Merkel may have got her way with treaty agreement, but at what cost?

Tue, Jan 31, 2012, 00:00

GERMANY'S ROLE: Berlin officials are aware that opinion remains divided over what is the right economic path

THROUGHOUT THE changing face of the five-year crisis, German chancellor Angela Merkel has browbeaten her colleagues – and the watching media – with a fixed repertoire of political maxims which, through overuse, have slipped from maxim to truism to cliche.

Her favourite – “if the euro fails, then Europe fails” – is followed closely by “I want Germany to emerge from this crisis stronger than when it went in”.

After Germany was moved to the recovery ward, and the euro zone became Merkel’s new patient, she announced: “I want Europe to emerge stronger than when it went into the crisis.”

At a dozen summits since, she has steadily increased the pressure – for closer fiscal regulation and limits on deficits – so imperceptibly that one would need a stop-motion camera to notice the movement.

Very slowly, ideas like fiscal brakes and sustainable state financing – once dismissed as Teutonic pipe dreams – found their way into Europe’s political vocabulary and, now, an intergovernmental treaty.

The jury is out on the economic consequences of the deal but, politically, where Merkel was once the outlier she now appears to be the mainland, with countries arranging themselves around Germany.

And now? Domestically, last night’s agreement allows Merkel to sell the treaty at home as a German-led paradigm shift to more discipline in European finances. It remains to be seen who is convinced.

Bundestag president Norbert Lammert, a party ally and the second-most senior figure in the land, attacked as a “whitewash” the final draft for not giving the European Commission the power to take treaty breaches to the European Court of Justice.

For German MPs, facing their voters every weekend, this process has been no German march on Europe, but a series of retreats.

First, Merkel told them Athens could support itself, then she requested backing for a one-off Greek programme. Then we had the temporary rescue fund (the European Financial Stability Facility), then its capacity was expanded, and then the permanent rescue fund (the European Stability Mechanism) was created. At every stage, Germany was the largest financial contributor, with the rising bill attracting voter ire.

“We’ve had to swallow a lot of things that two or three years ago would have been unthinkable and unacceptable,” said Günther Krichbaum, a CDU MP who is head of the Bundestag European committee.

“What we see now is also a compromise that is a long way from Germany imposing its will on Europe. What we cannot afford and would not accept, however, is a clumsy agreement that the markets don’t accept.”

Merkel’s aides present a similar argument. Insisting they harbour no lone leadership ambitions, they are, however, ready to use their influence to get agreement on a fiscal compact and convince markets the euro zone, 17 summits later, has it house in order.

“This isn’t about the euro zone taking its German medicine, but improving the situation in each individual country,” said one Merkel official. “All governments know quite well where their own strengths and weaknesses lie.”

Behind German satisfaction over the deal, Berlin officials harbour no illusions that opinion over the right economic path forward is as divided as ever.

One senior European diplomat described the treaty as a document that Germany wanted and 26 countries did not, and the final text was more an acknowledgement of German leadership in Europe than a new acceptance of German stability-driven, anti-Keynesian economic thinking.

“This treaty is no use economically, and the idea that you can impose fiscal rules and pro-cyclical policies, and remove room to manoeuvre, is laughable,” said Charles Grant of the Centre for European Reform think tank.

Many in Merkel’s own party, the opposition parties and large sections of the German media have flagged the dangers of her austerity-first approach.

As one headline warned: “Even those who act on conviction are perpetrators.”

German officials acknowledged that the treaty agreement now puts Berlin under zugzwang, pressure to move, on issues from pooled sovereign debt to a larger euro zone bailout fund. Merkel has her treaty, but it is far from certain that it will give her the room to manoeuvre on economic stimulus measures that her partners are demanding.

In politics as in life, you should be careful what you wish for.