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10th May 2021

German right and European left square up for eurozone battle

  • The Bundestag: German MPs have bound the hands of Merkel in negotiations with the rest of the EU (Photo: Torkil Sørensen/norden.org)

German governing MPs have bound the hands of Chancellor Angela Merkel and finance minister Wolfgang Schaeuble in negotiations with the rest of the European union over a 'grand bargain' solution to the eurozone crisis. Meanwhile, Europe's centre-left parties have begun calling the options on the table "shameful."

The German coalition on Thursday (24 February) agreed a paper that is almost certain to be approved as a resolution on 17 March by the full sitting of the Bundestag that sets out the maximum Berlin can accept in any comprehensive solution that would see the German paymaster increase its guarantees in a permanent European rescue fund.

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Ms Merkel has insisted that the paper is in line with her negotiating stance, but the document does not allow her any flexibility, in effect telling the rest of Europe this is their last offer and they can take it or leave it.

The paper, agreed by the three coalition partners, Ms Merkel's own CDU, their sister Bavarian party the CSU, and the market-liberal FDP, requires the creation of debt brakes similar to the constitutional restriction on government spending that exists in Germany.

It also rules out any sort of 'debt union', where the EU as a whole guarantees the debts of all its member states.

Should rescue funds be accessed under the planned European Stability Mechanism, to come into existence in 2013, the German parliament must first give its approval.

The fund itself would not be allowed to buy government debt or provide emergency loans to permit governments to buy back their own debt.

The paper also requires tough new centralised surveillance and co-ordination of national budget processes and an EU financial market tax.

And if governments fail to adhere to the new rules, they should be cut off from any future bail-outs.

Negotiating stances on both sides are hardening.

At the same time as Germany's right-wing parties have toughened their position, Europe's social democratic parties have also adopted a common position in negotiating around European economic governance.

The Party of European Socialists' member parties on Thursday endorsed an angry negotiating position that rejects what they call "shameful" and "draconian" options on the table.

While three socialist European governments on the eurozone periphery, in Greece, Portugal and Spain, are currently imposing stringent austerity, officials close to the discussions say that this is about strengthening the position of these capitals ahead of an EU summit on 24-25 March where a comprehensive solution to the crisis will be finalised and "galvanising opposition to the direction things are heading in."

PES president Poul Nyrup Rasmussen said of the situation: "From my viewpoint, if we are not able to dramatically change these terrible reforms that conservatives are proposing, we will be obliged to use our democratic right to oppose them."

"We will not put our name to  reforms that undermines workers' right and will have catastrophic consequences for the economy," he added.

'Bullying'

The document describes the "bullying" involved in the current discussions around economic governance, whose proposals are currently before the European Parliament; the Franco-German competitiveness pact; and the negotiations around a future permanent bail-out mechanism as "radically conservative" that introduce "a culture of sanctions and punishment into European integration" and "ignore basic principles of democratic accountability."

Though details of what the centre-left would rather see are thinner than the rigid points contained in the German right's paper, socialists say they are pushing overall for a more "balanced reform".

Their emphasis lies on preventing runaway speculation in the future and strengthening the position of governments over financial markets. The left has argued that the cause of the crisis has been an abandonment of regulation by the state giving way to real estate and other bubbles.

In direct opposition to the German paper, the PES says that the future European Stability Mechanism must be allowed to intervene directly on the market and purchase sovereign bonds.

The parties also want to overturn "the very logic of the conditionality" of government rescues, from imposing austerity to ensuring growth.

They also insist that the participation of the IMF - long viewed as a free-market bugbear by the left despite being run by leading French Socialist Dominique Strauss Kahn - "must be reorganised".

"The PES will not sign off on this deal," the paper reads. "We will oppose any plan that we deem socially unacceptable."

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