At last Germany to negotiate the costs for a really cohesive Eurozone

Emmanuel Macron, President of the French Republic delivered a speech to the European Parliament on 17 April 2018, presenting his vision of European ‘refoundation’. The next day, in Berlin, he met Angela Merkel the German Chancellor. (French government photo).

Finally, Germany blinked. Chancellor Angela Merkel at last decided  to clearly respond and, up to a certain degree, uphold French President Emmanuel Macron’s ideas, about reforming the Eurozone, in order not only to save it from unraveling, but, if  possibe, to make it more cohesive and stronger. In an interview to last Sunday’s issue of the prestigious newspaper ‘Frankfurter Allgemeine Sonntagszeitung’ (FAS) she answered one by one all the key Macron’s proposals.

In plain English or, rather, German this means Berlin is ready to negotiate about the cost of a cohesive Eurozone, despite the strong opposition within the country and the Christian governing parties. The traditional hostility against the ‘lazy’ southerners may win votes, but it now threatens the well-being of the country. The risks from the US trade aggressiveness and the Italian issues have reached a critical point. If Germany wants a euro area of the same size as today, it has to pay the cost. This is exactly what Merkel now decided to do and her junior partner in the government, the Socialist Party, backed this option all the way.

Not a debt Union

Of course, Merkel denied the creation of a Union of mutualized debts, but she went as far as to uphold the principle of solidarity. This clearly means Merkel’s Germany is ready to bargain with Macron, about how much solidarity the Eurozone needs. A careful reader would have also noticed that there was nowhere in the interview any insinuation about a smaller and more solid euro area, leaving out the ‘debt stricken’ southerners.

It must be noted, that such ideas about a smaller and meaner Eurozone have being lately getting significant publicity and support in Germany. Especially after the latest political and financial problems of Italy. It was the same with Greece a few years ago, with the, proportionally, more severe but, in absolute terms, much smaller in size problems of Athens. The same home groupings in Germany both then and now fight for a Germanic Eurozone, forgetting their country owes her good luck to the entirety of the euro area. Let’s see where these ideas are incubated and how convincing they can be.

Shrinking the euro zone

The editor-in-chief of Handelsblatt Global, the most prestigious on line German business media in English, Andreas Kluth, wrote an editorial on 1st June strongly and clearly proclaiming the break up of Eurozone, of course by throwing out the southerners. He clearly included France in the category of unworthy member states, by saying “Germany represents the opposite of the ideas that, more or less, unite the southern euro area, from Greece to France and Italy. Whereas the south demands ‘solidarity,’ Germany fears a ‘transfer union,’ in which northern money permanently subsidizes bad loans and fiscal licentiousness in the south”.

How can this ‘stalemate‘ be resolved? Kluth…honors Europe with his own solution, “The time has come for supporters, not opponents, of the European idea to contemplate loosening, and even shrinking, the euro zone. Member countries that decide being in the euro club is against their economic interests or philosophies should have a way, temporarily or permanently, to return to a national currency”.

Missing the target

The problem for him and for a large part of the German elites who share this opinion, is that they now badly need the rest of the Eurozone, and, if not all of it, at least France’s backing. Merkel’s answer to Macron’s ideas doesn’t come from her good German heart. It’s a calculated step and more of that kind will be fiercly negotiated with the French and other Eurozone member states.

How can Berlin counter Washington’s trade aggressiveness, without single euro area market’s backing, in case Germany is ousted from the US and has no other opening for her expensive exports? This Union though can only be guaranteed if Germany accepts Macron’s ideas for deep reformation. Germany has got a similar lesson. She just saw her financial pride, the mighty Deutsche Bank currently agonizing not to save its once gigantic global network, but to just survive as a small country bank. The New York banking market proved to be a trained German killer.

Cars, what cars?

By the same token, the mighty automotive sector, the central pillar of the German economy, is under short and long term lethal treats. In the short term, Germany needs France and the rest of Eurozone and the EU to politically and economically counter the American menace. A divided Eurozone and, more precisely, a broken Paris-Berlin axis will offer Trump’s White House a golden opportunity to ostracize Germany altogether.

It’s highly possible that in a few months a large part of the top German management, former and present, of Deutsche Bank, VW, BMW, Audi and other German businesses will have problems travelling to the US. They will risk being arrested and persecuted by many articles of the penal code.

If Germany tries to throw the ‘southerners’ and France out from the Eurozone, the move won’t go down well in the rest of the world and mainly in the US. Many Eurozone countries like Italy, Greece maintain strategic and deep routed relations with America. One would add to that the excellent relations between Macron and Trump. So, Washington would never tolerate those countries being thrown out from Eurozone.

Export hungry Germany

Then, there will also be problems with the central European member states, leaving Germany with what? Holland and Austria? It seems this is not enough for some thoughtful Germans, who don’t share Kluth’s thinking. The German export machine needs many wealthy consumers. If America is lost, only Europe can make it up and yet partly, but still guaranteeing a subsistence minimum of exports for Germany. Deprived even of that, this export hungry country will find it difficult to feed and keep herself warm in the winter.

The Russian option for Germany may mean something for the likes of Kluth. But obviously, this eastward looking strategy doesn’t constitute a sound political and economic option for very many reasons, historic or recent. Berlin cannot forget the annexation of the Ukrainian Crimean Peninsula by Russia in 2014.

Russia cannot make up for it

It seems the time has come the likes of the French, the Italians and Greeks and other ‘lazy’ southerners to dearly trade their support to Germany. The southerners don’t mind much if Trump blocks the sales of German cars in the US or if Washington starts searching the legitimacy of whatever the Germans do in the US.

The go ahead by Washington for the sale of Monsanto to Bayer, needs to be judged in the long term. The German giant may find out it paid very dear for very little. It’s exactly the same game the Greek ship-owners have been playing on the German shipping companies more than once; they bought the German merchant fleets at low markets and after some time sold the ships at much higher prices.

Who needs whom

So, the likes of Kluth cannot convince their compatriots that their country can fight on more fronts. It has become a treacherous world. The good old times of international order have passed and Germany cannot prosper alone.

She needs backing not only for the construction of the new Russian natural gas pipeline, the Nord Stream II, but for many other things too. The frictions with America may get out of hand and Berlin cannot risk an all out conflict again.

 

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