Mercron fail

Of jumbo councils and other euro-zone distractions

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You say Mumbo, I say Jumbo. Source: dpa [M], Shutterstock/phaustov

At home and abroad, French President Emmanuel Macron has been positioning himself as the defender of liberal values against atavistic nationalists. “We see authoritarians all around us,” he told the European Parliament this week, and “the answer is not authoritarian democracy, but the authority of democracy.”

Berlin has always been eager to support Mr. Macron in this role he aspires to. Germans have long been worried that France has become economically too weak to be a credible second piston in the Franco-German “engine” that powers European integration. That’s why Chancellor Angela Merkel wants to strengthen Mr. Macron as he pushes controversial reforms at home. She also knows that if Macron fails, a populist like Marine Le Pen might move into in the Élysée Palace next time.

This is why the cognoscenti in Berlin have been in agreement that Germany must make big concessions to France, as Daniela Schwarzer, director of the German Council of Foreign Relations, argued a year ago. In particular, Germany should be flexible on the thorniest issue: reform of the euro zone.

But Germany won’t be very forthcoming, as it probably dawned on Mr. Macron this week, during his visit to Berlin. “We share the belief that the euro zone is not crisis-proof yet,” Ms. Merkel said in the tactful waffle that is her trademark, as she stood next to Mr. Macron. And that’s where their shared beliefs ended.

Mr. Macron, like his counterparts in the southern euro zone, would like two things: The first is the completion of a euro-area “banking union”, meaning common deposit insurance for the whole currency area, as the US has it. The idea is that this would prevent runs on banks and sever the links between struggling lenders and their national governments, which caused such trouble for Spain, among others.

What can Ms. Merkel do? She must make Macron look good, while steering clear of a transfer union.

Mr. Macron’s second wish is “fiscal union”. By that he means the appointment of a finance minister for the whole euro area, who would oversee a budget — akin to national budgets — funded by the member states. The idea here is that this finance minister could add fiscal policy (ie, discretionary spending) to the monetary tools of the European Central Bank, both to manage the regional economies in a counter-cyclical way and to contain the next crisis.

Ms. Merkel has now, in her underhanded way, nipped both ideas in the bud. She would be open to common deposit insurance “not in the immediate, but more distant future,” she said. Coming from her, that probably means never. And fiscal union is a non-starter, because to Germans it would mean a “transfer union”. Her own party, the Christian Democratic Union, would never countenance it.

Germans are against such a “transfer union” because they — unlike the French, for instance — already have one domestically. In the German federal system, the richer regions, like Bavaria, transfer tax revenues to the poorer, such as Berlin. Berliners like that, but Bavarians hate it. And all Germans fear that if such a system were exported to Brussels, they would become Europe’s Bavarians, while the Greeks, Italians and French would become Europe’s Berliners.

Besides this bad experience, the Germans also have an intellectual principle to offer against joint deposit insurance and fiscal union. It is, as Ms. Merkel said as she stood next to Mr. Macron, that “liability and risk be kept together.” This is, in fact, the core tenet of Ordoliberalism, a German tradition in economics. If, say, Italians extend loans for likely profit, they must also be on the hook for possible losses — and must not be able to count on Germans to bail them out.

So what can Ms. Merkel do? She must make Macron look good, while steering clear of a transfer union and anything that looks like it. And she must simultaneously keep her coalition partners, the more Europhile Social Democrats, and her own conservative bloc from rebelling.

The result is once again merkeln, a German neologism coined with the chancellor in mind. The verb basically means “to muddle through without committing to anything”. Ms. Merkel demonstrated merkeln this week, when she proposed turning the so-called Eurogroup into a “jumbo council”. This group consists of the 19 finance ministers of the euro zone, including the German Olaf Scholz, a Social Democrat. Ms. Merkel would like the economics ministers to join the group, which would include her loyal lieutenant, Peter Altmaier, a Christian Democrat.

Ms. Merkel will have avoided snubbing Mr. Macron outright.

The political appeal is obvious. One of “her guys” (Altmaier) gets to chaperone one of “their guys” (Scholz). Ostensibly, the subject of “economic convergence and competitiveness” will be added that of the euro zone’s “financial architecture” whenever the enlarged group meets. In practice, that roundtable will grow so large and unwieldy that nothing much will get decided at all, which is the point. Ms. Merkel will have avoided snubbing Mr. Macron outright. She will also have delayed indefinitely a politically unpalatable reform, by substituting process for decisions.

The risks inherent in such merkeln are subtle. One is that the euro zone will remain fragile and crisis-prone. Another is that more Europeans turn away in disgust from what they correctly perceive as Brussels windbags, and turn to populists.

By contrast, acceding to a transfer union would incur countervailing risks: That the Germans resume their crisis-era role of haranguing the southern countries about thrift, while the southerners resume blaming the Germans for being austere taskmasters. All involved would revert to ugly stereotype. European integration, originally meant to bring former enemies into harmony, would instead become a mechanism for sowing strife.

An objective visitor from outer space visiting Europe — like a cynical observer in Beijing or Moscow — would be forgiven for not putting much faith in the future of the European Union.

Andreas Kluth is editor-in-chief of Handelsblatt Global. You can reach him at a.kluth@handelsblattgroup.com

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