20] Some Members of the European Parliament (MEP), among them the German Green MEP Sven Giegold, started a “call for a finance watch”. They try to create a consumers’ rights organisation with expertise in the field of financial market regulation to counter balance the influence of the financial market actors on the decision-making processes.[21]
 
During the first half of 2010, the leadership of Chancellor Angela Merkel was criticised in general: during quarrels between the three parties of the government coalition, the debate on the austerity programme, and a nearly failed presidential election, many commentators missed Merkel’s leadership.[22] That Merkel had to give up her position that the Union will not take any common measures to help Greece, but that everything had to be done on a bilateral basis during the negotiations on 9 May 2010, was regarded as a further sign of the decline of her leadership. Werner Mussler illustrated this by describing how Merkel left through the back door while French President Nicolas Sarkozy declared to journalists that the reached agreement contained 95 percent French ideas.[23] Furthermore, criticism has been voiced with regard to the preparations by the federal chancellery for the negotiations on the European level that all possible economic scenarios have not been taken into account.[24] During the electoral campaign to the regional elections, the SPD party leader, Sigmar Gabriel, accused Chancellor Merkel of lying to the voters. Gabriel presented her as an iron lady expecting reforms from the Greek government before negotiations on financial help start, while the Federal Minister for Finance Wolfgang Schäuble was already negotiating the financial package. Hans-Werner Sinn, head of the ifo institute Munich, agreed with the Chancellor’s hesitant strategy to withhold financial help until Greece agreed on an internal austerity programme. According to him, the financial help is the only pressure to force the Greek government to save money.[25] Other economists criticised this strategy because it does not give a clear signal to the financial market that Europe is willing to support Greece.[26]
 
Lesson learned, but clear cut concepts still missing
 
On 6 May 2010 the French President and the German Chancellor declared in a common letter: “The next thing we have to do is strengthen economic policy coordination in the Eurozone.”[27] Thus the German government does not reject the idea of “European economic governance” in general anymore. But as the agreed wording “cooperation” indicates that this closer cooperation in the field of European economic policy does not refer to the policy of “dirigisme” often associated with the French idea of “European economic governance”. The opposition, e.g., the Green party, is in favour of the idea of European economic governance and called on Chancellor Merkel to not block this deepening of European integration in March 2010.[28] The Social Democrats are in favour of it, too, but put a special emphasis on the complementation of the European economic governance by a coordination of social policies.[29] But neither the government nor the opposition parties have yet presented a clear-cut concept on what they understand to be increased cooperation in European economic policy. For the opposition parties it is much easier to present ideas, as they do not have to face the other heads of state and government during the negotiations on European policies. Thus, the SPD together with the Party of European Socialists (PES) proposed ideas ranging from the harmonisation of tax policy to introducing a minimum wage in Europe.[30]
 
The German federal government fully supports the reform of the Stability and Growth Pact (SGP).[31] The Federal Minister of Finance, Wolfgang Schäuble, plans to discuss the following nine points in the task force on economic governance: 1) tightening budgetary control; 2) improving budget discipline in the Eurozone; 3) introducing limits of borrowing on the national level (like article 115 of the German basic law); 4) temporarily freezing structural funds for states not complying with the rules of the SGP; 5) introducing obligatory midterm budget objectives for states with debts higher than 60 percent of GDP; 6) suspension of the voting rights of states violating the rules of the SGP; 7) discussing aberration in terms of economic development more openly; 8) monitoring of economic policy in the member states could be more transparent and include possible sanctions; 9) a permanent stabilisation mechanism to cope with crises, which includes a procedure for state insolvencies.[32]
 
Some of these ideas are heavily contested. For example the Social Democratic ministers from the German Länder were against the limits of borrowing in article 115 of the German basic law, as they saw the budget right of the regional parliaments violated,[33] and the labour unions and the party Die Linke saw the ability of politicians to act decreasing.[34] Thus it seems to be unlikely that national parliaments all over Europe will accept such a limitation of their budget right. A second issue heavily debated in Germany is the question of introducing a financial transaction tax. The Social Democrats strongly support the introduction of a financial transaction tax. Together with the Austrian Social Democrats, the SPD even planed to initiate a European Citizens’ Initiative on that issue.[35] After the opposition parties and the government coalition could not agree on a wording to introduce the financial transaction tax in the so called (monetary union financial stabilisation law), as mentioned before, the coalition parties convinced Chancellor Merkel to support such a type of tax on the global level.[36]
 
Europe 2020 Strategy: implementation will become crucial
 
Compared to the debate on the crisis the Eurozone is facing at present, the Europe 2020 Strategy is hardly discussed in Germany. Chancellor Merkel received some attention by criticising the draft version of the Strategy. Her major points of criticism were the high number of targets, the plan to introduce country specific objectives, and the close link of the Strategy’s economic targets to compliance with the requirements of the SGP. According to a letter Merkel wrote to José Manuel Barosso, these steps “would make fiscal surveillance ‘unnecessarily political’”, as the media reported.[37] But the overall assessment of the renewed strategy by the German federal government was positive. Non-governmental organisations, such as the Europa Union Deutschland, debated the major failures of the old Lisbon Strategy: the unsolved compliance problem and the too narrow focus on growth and international competitiveness.[38] The Umbrella Organisation of German Industry (BDI) and the Federation of German Employers’ Associations (BDA) contrarily point out that growth and international competitiveness are not self-sufficient but are the basis for social progress; however, they agree that the Lisbon Strategy failed to achieve its main objectives and that the question of compliance to the targets of the Europe 2020 Strategy will be crucial for its success.[39]


[1] Deutsche Presseagentur: Minister Brüderle: Wachstumsprognose angehoben, 24 July 2010, available at: http://www.focus.de/finanzen/news/konjunktur-minister-bruederle-wachstum... (last access: 28 July 2010).

[2] Deutscher Bundestag: Höchste Neuverschuldung, without date, available at: http://www.bundestag.de/dokumente/textarchiv/2010/28966884_kw11_sp_hh_fi... (last access: 28 July 2010).

[3] David Crossland: Merkel’s Austerity Program Is ‘Faint-Hearted and Unbalanced’, SpiegelOnline, 8 June 2010, available at: http://www.spiegel.de/international/germany/0,1518,699416,00.html (last access: 28 July 2010).

[4] Walter Wüllenweber: Beschwerdebrief nach Griechenland: „Streng genommen seid Ihr pleite“, Der Stern 8/2010, available at: http://www.stern.de/wirtschaft/geld/beschwerdebrief-nach-griechenland-st... (last access: 28 July 2010).

[5] Bild.de: Verkauft doch eure Inseln, ihr Pleite-Griechen. ... und die Akropolis gleich mit!, 4 March 2010, available at: http://www.bild.de/BILD/politik/wirtschaft/2010/03/04/pleite-griechen/re... (last access: 28 July 2010).

[6] Deutscher Bundestag. Stenografischer Bericht 41. Sitzung. Berlin, Freitag, den 7. Mai 2010, Plenarprotokoll 17/41, pp. 3998 (D)-3999 (A), available at: http://dip21.bundestag.de/dip21/btp/17/17041.pdf (last access: 18 July 2010).

[7] The Christian Democrats became the largest faction in the regional parliament, but were not able to from a government.

[8] Gesetzentwurf der Fraktionen der CDU/CSU und FDP Entwurf eines Gesetzes zur Übernahme von Gewährleistungen im Rahmen eines europäischen Stabilisierungsmechanismus, Bundestagsdrucksache 17/1685, available at: http://dipbt.bundestag.de/dip21/btd/17/016/1701685.pdf (last access: 28 July 2010); Beschlussempfehlung des Haushaltsausschusses (8. Ausschuss) zu dem Gesetzentwurf der Fraktionen der CDU/CSU und FDP – Drucksache 17/1685 –, Bundestagsdrucksache 17/1740, available at: http://dipbt.bundestag.de/dip21/btd/17/017/1701740.pdf (last access: 28 July 2010).

[9] Entschließungsantrag der Fraktion der SPD zu der dritten Beratung des Gesetzentwurfs der Fraktionen der CDU/CSU und FDP – Drucksachen 17/1544, 17/1561, 17/1562 –, Bundestagsdrucksache Drucksache 17/1639, available at: http://dip21.bundestag.de/dip21/btd/17/016/1701639.pdf (last access: 28 July 2010).

[10] Five Green MPs abstained from the vote, too.

[11] Deutscher Bundestag. Stenografischer Bericht 41. Sitzung. Berlin, Freitag, den 7. Mai 2010, Plenarprotokoll 17/41, pp. 4019 (B)-4022 (C), available at: http://dip21.bundestag.de/dip21/btp/17/17041.pdf (last access: 18 July 2010).

[12] Ibid., pp. 4105 (A)-4105(C).

[13] SpiegelOnline: Is the Rescue Package Constitutional? German High Court Considers Euro Bailout, 8 June 2010, available at: http://www.spiegel.de/international/germany/0,1518,699471,00.html (last access: 28 July 2010).

[14] Peter Gauweiler: Presseerklärung, without date, available at: http://www.peter-gauweiler.de/pdf/PM_EURO-Stabilitaetsgesetz.pdf (last access: 28 July 2010).

[15] Daryl Lindsey: German Judges Reject Request to Block Aid. High Court Refuses to Issue Injunction on Euro Bailout, 10 June 2010, available at: http://www.spiegel.de/international/germany/0,1518,699986,00.html (last access: 28 July 2010).

[16] Julian Plottka: The debate calmed down, in: Institut für Europäische Politik (ed.): EU-27 Watch, No. 7, September 2008, Berlin 2008, p. 223-229, available at: http://www.EU-27Watch.org/?q=node/396 (last access: 28 July 2010).
[17] Reinhard Müller: Karlsruhe weist Eilantrag ab, faz.net, without date, available at: http://www.faz.net/s/Rub3ADB8A210E754E748F42960CC7349BDF/Doc~E13A0CF201A... (last access: 28 July 2010).

[18] Paul J.J. Welfens: Von der Griechenlandkrise zum Zerfall der Eurozone?, in: integration 3/2010, pp. 264-273.

[19] Christoph Seils: Wie sich der Bundestag selbst entmachtet, Tagesspiegel, 3 May 2010, available at: http://www.tagesspiegel.de/meinung/wie-sich-der-bundestag-selbst-entmach... (last access: 28 July 2010).

[20] Katja Pink/Thilo Bode: Die Finanzkrise als Demokratiekrise. Der Staat als Dienstleister des Finanzkapitals, in: Blätter für deutsche und internationale Politik, 6/2010, Seite 45-55.

[21] Call for a finance watch, available at: http://www.finance-watch.org/ (last access: 28 July 2010).

[22] Christoph Schwennicke: The Limits of Merkel's Leadership, Spiegel Oniline, 1 July 2010, available at: http://www.spiegel.de/international/germany/0,1518,704069,00.html (last access: 28 July 2010).

[23] Werner Mussler: Das Endspiel um den Euro, 9 May 2010, faz.net, available at: http://www.faz.net/s/Rub3ADB8A210E754E748F42960CC7349BDF/Doc~E3DC798FEFC... (last access: 28 July 2010).

[24] Paul J.J. Welfens: Von der Griechenlandkrise zum Zerfall der Eurozone?, in: integration 3/2010, pp. 264-273, here p. 267.

[25] Financial Times Deutschland: Union und SPD prügeln sich wegen Hilfe für Athen, 28 April 2010, available at: http://www.ftd.de/politik/:vor-nrw-wahl-union-und-spd-pruegeln-sich-wege... (last access: 28 July 2010).

[26] Paul J.J. Welfens: Von der Griechenlandkrise zum Zerfall der Eurozone?, in: integration 3/2010, pp. 264-273.

[27] Presse- und Informationsamt der Bundesregierung: Gemeinsamer Brief von Bundeskanzlerin Merkel und dem französischen Präsidenten Sarkozy an die Präsidenten des Europäischen Rates und der Europäischen Kommission, 6 May 2010, available at: http://www.bundesregierung.de/Content/DE/Pressemitteilungen/BPA/2010/05/... (last access: 28 July 2010).

[28] Bündnis 90/Die Grünen, Bundestagsfraktion: Eurokrise durch koordinierte Wirtschaftspolitik lösen, press release, 19 Mach 2010, available at: http://gruene-bundestag.de/cms/presse/dok/332/332991.eurokrise_durch_koo... (last access: 28 July 2010).

[29] Sozialdemokratische Partei Deutschlands: SPD und PS fordern stärkere wirtschafts- und sozialpolitische Koordinierung in der Europäischen Union, presse release, 16 June 2010, available at: http://www.spd.de/de/aktuell/pressemitteilungen/2010/06/SPD-und-PS-forde... (last access: 28 July 2010).

[30] Ibid.

[31] Presse- und Informationsamt der Bundesregierung: Gemeinsamer Brief von Bundeskanzlerin Merkel und dem französischen Präsidenten Sarkozy an die Präsidenten des Europäischen Rates und der Europäischen Kommission, 6 May 2010, available at: http://www.bundesregierung.de/Content/DE/Pressemitteilungen/BPA/2010/05/... (last access: 28 July 2010).

[32] Finanzministerium: Neue europäische Task Force. Eckpunkte der Bundesregierung zur Stärkung der Eurozone, 21 May 2010, available at: http://www.bundesfinanzministerium.de/lang_DE/nn_1270/DE/Wirtschaft__und... (last access: 28 July 2010).

[33] Tageszeitung: Ralf Stegner gegen Schuldenbremse. „Parlamente werden entmachtet“, 27 March 2009, available at: http://www.taz.de/1/politik/deutschland/artikel/1/parlamente-werden-entm... (last access: 28 July 2010).

[34] Uli Schnippels: Uli Schippels zur so genannten „Schuldenbremse“: „Wir brauchen Investitionen in die Zukunft statt finanzielle Demontage.“, presse release, 5 May 2010, available at: http://www.linksfraktion-sh.de/nc/presse/detail/artikel/die-linke-forder... (last access 28 July 2010).

[35] Sozialdemokratische Partei Deutschlands: Spekulationssteuer: SPD und SPÖ für Europäische Bürgerinitiative, presse release, 18 May 2010, available at: http://www.spd.de/de/aktuell/nachrichten/2010/05/Spekulationssteuer-SPD-... (last access: 28 May 2010).

[36] Bundeskanzleramt: Regierungserklärung von Bundeskanzlerin Merkel zu den Euro-Stabilisierungsmaßnahmen, 19 May 2010, available at: http://www.bundesregierung.de/Content/DE/Regierungserklaerung/2010/2010-... (last access: 28 July 2010).

[37] Euractive: Merkel criticises ‘Europe 2020’ strategy, 2 March 2010, available at: http://www.euractiv.com/en/priorities/merkel-criticises-europe-2020-stra... (last access: 28 July 2010).

[38] Eva Högl: Forderungen an „Europa 2020“ – Ein Überblick, in: Europa 2020 - eine kritische Bewertung der neuen EU-Strategie, EUD-konkret 3/2010, pp. 5-7, available at: http://www.europa-union.de/fileadmin/files_eud/PDF-Dateien_EUD/EUD_konkr... (last access: 28 July 2010).

[39] Bundesverband der Deutschen Industrie/Bundesverband der Deutschen Arbeitgeberverbände: BDI/BDA-Stellungnahme zur öffentlichen Konsultation der Europäischen Kommission zur „EU 2020“-Strategie, 12 January 2010, available at: http://www.bdi.eu/images_content/EuropaUndBruessel/BDA_BDI_Stellungnahme... (last acess: 28 July 2010).

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