Tuesday

25th Jul 2017

Opinion

The Greek crisis: What's Germany up to?

  • Schäuble and Merkel have different priorities and a different risk assessment in the euro crisis (Photo: Tobias Koch)

If there is one man standing now for the ugly German, it is Wolfgang Schäuble. Ironically, the German finance minister is also the player in the current euro drama who is most dedicated to putting the joint currency on a sustainable footing.

Tonnes of comments have been written in the last weeks about how Germany has put its narrow national interests above the European interest. By turning Grexit into a real policy option, the narrative goes, Schäuble has further damaged Greece and weakened the eurozone.

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The only problem with that story is that Schäuble doesn’t fit into the role of the villain. Schäuble is the last political survivor of the Helmut Kohl era. As a German interior minister, he managed the internal aspects of German reunification in 1990. And since his youth, Schäuble, born in 1942 in southwestern Germany close to the French border and the son of a tax adviser, is a firm believer in European integration.

He was the co-author of a legendary paper in 1994 (Schäuble-Lamers Paper), according to which Germany, France, Belgium, the Netherlands, and Luxemburg—so-called core Europe—would integrate much faster and more deeply than the rest.

Like his long-term mentor Kohl, Schäuble has always considered the euro to be something like a hidden hand: monetary integration would force the EU to do what member states are reluctant to do—accept that political union, meaning much deeper, almost federal integration, is a historical necessity. Political union meaning a joint budget, taxes, and even eurobonds, sharing liability for debts.

The need to make it work would confront governments with the hard choice of either abandoning the euro or taking a great leap forward toward a federation-like entity, abandoning core elements of sovereignty.

An opportunity not to be wasted

This is where Europe is now, in Schäuble’s view. The Greek crisis was not part of the plan, but it is an opportunity not to be wasted.

For Schäuble, however, deeper European integration can only work with like-minded, well-governed countries. The way the Syriza government in Athens has behaved, rolling back reforms and treating fellow eurozone governments like enemies, convinced him that such integration is unlikely to succeed with Greece.

Schäuble wants to move ahead now because he feels that the eurozone is fragile and that time is running out. His ambition is to become the architect of a eurozone that is viable in the long term, with members that sign up to the same policies and with capable and competent institutions.

German Chancellor Angela Merkel, by contrast, cares much less about the euro. She doesn’t believe in much closer union; she is an intergovernmentalist, preferring strong member states running the EU rather as a loosely connected club. But at the same time, she has no alternative answer to the euro challenge, that’s why she agrees that to work in the long run, the common currency needs a stronger political and socioeconomic framework shared by members.

Merkel, however, has over time become a big fan of the EU. Schäuble is a typical West German Europhile, seeing the EU as some kind of redemption for a nation state that lost its legitimacy in the Nazi era and needs to be embedded in a strong European Union.

Merkel, by contrast, grew up in East Germany under Communism. It took her quite a while to appreciate the added value of the EU. For her, the big, tangible advantage of the EU is that it allows Berlin to multiply its weight (if it manages to convince its EU partners). Unlike for many Germans who grew up in West Germany, for Merkel the nation-state is not a problem.

But Greece has turned from an internal EU issue into a geopolitical challenge. Merkel has two major concerns: one is the economic future of Europe in a more competitive world; the other is the set of aggressive, neo-imperalist policies pursued by Russian President Vladimir Putin. She fears that a breakdown of order in Southeastern Europe would be exploited by the Kremlin, which seeks to gain influence in what has been termed Europe’s soft underbelly.

And Merkel doesn’t fully believe those experts who claim that the fallout of a Grexit can be contained. For her, the risks of a Grexit leading to an implosion of the eurozone and the euro are not negligible.

Different priorities

Schäuble and Merkel have different priorities and a different risk assessment. That’s why there is sometimes tension. But ultimately Schäuble knows who is in charge. He is trying to advance his agenda but knows where to stop. Keeping Greece in the euro was Merkel’s decision, and he dutifully supported it.

What Merkel did in the latest showdown with Greek Prime Minister Alexis Tsipras was to use Grexit as a stick to gain leverage.

The more credible the scenario of a Greek exit from the euro, the more likely it would be that Greece would sign off on the conditions set by the creditors for the third bailout.

However, the game is far from over.

The future of the eurozone and of the EU will be decided in many European capitals. Paris and Brussels will be first among them, but Berlin will also be key. Germany has become the EU’s centre of gravity in the last years, because of its own weight and the relative success of its economy, but also because of the country’s deep commitment to the EU.

Unlike in most other EU countries, all major parties in Germany are enthusiastically pro-EU, and the political class still signs up to federalism as the ultimate vision for Europe’s future.

The most likely scenario is further muddling through.

The recent showdown with Greece was damaging. We will hear some talk about further integration, political union, in Paris and Berlin, but the two sides won’t agree on what that means, as in the past. Greece will get its bailout with conditions that are not going to be seriously enforced. There will be grumbling here and there, but everybody will be relieved to go back to business as usual.

Until the next crisis strikes.

Ulrich Speck is a visiting scholar at Carnegie Europe

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