Social Europe

politics, economy and employment & labour

  • Themes
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

Europe After Merkel

Ashoka Mody 19th October 2016

mody_bioNext year, Germany will hold a federal election, and the new Bundestag will choose the country’s next chancellor. Whether or not Angela Merkel retains the role – at the moment, things are not looking good for her or her Christian Democratic Union (CDU) – one thing is certain: Germany’s chancellor will no longer be de facto Chancellor of Europe. That will profoundly change how Europe works – some of it for the better. But the disruption could be nasty.

It was not inevitable that a German chancellor would assert so much authority over the European Union. It was former Chancellor Helmut Kohl who made it so. After overseeing German unification in 1989-1990, he began to pursue what he viewed as his historical task of unifying Europe as well. Kohl led Europe, from agreement on the Maastricht Treaty in 1991 to critical decisions about the shape of the euro in 1998.

The concept of a common European currency could have died many times during those years. Kohl’s close associate Wolfgang Schäuble, who is now Germany’s finance minister, asserted in 1994 that only five countries – not including Italy – were ready to adopt the single currency. But Kohl pushed on, insisting that Italy be included.

Kohl’s successor, Gerhard Schröder, took a very different approach. Lacking any personal memories of World War II, he – like a growing share of Germans at the time – was confident that Germany could rely on itself, without continually reaffirming its ties to Europe.

Schröder actively pursued Germany’s national interests. He chastised the European Central Bank when it kept interest rates too high. And his government defied Europe’s fiscal rules – described, accurately, by then-European Commission President Romano Prodi as “stupid.” The German economy had come to a near-halt, and more austerity would have caused more – and possibly long-lasting – damage. Schröder nearly gutted the EU’s corporate takeover rules to protect Volkswagen. His only “pro-European” gesture was to wave Greece into the eurozone.

Early in her tenure, which began in November 2005, Merkel seemed to resemble Schröder more than Kohl. Much younger than Schröder and raised in East Germany, she was even less connected to the significance of “post-war Europe,” both in time and geography. Feeling no compulsion constantly to present her “pro-European” credentials, she was content to serve simply as German Chancellor.

At first, that worked just fine. European economies – including Germany – were riding a giant global economic and financial bubble. While virtually every country skirted the fiscal rules, Europeans believed that the euro was fueling economic growth and would eventually lead them to political union. Simply put, Europe did not need a chancellor.

That all changed with the post-2008 global economic recession, which exposed weaknesses in the monetary union’s structure. On top of the damage from the global economy’s woes, the eurozone was faced with a looming Greek government bankruptcy. By March 2010, it was clear that the Greek crisis was not going to resolve itself, and Merkel, slowly but surely, began to take charge.

She did not relish the task. On the contrary, she operated on the assumption that the euro was “a machine from hell” – a mess and a burden for her and her country. But she had little choice; whenever a major crisis-management decision had to be made, all eyes turned to her.

Merkel acted as European Chancellor, but always kept her focus on German interests. She understood that the German public would not tolerate its taxes being spent on Europe. Spending on Greece, in particular, touched a nerve. So Merkel did the bare minimum – just enough to prevent a meltdown, but far too little to put an end to the Greek or the broader euro crisis. As a result, the crisis continued to develop and take on new forms, including, most dangerously, in the banking sector in Italy, the “fault line of Europe.”

In late 2011, Merkel engineered the replacement of elected governments by technocrats in Greece and Italy. No one was happy, and political protest movements gained strength everywhere, including in Germany, where the right-wing, anti-euro Alternative for Germany (AfD) party was born in February 2013.

Merkel took a principled stand on the refugee crisis, accepting more than a million refugees into Germany. But she did so without consulting her European partners or her own citizens. She was soon punished at home. The CDU has lately suffered a string of humiliating losses in state elections, while the AfD has made substantial gains.

For now, Merkel retains her role as de facto European Chancellor, simply because there is no alternative. Italian Prime Minister Matteo Renzi still seeks Merkel out when he wants “flexibility” on budget rules. British Prime Minister Theresa May’s first official overseas trip was to Berlin.

But both Germany and Europe are changing. The AfD’s recent gains have come by stirring xenophobic sentiments. Even if Merkel continues as German Chancellor after next year’s election, she will have much weaker support. Meanwhile, the European economy remains moribund, with the Italian fault line threatening to send shockwaves through Europe. Trust in European institutions has dissipated, and commercial ties among European countries have predictably eroded, as exporters look to more rapidly growing markets in Asia and the United States.

Germany’s next chancellor, whoever it is, will have neither German backing nor European acceptance to serve as European Chancellor. The first casualty could be Greece, which, in lieu of the debt relief that Merkel has been unable to deliver, may finally have to exit the eurozone, leading the entire EU into uncharted territory.

But the consequences may not be all bad. With no one in charge, the “stupid” fiscal rules will be more easily ignored. Such an expansion of national sovereignty could be a positive development, if it leads to what Harvard’s Larry Summers calls “responsible nationalism.” Eurozone governments will need to serve their citizens rather than some abstract European ideal, and live by the discipline of the ballot box and the market. A German as European Chancellor would only tear Europe further apart.

Copyright: Project Syndicate 2016 Europe after Merkel

Ashoka Mody

Ashoka Mody is a Visiting Professor of International Economic Policy at the Woodrow Wilson School of Public and International Affairs, Princeton University.

You are here: Home / Politics / Europe After Merkel

Most Popular Posts

Russian soldiers' mothers,war,Ukraine The Ukraine war and Russian soldiers’ mothersJennifer Mathers and Natasha Danilova
IGU,documents,International Gas Union,lobby,lobbying,sustainable finance taxonomy,green gas,EU,COP ‘Gaslighting’ Europe on fossil fuelsFaye Holder
Schengen,Fortress Europe,Romania,Bulgaria Romania and Bulgaria stuck in EU’s second tierMagdalena Ulceluse
income inequality,inequality,Gini,1 per cent,elephant chart,elephant Global income inequality: time to revise the elephantBranko Milanovic
Orbán,Hungary,Russia,Putin,sanctions,European Union,EU,European Parliament,commission,funds,funding Time to confront Europe’s rogue state—HungaryStephen Pogány

Most Recent Posts

reality check,EU foreign policy,Russia Russia’s invasion of Ukraine—a reality check for the EUHeidi Mauer, Richard Whitman and Nicholas Wright
permanent EU investment fund,Recovery and Resilience Facility,public investment,RRF Towards a permanent EU investment fundPhilipp Heimberger and Andreas Lichtenberger
sustainability,SDGs,Finland Embedding sustainability in a government programmeJohanna Juselius
social dialogue,social partners Social dialogue must be at the heart of Europe’s futureClaes-Mikael Ståhl
Jacinda Ardern,women,leadership,New Zealand What it means when Jacinda Ardern calls timePeter Davis

Other Social Europe Publications

front cover scaled Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis
sere12 1 RE No. 12: Why No Economic Democracy in Sweden?

ILO advertisement

Global Wage Report 2022-23: The impact of inflation and COVID-19 on wages and purchasing power

The International Labour Organization's Global Wage Report is a key reference on wages and wage inequality for the academic community and policy-makers around the world.

This eighth edition of the report, The Impact of inflation and COVID-19 on wages and purchasing power, examines the evolution of real wages, giving a unique picture of wage trends globally and by region. The report includes evidence on how wages have evolved through the COVID-19 crisis as well as how the current inflationary context is biting into real wage growth in most regions of the world. The report shows that for the first time in the 21st century real wage growth has fallen to negative values while, at the same time, the gap between real productivity growth and real wage growth continues to widen.

The report analysis the evolution of the real total wage bill from 2019 to 2022 to show how its different components—employment, nominal wages and inflation—have changed during the COVID-19 crisis and, more recently, during the cost-of-living crisis. The decomposition of the total wage bill, and its evolution, is shown for all wage employees and distinguishes between women and men. The report also looks at changes in wage inequality and the gender pay gap to reveal how COVID-19 may have contributed to increasing income inequality in different regions of the world. Together, the empirical evidence in the report becomes the backbone of a policy discussion that could play a key role in a human-centred recovery from the different ongoing crises.


DOWNLOAD HERE

ETUI advertisement

The EU recovery strategy: a blueprint for a more Social Europe or a house of cards?

This new ETUI paper explores the European Union recovery strategy, with a focus on its potentially transformative aspects vis-à-vis European integration and its implications for the social dimension of the EU’s socio-economic governance. In particular, it reflects on whether the agreed measures provide sufficient safeguards against the spectre of austerity and whether these constitute steps away from treating social and labour policies as mere ‘variables’ of economic growth.


DOWNLOAD HERE

Eurofound advertisement

Eurofound webinar: Making telework work for everyone

Since 2020 more European workers and managers have enjoyed greater flexibility and autonomy in work and are reporting their preference for hybrid working. Also driven by technological developments and structural changes in employment, organisations are now integrating telework more permanently into their workplace.

To reflect on these shifts, on 6 December Eurofound researchers Oscar Vargas and John Hurley explored the challenges and opportunities of the surge in telework, as well as the overall growth of telework and teleworkable jobs in the EU and what this means for workers, managers, companies and policymakers.


WATCH THE WEBINAR HERE

Foundation for European Progressive Studies Advertisement

The winter issue of the Progressive Post magazine from FEPS is out!

The sequence of recent catastrophes has thrust new words into our vocabulary—'polycrisis', for example, even 'permacrisis'. These challenges have multiple origins, reinforce each other and cannot be tackled individually. But could they also be opportunities for the EU?

This issue offers compelling analyses on the European health union, multilateralism and international co-operation, the state of the union, political alternatives to the narrative imposed by the right and much more!


DOWNLOAD HERE

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube