Wolfgang Streeck on Angela Merkel, the Euro and Europe (review of "Europe's Orphan" by Martin Sandbu)

[Kai Frederik Lorentzen]

"It occurred to him to focus his hobby on the European balance of power, 
because of whose long pathology he had once labored, deeply, all hope of 
waking lost, in the nightmare of Flanders. He started in on a mammoth 
work entitled /Things That Can Happen in European Politics/."
(Gravity's Rainbow, p. 77)

 > ... Last year, the refugee crisis offered Merkel another opportunity 
to demonstrate just how fast she can change tack. Once again, media 
coverage influenced her decision-making, just as it would a few months 
later when smartphone videos of the New Year’s Eve riot at Cologne 
Central Station triggered another 180 degree turn in her policies. In 
July a PR event, part of a government campaign to encourage cabinet 
members to meet ordinary citizens and listen to their ideas, went wrong. 
One of the young people invited to take part in a ‘dialogue’ with Merkel 
on the environment, the 14-year-old daughter of Palestinian asylum 
seekers, unexpectedly complained in front of the TV cameras that her 
family, who had been living in Germany for four years, might be sent 
back to the Lebanon at any moment. She asked, in flawless German, why 
she wasn’t allowed to stay in Germany ‘to enjoy life like everybody 
else’. Merkel said something like, ‘we cannot take in everyone, much as 
we might want to.’ The girl began to cry. Not knowing what to do, Merkel 
started patting the child’s head with a helpless expression on her face. 
The result was widespread outrage on social media. A few months later, 
the authorities told the girl’s family that they could stay in Germany 
for at least another year.

The elite was persuaded that the German public would never put up with 
images like those of the Jungle in Calais. Day after day the media, 
whipped into a frenzy by Facebook and Twitter, accused France and 
Britain of callously denying migrants’ human rights. Then, in September, 
the publication of the photograph of the dead Syrian child, Alan Kurdi, 
forced political leaders worldwide into hectic if symbolic activity. 
Among Germans it was widely believed that the boy’s death was the fault 
of ‘Europe’ as a whole, including Germany. Meanwhile, refugees had been 
gathering in increasing numbers at Budapest’s central station, which 
produced another set of powerful images; most of those refugees seemed 
to be heading for Germany.

A master politician like Merkel will never let a good crisis go to 
waste. It wasn’t just media stories about suffering migrants that led 
her to invite the refugees in Budapest to come to Germany, no papers 
required and no questions asked. What Merkel called ‘showing a friendly 
face in an emergency’ was meant to shame those who, during the euro 
crisis, had enjoyed the cartoons of Merkel and her finance minister, 
Wolfgang Schäuble, in Nazi uniform. By opening the German border while 
the French and British borders remained closed, Merkel could hope to 
recapture the moral high ground occupied for so long by those accusing 
the German government of sado-monetarism, or worse.

Another factor was the tight labour market that German employers, still 
Merkel’s main constituency, were facing, especially after the 
introduction of a statutory minimum wage was forced on Merkel by her 
coalition partner, the SPD. Rumours spread in the German press that 
Syrian refugees in particular, many of them allegedly with degrees in 
engineering and medicine, had all manner of skills. German economic 
research institutes predicted a new /Wirtschaftswunder/, while employers 
promised to invest heavily in training the presumably tiny number of 
less skilled immigrants. Everybody assumed that most if not all the 
refugees and asylum seekers – a distinction soon lost in the general 
excitement – would stay in Germany for a long time if not for good. For 
Merkel, who in October 2010 claimed that ‘the /multikulti/ approach 
[had] failed, absolutely failed,’ this was no longer a problem. In fact, 
it had become a solution: in the first half of 2015, several studies 
indicated that the expensive measures taken over a decade of Merkel rule 
to induce German families to have more children had had next to no 
effect. Early that summer, to avert what was perceived as a looming 
demographic crisis, Merkel got her closest aides to test the mood in the 
party and among the general public on immigration legislation, but was 
met with firm resistance.

Budapest was what the ancient Greeks called a /kairos/ – a lucky moment 
when a number of birds were positioned in such a way that they could be 
killed with one stone. Politics, as always with Merkel, trumped 
policies. ‘Showing a friendly face’ would make it possible for the 
Greens at the next election in 2017 to do what their leadership has long 
wanted to do but never dared: enter into a coalition government with the 
Christian Democrats. Merkel acted exactly as she did on neoliberal 
reform in 2005 and nuclear energy in 2011: quickly, on her own, and 
without wasting time explaining herself. Just as she did when she 
ordered the /Energiewende/ (‘energy transition’) while the law extending 
the lifespan of the nuclear power plants was still on the books (several 
energy supply companies are suing for damages), she counted on the 
opposition parties in the Bundestag – Linkspartei and the Greens – not 
to ask awkward questions, and they obliged. The members of her party 
couldn’t complain: they had been backed into a corner by the SPD’s 
approval of Merkel’s stance, and by their desire not to damage their 
leader. Once again, a decision ‘that will change our country’, as Merkel 
herself put it, was made without regard for democratic process or, for 
that matter, constitutional formalities. When Merkel declared the German 
borders open, there had been no cabinet decision to this effect and no 
official statement in the Bundestag. Since the opposition didn’t ask, as 
Merkel knew they wouldn’t, nobody knows to this day what sort of order, 
legal or not, by whom and when, was given to the police. The Interior 
Ministry is still refusing requests from leading figures (including the 
former president of the constitutional court, who was preparing a legal 
opinion on the matter for the Bavarian government) for access to the 
ministerial decree that should have been issued to the border authorities.

There were good reasons for asking questions. The refugees, more than a 
million of them, who arrived in Germany in 2015, all arrived from safe 
third countries. Under German and European law, they had to register in 
the country where they entered the European Union, and then wait to be 
assigned a legal residence in a member state. Merkel seems to have 
decided that she could safely ignore all this. When anyone complained 
that this was both a huge stress test on German society and a giant 
social engineering project, Merkel regally announced that if she had to 
apologise for ‘showing a friendly face’, ‘then this is not my country’ – 
an extraordinary statement for a democratically elected leader to make. 
In fact, as the /Energiewende/ demonstrated, she has for some time been 
governing not like a parliamentary leader but like a president with 
emergency powers. For some time, inquiries into the wisdom of her 
immigration policy were answered by her entourage – which in this case 
included all the Bundestag parties – by claiming that the mere 
expression of dissent ‘played into the hands of the right’, a potent 
rhetorical device in Germany. Until Cologne, concern over the 
government’s handling of the refugee crisis was effectively suppressed.

Between September and January, Merkel’s minister of the interior was 
left out of the loop as Merkel governed directly, using staged public 
appearances – press conferences, talk shows and party conventions – to 
cultivate the support of those in German society who saw the influx of 
refugees as an opportunity to demonstrate to the world their country’s 
new friendliness. Merkel did not shy away from Obama-style nationalist 
pathos, employing it in her annual summer press conference on 31 August, 
when she told her compatriots: ‘Germany is a strong country … We did so 
many things, we can do that. We can do it, and where something gets in 
our way, it has to be overcome.’ For six months she evaded all 
constitutional checks and balances, enjoying the praise showered on her 
by, among others, /Time/ magazine/,/ which made her Person of the Year 
2015. She was talked about as a candidate for the Nobel Peace Prize, and 
even Holocaust Remembrance Day on 27 January turned into a Merkelfest 
when the guest speaker in the Bundestag, an Austrian writer who survived 
the Holocaust, told her audience that ‘this country, which eighty years 
ago was responsible for the worst crimes of the century, has today won 
the applause of the world, thanks to its open borders.’

*

What about Europe? And why dwell so long on the refugee crisis when I’m 
supposed to be discussing a book on the euro crisis? The answer is that 
Merkel’s immigration policy offers an object lesson in what other 
countries can expect from Germany acting European. Just as the United 
States sees the world as an extended playing field for its domestic 
political economy, Germany has come to consider the European Union as an 
extension of itself, where what is right for Germany is by definition 
right for all others. There is nothing particularly immoral about this; 
indeed Germans think it is supremely moral, as they identify their 
control of Europe with a post-nationalism understood as 
anti-nationalism, which in turn is understood as the quintessential 
lesson of German history. Very much like the US, German elites project 
what they collectively regard as self-evident, natural and reasonable 
onto /their/ outside world, and are puzzled that anyone could possibly 
fail to see things the way they do. Perhaps the dissenters suffer from 
cognitive deficits and require education by Schäuble in the Eurogroup 
classroom?

One problem with hegemonic self-righteousness is that it prevents the 
self-righteous from seeing that what they consider morally self-evident 
is informed by self-interest. The self-interest of German export 
industries, for example, underlies Germany’s identification of the 
‘European idea’ with the single European currency. The problem is 
exacerbated by the fact that the national interest that is mistakenly 
seen as identical to the interest of all reasonable human beings, in 
Europe and beyond, is necessarily shaped by the political interest of 
the government and its dominant social bloc in preserving their power. 
This puts peripheral countries at the mercy of the national power games 
and the moral and semantic ethnocentrisms of countries at the centre, 
which are hard to decipher for outsiders – especially with a postmodern 
leader like Merkel who, free from substantive commitments and 
constitutional constraints, has perfected the art of staying in power by 
means of unpredictable changes of course.

As the refugee crisis unfolded, Europe was dragged into the complicated 
twists and turns of German domestic politics. Merkel early on informed 
an astonished German public that controlling national borders had become 
‘impossible in the 21st century’, and backed this up by aggressively 
criticising the Hungarian government for preparing to close its borders. 
After Cologne, of course, the closing of borders suddenly became 
possible again, and Hungary re-emerged as a model for the rest of 
Europe, in particular for Greece, which was threatened by Germany with 
exclusion from the Schengen area if it didn’t seal its borders. German 
law forbids, or is said by the German government to forbid, sending 
would-be immigrants away once they have expressed a desire to apply for 
asylum. So Merkel had to get the Greeks, and Europe as a whole, to 
observe this principle, lest her German pro-immigration constituency 
smelled the rat that was heading in its direction. The burden of keeping 
the migrants out of Europe fell on Turkey, which was supposed to put an 
end to the illegal trafficking of migrants to Greece – on a country, 
that is, whose human rights record suggests it may not be particularly 
careful when dealing with Syrian or any other refugees. Of course, 
Turkish co-operation had a price, and though Merkel had in the past 
steadfastly opposed the country’s bid for EU membership, now, having 
changed tack again and speaking on behalf of Europe as a whole, she 
promised Erdoğan expedited negotiations on accession as a reward for 
preventing the Syrian refugees she had invited to enter Germany from 
entering Greece. When Turkey demanded money too, Merkel chose to see 
this as a matter for ‘European solidarity’, just like the funding of the 
new EU border protection agency, Frontex, which patrols the Greek and 
Italian coastlines. European borders become German borders, and by 
implication Europe becomes Germany. By mid-February, German warships 
under Nato command were patrolling the Mediterranean in order to 
intercept migrants and return them to Turkey. Since Nato warships are 
neither European nor German, even if they are German warships, the 
rescued can be sent back without the German courts or the German Greens 
interfering.

So immigration once again became ‘Europeanised’ while Europe became more 
‘Germanised’ than ever. Merkel’s highest priority is to avoid having to 
close the German border, as Denmark and Sweden have closed theirs: 
closed borders make for ugly pictures, and they also make German voters 
wonder whether it’s worth paying for Europe if they have to stop at the 
border when they go on holiday. Moreover, German businesses have begun 
claiming that the end of Schengen would cost billions of euros because 
of time lost at Europe’s internal borders, as well as tens of thousands 
of jobs. Even so, the German public had to be given a reason to believe 
that the number of immigrants coming to Germany is going to drop. EU 
member states must therefore agree to take a share of the immigrants 
invited by Germany, even though they weren’t consulted before Merkel 
made her offer. The number of migrants can have no upper limit, or 
/Obergrenze/, a term that Merkel’s PR machine has declared anathema, and 
that has consequently become a signifier in German public discourse of 
/Fremdenfeindlichkeit/ (xenophobia, if not racism). It’s difficult, 
however, for member countries to commit to letting in a defined 
proportion of an undefined total number of migrants. So Visegrád-bashing 
– Visegrád representing the alliance of four Central European countries, 
the Czech Republic, Poland, Slovakia and Hungary – followed 
Hungary-bashing, and German politicians started threatening Poland, of 
all countries, with financial punishment unless it fell in line with 
German-style ‘European solidarity’.

Merkel’s latest change of direction, with three critical /Länder/ 
elections imminent, was announced in a speech to a CDU party conference 
on 30 January, when she pointed out that ‘protection under the Geneva 
Convention is for the moment limited to three years.’ Refugees had to 
understand that their status was a temporary one, she said. Addressing 
them as ‘Du’ rather than the more formal ‘Sie’, Merkel continued: ‘We 
expect that, when peace has returned to Syria and the IS in Iraq has 
been defeated, you will, with the skills that you have received here, 
return to your homeland.’ While this was designed to assuage the growing 
opposition to immigration and perhaps to deter some of the would-be 
immigrants, core supporters of /Wilkommenskultur/ can still pin their 
hopes on the fact that in Germany refugees are normally granted 
indefinite leave to remain after three years, and only a tiny number are 
sent back to their countries of origin even if, after lengthy legal 
procedures, it’s decided that they haven’t got grounds to remain.

The result of all the equivocation, double-talk and Merkelspeak, this 
difficult-to-disentangle mix of self-interest and sentimentality, is an 
immense political and institutional mess caused by the imposition on 
Europe of German policies disguised as European policies to which, 
supposedly, there is no alternative. This includes a restructuring of 
the citizenry through immigration, not just in Germany where it might 
seem economically or demographically expedient, but also in other 
European countries where it definitely isn’t. The result is rapidly 
rising anti-German sentiment in the form of anti-European sentiment, not 
only among political elites but also, most powerfully, among the electorate.

Devastation has similarly been visited on the Economic and Monetary 
Union (EMU): German-dictated European solutions have led to economic and 
political disaster. As with immigration, many people across Europe are 
now calling for more national autonomy on economic policy, including 
monetary policy. There is more discussion than ever before of a ‘Plan B’ 
for the euro, in case attempts by France and Italy to force Germany and 
its allies into a non-German European solution to the crisis do not 
succeed. The new ‘European question’ is whether the only way to protect 
Europe from the antics of a German chancellor and her increasingly 
personal rule is to dismantle centralised European regulations like 
Dublin and Schengen, along with the euro.

*

This, finally, is where Martin Sandbu’s refreshingly eccentric book 
comes in. Its argument, in short, is that giving up on monetary union 
would be a mistake, since a common European currency, despite what 
Europeans are being told, does not have to be a common German currency 
requiring a common German political economy. The euro, Sandbu argues, 
leaves enough space for national variety, autonomy and democracy. That 
the EMU is in such a deplorable state is the result of ill-conceived 
policy decisions made as a consequence of German hegemony, abetted by 
French opportunism and collective strategic shortsightedness. According 
to Sandbu, a self-confessed European federalist, the euro is needed, 
both by Europe and the world, but would be better regulated than it is 
today if it was regulated on British terms, which would safeguard 
national sovereignty regardless of the common supranational currency. 
Britain, Sandbu argues, should not only remain in the EU but should 
adopt the euro, the sooner the better, in its own interest as well as 
that of Europe and everybody else.

Sandbu’s book is both retrospective and forward-looking; its author, 
small wonder given that he works for the /Financial Times/, is enviably 
certain that he knows exactly what went wrong with the euro and how it 
could be fixed. He offers a scathing critique of European ‘rescue 
policies’ after 2008, presenting them as Germany’s imposition of its 
national interests and ideology on the rest of Europe. He expounds at 
length on what the mistakes were, and why they were made. This makes 
demands on one’s patience, but Sandbu does have a point: a bail-in of 
those who had hoped to profit from high-risk lending to what became 
‘debtor countries’ might have spared Europe many of the political 
divisions, the infringements of national sovereignty and national 
democracy, the debt bondage and the economic agony that Euroland 
countries have had to suffer so that banks and their shareholders and 
creditors could be bailed out.

Sandbu offers an interestingly revisionist account of the post-2008 
European crisis. According to him, it was not caused by anything 
specific to the euro but by a credit bubble that affected most rich 
capitalist countries at the turn of the century. The bubble, which was 
due to surplus countries under German leadership moving their capital 
from north to south, had such devastating consequences because of 
national policies in the debtor countries that allowed credit furnished 
by reckless lenders to be used for consumption instead of improving 
productivity. Sandbu argues that debtor countries like Greece and Spain 
did not have a ‘competitiveness problem’, the diagnosis of creditor 
countries and international organisations, but suffered simply from 
over-consumption made possible by borrowed money. The national 
governments, which together with imprudent banks had produced the 
bubble, could and should have been left to deal with the consequences on 
their own, by way of debt restructuring and bank resolution followed by 
structural reform and fiscal expansion. Instead, creditor countries 
bailed out debtor countries so that they would be able to service the 
debt, which was held mostly by German and French financial institutions. 
In return, they expected austerity policies that were intended to 
increase national competitiveness but in fact merely stifled growth. 
Sandbu attributes the insistence on austerity to Germany’s ‘moral’ 
obsessions, according to which debt must always be repaid in full come 
what may – he sides with the ‘mad Germans’ rather than the ‘bad Germans’ 
theory. This relieves him of the need to address the possibility that 
Germany, and other countries too, may have been afraid that risk 
premiums on public debt would increase in response to creditors having 
to accept ‘haircuts’ – an increase that would pose problems for indebted 
countries where servicing that debt consumes a significant proportion of 
public expenditure.

Looking forward, Sandbu argues that a common monetary regime is possible 
without creating a situation in which the Germans run it while other 
countries resist until, as with the immigration crisis, we end up with a 
costly stand-off. National sovereignty, Sandbu claims, is compatible 
with monetary union; no centralised control is needed. In particular, 
there is no need for flexible exchange rates between European countries, 
however different they may be, or for debt mutualisation. (A gold 
standard is compatible with national democracy, after all.) Moreover, 
under the umbrella of the common currency there is leeway for voluntary 
coalitions of the willing and able – for groups of countries to issue 
eurobonds, for example, with or without German participation, just as 
clusters of countries are currently coming together to replace the 
defunct Schengen regime. Even if there was a problem with 
competitiveness, which in countries with monetary sovereignty would 
normally be resolved by monetary devaluation, fiscal devaluation could 
do the trick, with governments cutting non-wage labour costs and 
borrowing to fill the resulting fiscal gap.

Of course, Sandbu’s optimism depends on the German government convincing 
itself and its voters to abandon its ‘idolatry of debt’, and resisting 
American pressure to protect American loans and banks. Sandbu wants the 
Germans to learn from the British that a bank that extends credit to 
over-indebted governments, or to firms and consumers unlikely to repay 
it, must bear the consequences – there should be no bailing out of 
imprudent lenders under the guise of international solidarity. Other 
conditions that must be met include the Germans ceding their role as 
international disciplinarians to the financial markets; the French 
giving up their belief that states are smarter than banks, and getting 
rid of their ‘vainglory and the lack of confidence that so often 
underpins it’; and the British abandoning their obsession with 
‘balancing’ the European powers and joining the EMU to prevent Germany 
from establishing itself as the European unifier (and in so doing 
blowing up the European construction). In addition, countries lagging in 
productivity must under the pressure of now more risk-conscious 
financial markets, impose the domestic reforms necessary for nationally 
generated fiscal stimulus to work – the very reforms that, despite 
German-cum-European pressure, have so far foundered in the face of 
popular and elite resistance. Inflation-prone national institutions, 
especially wage-setting regimes must be converted into 
productivity-enhancing ones, and democratically elected governments must 
resist the temptation to allow credit to be spent on consumption. Behind 
Sandbu’s scenario for a wonderful tomorrow under the EMU, one senses the 
economist’s lack of appreciation for the inertia of institutions, social 
structures and established ways of life, as well as an overly generous 
view of the capacity of markets to punish and correct political 
opportunism, and of treasuries to govern and restructure economies and 
societies using skilfully measured doses of money and credit – a dream 
Keynes may be forgiven for having dreamed in a society incomparably more 
deferential to established authority than today’s.

Sandbu’s belief that a common European currency can be run without an 
international hierarchy given to ‘unforced (or German-forced) errors’ is 
fair enough. But /can/ we ignore the politics here – or the relation of 
the German government to its electorate, or northern states in relation 
to their southern and eastern peripheries, and southern elites requiring 
infusions of cash to prevent their states and societies from falling 
apart? And /can/ markets be trusted to make politics dispensable? Even 
if the debt crisis is, as Sandbu suggests, resolved by sovereign default 
and debt forgiveness, and if some kind of growth can be restored by a 
politics of productivity instead of debt-financed consumption – will 
this close the gap between incomes and living standards in the European 
North and South and thereby pre-empt demands for a ‘transfer union’? 
There is certainly room for doubt: consider the apparently 
insurmountable regional disparities between northern and southern Italy, 
or between West Germany and East Germany, where another non-optimal 
currency union took place 25 years ago. Unlike the disparity between 
north and south in Italy, the German regional income gap cannot be 
blamed on mafioso malfeasance, nor was there a lack of ‘reform’ in East 
Germany: the old elite there was removed in 1990 and there was a 
comprehensive transfer of the West German system. Still, for almost two 
decades now, per capita income in East Germany has been between 25 and 
30 per cent lower than in the West, and tax revenue is lower still, even 
though, since the turn of the century, there has been a yearly transfer 
from west to east of between 3 and 4 per cent of national GDP. All this 
does, however, is keep the gap from widening.

Sandbu’s vision of a prosperous future under a common currency, with 
national autonomy benevolently policed by a well-ordered financial 
market, may seem an economist’s utopia. Whether monetary union will 
break down like Dublin and Schengen remains to be seen. What seems most 
likely, unfortunately, is a big and long-lasting mess ... <


http://www.lrb.co.uk/v38/n07/wolfgang-streeck/scenario-for-a-wonderful-tomorrow


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