German conservatives’ eurobond awakening
For years, Angela Merkel’s allies railed against plans
that carried even the slightest whiff of joint liability for debt. No longer.
By MATTHEW
KARNITSCHNIG 5/20/20, 10:15 PM CET Updated 5/21/20, 4:55 AM CET
BERLIN — If
Angela Merkel’s sudden embrace of a €500 billion debt-fueled fund to help
Europe’s coronavirus recovery came as a surprise, her success in winning the
endorsement of her own conservative party for the plan was a jaw-dropper.
For years,
German conservatives railed against proposals in Europe that carried even the
slightest whiff of joint liability for debt.
“We’re not
going to overcome chronic indebtedness by dividing the debt amongst ourselves,”
Horst Seehofer, then-leader of Bavaria’s Christian Social Union (and current
German interior minister) said at the time of the eurozone crisis. Then-Labor
Minister Ursula von der Leyen responded to a worsening of the crisis in 2011 by
suggesting Germany demand gold reserves or stakes in industrial companies as
collateral for any loans to fellow euro members.
Though
Merkel shot down von der Leyen’s idea, the chancellor was hardly a pushover
when it came to spending German treasure on eurozone weaklings.
Times have
changed.
Conservative
leaders say they have few qualms about accepting the common debt issuance as it
doesn’t entail the kind of large-scale mutualization they so feared during the
Greek crisis.
Merkel’s
conservatives have put their weight behind the Franco-German plan presented on
Monday — which would move the EU one step closer to a bona fide fiscal union —
with almost no questions asked.
“We support
Chancellor Merkel and President [Emmanuel] Macron’s joint initiative as a major
contribution to European solidarity in the corona crisis,” the Christian
Democratic Union’s parliamentary group said in a statement, released during the
Merkel-Macron press conference.
“This is a
process and it’s important that Germany and France take a common position,”
Andreas Jung, deputy leader of the CDU parliamentary group, explained on German
public television Tuesday.
Even
Friedrich Merz, a prominent fiscal conservative who is running for the
leadership of the CDU, praised Merkel and Macron for “a very good proposal.”
Conservative
leaders say they have few qualms about accepting the common debt issuance as it
doesn’t entail the kind of large-scale mutualization they so feared during the
Greek crisis.
“This
proposal shows that European solidarity can work without mutualization of
debt,” Ralph Brinkhaus, the leader of the CDU parliamentary group, told Der
Spiegel.
At least
when it's old debt.
Countries
would not be allowed to use the money in the fund to repay existing obligations,
which in Italy’s case totals about €2.5 trillion. The bonds sold to seed the
fund would be issued in the name of the EU. That means individual members would
only be responsible for repaying their own share (to be determined by the
European Commission) and not liable for others’ portions.
At least in
theory. It’s hard to imagine that Germany (even if it’s not legally bound)
would allow the EU to default on the bonds if Italy or Spain couldn’t pay what
they owed. The fallout would be too damaging. Such concerns are just one reason
German conservatives rejected similar plans in the past.
So why did Germany’s conservative bloc go from being
the scourge of southern Europe to its enthusiastic savior? In a word, business.
Unlike the
euro crisis, which triggered dramatic turbulence in financial markets but left
German industry unscathed, the corona pandemic threatens Germany’s own economic
stability. The nations in the eye of the euro crisis storm, such as Portugal
and Greece, were not key German trading partners. The countries in focus now —
especially Italy — are a different story.
Italy is
Germany’s fifth-largest trading partner with a total trade volume of more than
€125 billion last year. Major German car companies and machinery makers rely
heavily on suppliers in Italy’s northern industrial corridor. Permanent damage
to those supply chains could also do irreparable harm to German industry.
That’s why
German industry, traditionally close to the CDU, has been one of the loudest
voices urging Berlin to push ahead with the recovery fund.
“The EU’s
response should be unprecedented,” said Dieter Kempf, president of the
Federation of German Industries, the country’s most powerful business lobby, in
a joint statement with his counterparts from Italy and France last week. “In
order to limit the damage to business and society from this crisis, we need a
strong financial policy response with a strong show of solidarity for the
hardest-hit countries.”
While
Merkel appears to have secured the support of key conservatives, and the
leaders of the Bavarian faction, her proposal has met with some resistance on
the backbenches. Whether those voices, which are louder than they are influential,
can mount a conservative uprising is doubtful, however.
For once, the rest of Europe needn't worry about
Berlin's backing.
The German
chancellor is riding high at the moment, with both her personal ratings and
those of her party at their highest levels in years.
That’s why
the opposition is unlikely to have much luck in derailing the proposal either.
The liberal Free Democrats are sticking to their longstanding position that
debt mutualization is a no-go. But with the party polling at just 6 percent in
opinion polls, its influence is limited.
The
far-right Alternative for Germany might have had more luck mounting a
counterattack if it weren’t consumed by a civil war over some leaders' ties to
neo-Nazi elements.
For once,
the rest of Europe needn't worry about Berlin's backing.
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