VIEWED FROM GERMANY, the situation appears rather paradoxical: exports are at record levels, the unemployment rate is the lowest for many years, there is a lack of skilled personnel in many technical occupations – and yet the word “crisis” dominated the year 2011. On the one hand, Germany presented itself at the end of 2011 as always in a relaxed mood in the lights of the Christmas markets, while, on the other, surveys conducted by ARD-Deutschlandtrend before the EU summit on 8–9 December 2011 showed that 84% of respondents believed the crisis had not yet reached its peak. Although the Germans are not directly feeling the effects of the European crisis, they are deeply concerned by it, but not panic-stricken. This is new in a country whose population is considered to be obsessed with stability as a result of its experiences with hyperinflation and currency reform during the 20th century. Like no other event in recent years the debt crisis is being influenced by perceptions of European integration in Germany and its partners in the EU.
At the centre of these perceptions lies the experience of close reciprocal relationships that give rise to mutual dependence. What interdependence means in practice became clear to the citizens of Europe when the debt problems of Greece and other countries escalated following the 2008 financial crisis that began in the American credit sector. The indebtedness of countries on the periphery of the eurozone threatened to unhinge the banking system at its centre and thereby endanger the financial framework of the economy in the entire region. Self-interest made assistance imperative, even if the fundamental design of European monetary union did not envisage any transfers of other countries’ debts – in other words, there were to be no bailouts.
This situation engendered an existential challenge for European politics. The insolvency of even a small country like Greece would have seriously shaken the credibility of the common currency and led to a chain reaction in other regions or sectors. At the same time, every response had to be calculated not to subvert legal barriers such as the stability interests of the eurozone. Undoubtedly, EU government leaders found it difficult to develop appropriate solutions: never before had the common currency faced this kind of challenge, the time available to respond was short and the requisite sums many time higher than previously expected.
Time for reforms
Accordingly, the first phase of crisis response aimed to assist Greece in its emergency situation by granting mutually guaranteed funds that would give it time to reform structural weaknesses in the country, in the administration and in the national budget. However, neither the time nor the funds available proved sufficient to turn around Greece’s crisis or prevent its spread to other countries. Eight summit meetings of the heads of state and government were required in 2011 to appreciate and address the regulatory policy problems of the debt crisis: The low interest rates for all the countries in the eurozone after the introduction of the common currency had taken the pressure off many governments to pursue truly necessary, but domestically contentious structural reforms. The mechanisms of the stability and growth pact had proved too weak, especially after France and Germany broke the rules for several years without facing any sanctions. The conditions attached to the rescue packages and the relevant decisions of the European Council were also not adequately implemented in the highly indebted countries as a result of political resistance. Furthermore, the European Central Bank could not execute anything other than selective interventions without losing its statutory independence and its commitment to monetary stability.
Additionally, crisis management made apparent the fault lines in the consensus among the EU member states. Although the European currency had been agreed as a joint project of all member states in the Treaty of Maastricht, the United Kingdom and Denmark had secured an opt-out and Sweden also did not join the common currency when it fulfilled the membership criteria. They therefore primarily participated in the crisis management effort – like the other EU countries outside the eurozone – through their membership of the International Monetary Fund (IMF). In Finland the promises of assistance became an election issue for populist elements, in Slovakia they triggered a government crisis. Two camps formed among the euro countries. One considered the issue of joint government bonds (euro bonds) and stronger central bank intervention in the bond market necessary, while Germany, the Netherlands and Austria, the core of the other camp, rejected these instruments in order to prevent the de facto communitization of debts.
Expansion of total indebtedness
Europe was split and only able to reach a compromise under the pressure of events – for example, with the decision on a provisional stabilization mechanism in May 2010, the subsequent establishment of the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) in July 2011. A strategic change of European policy was probably triggered much less by the failed attempt to break the strength of the crisis through a partial waiving of Greek liabilities to private creditors than the continuing weakness of the Italian government when it came to implementing the reforms in Rome that it had promised at the summit table in Brussels.
The enduring crisis demonstrated that the countries of the eurozone had in effect lost their formal sovereignty over fiscal matters. All of them – even Germany – had significantly increased their overall indebtedness as a result of the financial crisis of 2008 and thereby lost national freedom of manoeuvre. If they wanted to regain their sovereignty, they had to shape their economic, structural and fiscal policy together. With the package of six directives and regulations, the so-called “six-pack”, the European Commission, European Council and European Parliament already approved a strengthening of the stability pact intended not only to improve national budgetary discipline before the adoption of national budgets, but also to punish infringements more firmly. In September 2011 Federal Chancellor Merkel let it be known that Germany was now ready to go forward and work for treaty reform with the goal of deepening the monetary union into a “fiscal union”. The proposals that were prepared jointly with France formed the basis for the break at the European Council of 8–9 December 2011.
Introducing a debt cap into national law
In combination with the earlier decisions, this summit has significantly changed the EU. More clearly than ever before, the group of euro countries is at the political centre; this is also evident in the fact that the chair at the European Council level coincides with the role of the Council president. This is likely to continue in the succession of Herman Van Rompuy. The euro countries want to continue meeting at the highest level every month until further notice. The permanent stability mechanism is being brought forward and all participating countries will introduce a debt cap into national law. Additionally, they are striving for a treaty reform that will make implementation of the assessment of draft national budgets by European authorities as legally binding as possible and anchor automatic sanctions in the treaties.
In practice this will lead to a gradual Europeanization of fiscal and economic policy, and within that framework Europe will also play a role in shaping labour market, social and retirement pension policy as well as taxation policy. From 2012, as a result of the pressure arising from the crisis, the member states will be negotiating on the introduction of a “political union”, which had once been the goal of the negotiations for the Treaty of Maastricht, but which it had not been possible to realize. Twenty years ago, like today, the decisive impetus came from Germany. Circumstance has now made what was once a fundamental question of German policy on Europe an absolute necessity for Angela Merkel. Germany has not been able to secure its basic positions on solving the debt crisis only on the basis of its size and relative weight. A failure of the euro would do incalculable damage to the entire EU including Germany. In such a situation it appeared more meaningful to Berlin to maintain the monetary union, which had largely been based on German ideas at its inception, through an active strategy of treaty reform. In probably the most serious crisis of European policy since the beginning of the integration process German policy returned to its traditional approach of striving for greater integration to increase Europe’s capacity to act.
The dramatic negotiations have changed the climate of European politics: 9 December 2011 demonstrated the determination of the 17 euro countries to move forward when agreement could not be reached among the 27. The other EU member states understood this and decided – not least as a result of Poland’s clear stance – to support this strategy. Before the end of the summit three previously hesitant countries also agreed to the Franco-German initiative so that finally only the United Kingdom did not wish to participate in treaty reform. As in earlier phases of European policy, the credible expression of the way forward did not divide Europe, but prompt its cohesion, on this occasion, however, at the cost of outsider status for a large and, for Europe, important member state.
The door to the EU must remain open
Nevertheless, the treaty negotiations will be difficult – ideas about the content and scope of treaty amendments still differ, although the general course has been set. Furthermore, the negotiating partners would be well advised to shape reform in such a way that, like the Schengen Agreement, it can later be precisely fitted into community law. The door must remain open for the United Kingdom and other present and future EU members; however, it must not do so at the cost of a standstill.
Chinese has only one character for the words “crisis” and “opportunity”. This idea of the creative potential of crisis is equally part of European thinking. Short-term measures to control the European debt crisis will continue to be necessary and they will require decisions while treaty reform is being negotiated. The reform itself must gain the acceptance of Europeans in the participating countries. Accordingly, the opportunities of this policy must be made clear and understandable. At the same time Europe needs a renewal of the relationship between citizens and state, between self-interest and common welfare, to overcome the lack of responsibility of political parties and the failure of state administrations that dramatically worsened the situation at the centres of the crisis. Here, too, lies a task for Europe: using funds from the community and the member states to anchor effective, efficient and democratic governance in the whole European Union.///
Josef Janning – political scientist and expert on Europe – is Director of Studies at the European Policy Centre (EPC), an independent think tank in Brussels.
