German elections will not prompt new wave of Eurozone integration

Nina Schick
THE WORLD is looking to Germany, as its 22 September elections fast approach. The question on everyone’s lips is whether the next German government – the principle paymaster of Europe – will commit to a decisive deepening of the Eurozone. This, some believe, could haul the continent out of crisis. The answer, however, is no. Even if the ruling coalition changes – and Angela Merkel is likely to remain Chancellor – Germany’s Eurozone policy will not fundamentally shift.

When it comes to “sparpolitik”, or Germany’s insistence on austerity, any changes will largely be superficial. Debt is seen as the core cause of the crisis, and will have to be reduced – even at the cost of political backlash and negative effects on short-term growth.

If the result is a “grand coalition” (formed of Merkel’s centre-right CDU/CSU, and the centre-left SPD), Germany may be more sympathetic towards struggling Eurozone countries. But even then, we are unlikely to see significant changes beyond delays to cuts and token “pro-growth” measures. A Merkel-led government will likely push for some form of “competitiveness pact”, whereby struggling Eurozone countries receive further support in exchange for reforms. But this would simply formalise the current arrangement, which enjoys broad public support and is grounded in Germany’s own experience of the Agenda 2010 labour market reforms.

Meanwhile, German “foot-dragging” will likely continue over banking union. The German-French proposal for a Eurozone bank resolution mechanism is wildly different from the European Commission’s. Germany has raised concerns about breaching EU treaties and giving the Commission too much power. It wants to maintain strict influence over any centralised system and its own diverse bank sector. Equally, it wants to ensure progress is made to appease still-fragile markets.

It’s still unclear whether Germany will work to reform the Commission’s proposal, or push ahead with a more intergovernmental measure. However, a decision over banking union will be needed – so some change could take place. Whatever the outcome, it could set the tone for future Eurozone policy.

But progress is likely to be slow. Germany will continue to insist on a strict rules-based system ahead of aid. Ultimately, it wants to limit infringement on the European Central Bank’s inflation focus, and is hesitant to bail out banks directly until they have been thoroughly cleaned up.

The question of debt pooling will also remain contentious. As a recent Open Europe/Open Europe Berlin poll shows, 64 per cent of Germans are opposed to such a step. A debt redemption fund, as proposed by the influential Council of Economic Experts, which advises the government, may be an outside possibility – and is more likely under any government including the SPD. But the idea of Eurobonds is a non-starter. Debt pooling would be extremely unpopular and possibly deemed illegal by the German Constitutional Court.

So while Germany is rhetorically in favour of “more Europe”, when it comes to the bread-and-butter policies required for further Eurozone integration, Germany will remain reluctant.

Nina Schick is a policy analyst at Open Europe.