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Surprise! Merkel Just Vetoed the Presidential Vote. She Has Other Plans In Mind.

In this post we’re going to exam­ine a grow­ing con­flict between the elec­toral quirks of the Euro­pean Union’s demo­c­ra­t­ic sys­tem and Angela Merkel’s vision for and ‘ever clos­er Europe’. As we’ll see, hopes were high that this year’s EU elec­tions would include the first ever indi­rect vote for Euro­pean Com­mis­sion Pres­i­dent. Under the pro­posed plan, if a par­ty man­ages to win the par­lia­ment that par­ty’s “pres­i­den­tial” can­di­date would auto­mat­i­cal­ly be select­ed head of the EU Com­mis­sion Pres­i­dent. If imple­ment­ed, this plan would be quite a depar­ture from the weeks of back­room deal­ing between nation­al lead­ers that has cho­sen the pres­i­dent in the past. And as we’re also going to see, Angela Merkel has BIG PLANS of her own for the Euro­pean Com­mis­sion: Lots of new pow­ers and a big trans­fer­ence of nation­al sov­er­eign­ty to the Com­mis­sion are all on the agen­da. But it does­n’t look like the plan to allow vot­ers to have even an indi­rect vote on the per­son that would be imple­ment­ing this agen­da will be allowed. Not if Angela has any­thing to say about it [1].

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If you’ve been fol­low­ing the upcom­ing EU elec­tions sched­uled for lat­er this month, you’ve no doubt heard about the tight race [2] for EU Com­mis­sion Pres­i­dent pit­ting for­mer Lux­em­bourg prime min­is­ter Jean-Claude Junck­er against out­go­ing EU par­lia­ment pres­i­dent Mar­tin Schulz. And if you’ve been close­ly fol­low­ing that race between Junck­er and Schulz, you’ve no doubt been bored out of your mind [3]:

Top EU elec­tion can­di­dates strug­gle to find dif­fer­ences

By Paul Tay­lor

PARIS Wed Apr 9, 2014 10:14pm BST

(Reuters) — The top two rival can­di­dates to lead the Euro­pean Com­mis­sion strug­gled on Wednes­day to find real pol­i­cy dif­fer­ences in the first live tele­vi­sion debate ahead of Euro­pean Par­lia­ment elec­tions next month.

Cen­tre-right Jean-Claude Junck­er and Social Demo­c­rat Mar­tin Schulz — whose native lan­guages are Lux­em­bour­gish and Ger­man — argued polite­ly in French over the appro­pri­ate bal­ance between bud­get aus­ter­i­ty and invest­ment to pro­mote eco­nom­ic growth in a 50-minute debate on France 24 tele­vi­sion.

But they agreed far more often than they dis­agreed in a pro-Euro­pean con­sen­sus that may be exploit­ed by anti-EU pop­ulists of the far right and hard left, who blame poli­cies made in Brus­sels for the con­ti­nen­t’s eco­nom­ic cri­sis and mass unem­ploy­ment.

Junck­er, 59, the vet­er­an for­mer Lux­em­bourg prime min­is­ter and chair­man of euro group finance min­is­ters, stressed the need to main­tain tight con­trol of pub­lic finances and said he could see no grounds to give France more time to reduce its deficit.

“France has already had two exten­sions to its peri­od of adjust­ment. A pri­ori there is no obvi­ous rea­son why it should get a third one,” he said, while not­ing that the Euro­pean author­i­ties would study France’s bud­get plans before decid­ing.

“We can­not accept a pause in bud­get con­sol­i­da­tion.”

Schulz, 58, the out­go­ing pres­i­dent of the Euro­pean Par­lia­ment, hit back, say­ing new French Prime Min­is­ter Manuel Valls had announced a coura­geous and ambi­tious reform pro­gramme in par­lia­ment on Tues­day.

“If he needs sup­port from the Euro­pean Com­mis­sion, he should get that sup­port,” the Social­ist can­di­date said, not­ing that France is the euro zone’s num­ber two econ­o­my and was now ready to make nec­es­sary eco­nom­ic reforms.

France has promised to bring its bud­get gap, now at 4.3 per­cent of nation­al income, below the EU treaty lim­it of 3 per­cent by the end of 2015. But the new gov­ern­ment has hint­ed it will seek a slow­er pace of deficit reduc­tion to pre­serve growth.

“WHAT DISTINGUISHES YOU?”

Schulz said Junck­er and oth­er most­ly con­ser­v­a­tive lead­ers in charge of the Euro­pean insti­tu­tions at the out­break of the euro zone debt cri­sis had mis­di­ag­nosed the prob­lem by pre­scrib­ing strict aus­ter­i­ty, forc­ing mil­lions out of work.

This the­o­ry that uni­lat­er­al spend­ing cuts would restore investors’ con­fi­dence man­i­fest­ly did­n’t work. We have had to change course in recent years,” he said.
...

Note that when Mar­tin Schulz says “his the­o­ry that uni­lat­er­al spend­ing cuts would restore investors’ con­fi­dence man­i­fest­ly did­n’t work. We have had to change course in recent years”, he is com­plete­ly reject­ing the premise behind the “Con­fi­dence Fairy” the­o­ry of eco­nom­ics that has been used to jus­ti­fy EU aus­ter­i­ty since 2008. So that was actu­al­ly a pret­ty mas­sive admis­sion.

Con­tin­u­ing...

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Europe need­ed more strate­gic invest­ment in research, edu­ca­tion and inno­va­tion to get 28 mil­lion unem­ployed EU cit­i­zens, includ­ing more than half of young peo­ple in some coun­tries, back to work, he added.

Both described Ger­many as the most suc­cess­ful eco­nom­ic mod­el for Europe. Both said Europe should do more to wel­come legal immi­grants and it was up to nation­al gov­ern­ment to pre­vent any abuse of their wel­fare sys­tems by migrants.
...

Note that when both can­di­dates describe Ger­many as the most suc­cess­ful eco­nom­ic mod­el for Europe, it’s sort of like say­ing every region of the US should strive to repli­cate Sil­i­con Val­ley’s econ­o­my [4]. It’s a nice thought, but is that real­ly a solu­tion for Europe? Can every coun­try become a high-tech export-ori­ent­ed pow­er­house?

Skip­ping down...

...

The Euro­pean Par­lia­ment insists that the leader of the polit­i­cal group that wins the most seats in the May 22–25 direct elec­tions in the 28 mem­ber states should be cho­sen to lead the exec­u­tive Com­mis­sion. How­ev­er, the EU treaty says it is up to the Euro­pean Coun­cil of nation­al lead­ers to nom­i­nate a can­di­date tak­ing account of the elec­tions and after hold­ing con­sul­ta­tions.

With Euroscep­ti­cal Britain and some oth­ers opposed to both Junck­er and Schulz, seen as old-style Euro­pean fed­er­al­ists, it is not clear whether either will get the nom­i­na­tion.

At one point, one of the pre­sen­ters asked the can­di­dates: “What dis­tin­guish­es you from each oth­er?”

There was an embar­rassed pause before Schulz said: “I don’t know what dis­tin­guish­es us... The EPP can­di­date (Junck­er) is quite close to my pro­gramme, but whether the EPP is so close is anoth­er ques­tion.”

Junck­er played up his own long expe­ri­ence of Euro­pean lead­er­ship, say­ing twice point­ed­ly, “when I was in the Euro­pean Coun­cil, which Mr Schulz was­n’t, allow me to explain to him...”

Schulz coun­tered by say­ing the Euro­pean Par­lia­ment had warned EU lead­ers from the start of the cri­sis that their pol­i­cy mix was wrong.

Well, at least it sounds like there are some dif­fer­ences between the two main can­di­dates: Jean-Claude Junck­er con­tin­ues to open­ly embrace the dis­cred­it­ed eco­nom­ic the­o­ries that tanked the EU’s economies in recent years where­as Mar­tin Schulz does­n’t seem to eager to con­tin­ue the mad­ness. That’s actu­al­ly good news for the EU because if Schulz eeks out a win we might actu­al­ly see an end to the aus­ter­i­ty mad­ness (or, more real­is­ti­cal­ly, a bit of an eas­ing).

The above arti­cle is from a month ago and now EU the elec­tions are just weeks away. So have any new dis­tinc­tions between the two peo­ple most like­ly to head the EU for the next five years cropped up over the past month? Not real­ly [5]:

Time to relax aus­ter­i­ty? Can­di­dates for EU’s top job divid­ed
Social demo­c­rat Schulz would loosen rules for strug­gling coun­tries, while con­ser­v­a­tive Junck­er rules out soft­er stance

Ian Traynor
theguardian.com, Thurs­day 8 May 2014 08.24 EDT

The two key fig­ures lead­ing the Euro­pean elec­tion cam­paign in the hope of becom­ing the next head of the EU exec­u­tive are split on how to recov­er from Europe’s worst-ever cri­sis – the debt and cur­ren­cy tur­moil of the past five years that almost brought the col­lapse of the euro.

Mar­tin Schulz, the Ger­man pres­i­dent of the Euro­pean par­lia­ment who leads the social demo­c­ra­t­ic cam­paign, said strug­gling coun­tries such as Italy and France should be giv­en more time to get their pub­lic finances in order, and also called for a loos­en­ing of the sin­gle cur­ren­cy’s rules on debt and deficits.

Jean-Claude Junck­er, the for­mer prime min­is­ter of Lux­em­bourg who leads Europe’s con­ser­v­a­tive Chris­t­ian democ­rats in the con­test, ruled out relax­ing the rules for the cen­tre-left gov­ern­ments in Rome and Paris.

In a cam­paign debate chaired by the Guardian and four oth­er Euro­pean news­pa­pers, Junck­er stuck to the Ger­man-led aus­ter­i­ty pre­scrip­tions that have stran­gled large tracts of south­ern Europe and gen­er­at­ed mass unem­ploy­ment, while Schulz attacked that approach as too dog­mat­ic and inflex­i­ble.

Schulz said: “The cri­sis was rein­forced by the the­sis that you have only to clean up bud­gets to win back investor con­fi­dence and eco­nom­ic growth. The main approach in Europe was aus­ter­i­ty poli­cies …

“This the­sis does not work. You take dra­con­ian action to reduce debt, but there is no growth.”

Pub­lic bor­row­ing for pro­duc­tive invest­ment should be made exempt from debt and deficit cal­cu­la­tions in the euro­zone, he said, in effect call­ing for a loos­en­ing of the debt and deficit ceil­ings from 60% and 3% of gross domes­tic prod­uct respec­tive­ly. “With over­all debt lev­els, we have to define what is actu­al­ly state debt and what is real­ly invest­ment in the future.”
...

Note that when Mar­tin Schulz says pub­lic bor­row­ing for pro­duc­tive invest­ment should be made exempt from debt and deficit cal­cu­la­tions in the euro­zone, he basi­cal­ly acknowl­edg­ing that gov­ern­ment stim­u­lus spend­ing is use­ful and has a role dur­ing a bad econ­o­my. While this might seem like Econ 102, this is a huge diver­gence from the eco­nom­ic thought that has been embed­ded into the EU’s gov­ern­ing struc­ture ever since the EU mem­ber states enshrined the Fis­cal Com­pact treaty in the con­sti­tu­tions. So, should Schulz win, we’ll see if his back­ing of stim­u­lus spend­ing can over­come the man­dates in the Fis­cal Com­pact. It could just be hap­py talk that’s too lit­tle, too late [6] but we’ll see!

Con­tin­u­ing...

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Italy and France prob­a­bly need­ed more time than that cur­rent­ly grant­ed by the Euro­pean com­mis­sion to get their finances in order, he said. “If they don’t get back on their feet, we all have a com­mon prob­lem … If it turns out they need a year more, I would be pre­pared to give them an extra year.” He accused “some” EU gov­ern­ment heads and EU com­mis­sion­ers of being “com­plete­ly inflex­i­ble” – tak­ing aim at his own chan­cel­lor, Angela Merkel.

Junck­er, on the oth­er hand, com­plete­ly reject­ed being soft­er with Rome and Paris. “No, no exten­sion of the dead­lines,” he said in ref­er­ence to the Ital­ian and French gov­ern­ment oblig­a­tions to stick to the euro rule­book. “There’s no alter­na­tive to rea­son­able bud­get con­sol­i­da­tion.”
...

Again, note how one of the two main can­di­dates for head­ing the EU wants no eas­ing up on aus­ter­i­ty and this is part of his cam­paign plat­form! It’s a reminder that much of the EU elec­torate still embraces aus­ter­i­ty (typ­i­cal­ly only for oth­er nations) even after its dis­as­ter­ous results in recent years. It’s a reminder that the elec­toral appeal of aus­ter­i­ty has lit­tle to do with sound eco­nom­ics. Amoral moral­i­ty plays [7] don’t make for great eco­nom­ic mus­es.

Con­tin­u­ing...

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Junck­er called for a min­i­mum wage across the EU. But both men, seen as fed­er­al­ists and advo­cates of much greater Euro­pean inte­gra­tion, said there was no case for com­mon EU social secu­ri­ty sys­tems, unem­ploy­ment insur­ance schemes, or child ben­e­fits.

...

Aside from their dif­fer­ences on the mer­its of aus­ter­i­ty, there were few real pol­i­cy clash­es between the two can­di­dates and plen­ty of com­mon ground. Schulz was more vol­u­ble, detailed and thor­ough in response to ques­tions, Junck­er more tac­i­turn.

On the biggest imme­di­ate issue con­fronting Europe on its east­ern bor­ders – the Ukraine con­flict and what to do about Rus­si­a’s Vladimir Putin – Junck­er and Schulz were in broad agree­ment that stiffer eco­nom­ic sanc­tions against Rus­sia would prob­a­bly be need­ed. Rep­re­sent­ing the Ger­man con­sen­sus, Schulz was much more emphat­ic about not iso­lat­ing Rus­sia and keep­ing the door open to nego­ti­a­tions.

“Either you have a war – and we have enough mil­i­tary ceme­ter­ies in Europe – or you decide on eco­nom­ic sanc­tions and apply pres­sure at the same time,” said Junck­er. “Pres­sure alone is not enough, dia­logue alone does not work either. But those who find Europe laugh­able, they must be coun­tered, because Europe is not a light­weight. You have to think about what the alter­na­tive would be. If you don’t want war, you have to want sanc­tions.

Schulz said that Europe’s cred­i­bil­i­ty would be on the line if the talk of wide-rang­ing eco­nom­ic sanc­tions turned out to be pos­tur­ing. “Eco­nom­ic sanc­tions are the log­i­cal con­se­quence if it is proven that Rus­sia is behind the prob­lems in east­ern Ukraine and won’t stop pres­sur­ing oth­er parts of its neigh­bour­ing regions. But for the sake of its cred­i­bil­i­ty, Europe has to imple­ment them and not just announce them.”

How­ev­er, sub­stan­tive eco­nom­ic and trade sanc­tions against Rus­sia would also hit Europe hard, Schulz warned. With a nod to opin­ion in Ger­many, he said the pub­lic had to be pre­pared for the impact of eco­nom­ic war­fare.

...

Regard­ing war with Rus­sia, note that Junck­er has also said “Rus­sia is test­ing Europe at the moment. Putin knows well that we do not want war. There is not a sin­gle per­son in Europe that wants war after what we lived through twice in the 20th cen­tu­ry. But we can­not let him get away with it.” [8]

So when Junck­er says “either you have a war – and we have enough mil­i­tary ceme­ter­ies in Europe – or you decide on eco­nom­ic sanc­tions and apply pres­sure at the same time...Pressure alone is not enough, dia­logue alone does not work either. But those who find Europe laugh­able, they must be coun­tered, because Europe is not a light­weight. You have to think about what the alter­na­tive would be. If you don’t want war, you have to want sanc­tions,” it sure sounds like Junck­er is attempt­ing to draw a rhetor­i­cal line in the sand with the threat of war behind it with­out actu­al­ly spec­i­fy­ing where that line exists. Let’s hope this is just about pol­i­tics [9].

Still, it looks like we found anoth­er rare area of dis­agree­ment between the two top EU can­di­dates: Junck­er sup­ports aggres­sive sabre-rat­tling towards Rus­sia where­as Schulz prefers that the EU only make threats that it can actu­al­ly back up. So there we go, a dif­fer­ence! Junck­er seems much more will­ing to use the threat of war as a kind of “back up” to the eco­nom­ic sanc­tions. Assum­ing this isn’t just blus­ter on Junck­er’s part that’s a poten­tial­ly big dif­fer­ence!

Con­tin­u­ing...

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While Schulz and Junck­er con­test the elec­tions at the head of the two main polit­i­cal blocs on the cen­tre-left and centre–right, for much of the EU elite, they are more of a prob­lem than a solu­tion in Europe’s time of trou­bles.

Both men insist­ed that if they led their bloc to vic­to­ry in the elec­tions, they should become the next pres­i­dent of the EU exec­u­tive, the Euro­pean com­mis­sion, from Octo­ber. Junck­er said any­thing less would be a “mock­ery of democ­ra­cy”. Schulz argued that the head of the com­mis­sion should be elect­ed by the peo­ple, just as in any par­lia­men­tary democ­ra­cy, from city may­ors to prime min­is­ters, side­step­ping the fact that the EU is not a par­lia­men­tary democ­ra­cy.

A com­mis­sion pres­i­dent has nev­er been elect­ed in the EU. The nation­al lead­ers claim demo­c­ra­t­ic pri­ma­cy from their domes­tic gen­er­al elec­tions and have always decid­ed between them who should head the com­mis­sion. They are deeply reluc­tant to con­cede that pre­rog­a­tive to the Euro­pean par­lia­ment, but were caught nap­ping by a par­lia­ment pow­er play. And the cham­ber has to endorse the next com­mis­sion chief by an absolute major­i­ty.

The chances of an ugly, paralysing and pro­tract­ed pow­er strug­gle between the par­lia­ment and the nation­al lead­ers in the wake of the elec­tions are high. Both Schulz and Junck­er may become col­lat­er­al casu­al­ties. The impact on vot­ers’ per­cep­tion of EU democ­ra­cy could then be immense, because vot­ers have been told that one effect of their bal­lot is to decide who heads the com­mis­sion.

Oth­er names cir­cu­lat­ing in EU cap­i­tals for the top com­mis­sion job include the Irish prime min­is­ter, Enda Ken­ny, the out­go­ing Finnish prime min­is­ter on the cen­tre-right, Jyr­ki Katainen, and the Dan­ish prime min­is­ter on the cen­tre-left, Helle Thorn­ing-Schmidt.

The out­come, pos­si­bly in July, will be strong­ly deter­mined by the Ger­man chan­cel­lor, Angela Merkel, who has for­mal­ly backed Junck­er but is known to resent being forced to. “Merkel was out­wit­ted,” said a senior EU diplo­mat. “But she has options and she will exer­cise them. Bru­tal­ly. Any­way, there are very few peo­ple except a few in the par­lia­ment who believe there is a Euro­pean demos.”

Schulz con­ced­ed there was noth­ing “auto­mat­ic” about his secur­ing the com­mis­sion job even if the social democ­rats won the elec­tion, and admit­ted he would not have Merkel’s sup­port as the Ger­man nom­i­nee. But he insist­ed: “What inter­ests the vot­ers here is whether they can influ­ence the deci­sion-tak­ing through the bal­lot box.”

>
Woohoo! An unam­bigu­ous pol­i­cy dis­agree­ment has been found! Unfor­tu­nate­ly, it’s not a dis­agree­ment between Junck­er and Schulz. They’re both on exact­ly the same page on this mat­ter. No, it’s a dis­agree­ment between Junck­er and Schulz on one side and Angela Merkel on the oth­er.

Angela Decides She Enjoys Being the Decider. More Europe? How About More Merkel.
And what’s the dis­agree­ment over? It’s a dis­agree­ment over who should get to decide who actu­al­ly become EU Com­mis­sion Pres­i­dent. That’s right, even though Jean-Claude Junck­er and Mar­tin Schulz are cam­paign­ing to become the head of the EU the sys­tem isn’t actu­al­ly set up to work that way. Vot­ers don’t direct­ly elect their pres­i­dents in the EU. And nei­ther does the par­lia­ment. No, it’s the “Euro­pean Coun­cil”, which con­sists of the elect­ed heads of all EU mem­ber states, that gets to choose who heads the EU. It’s sort like how the US states select­ed their Sen­a­tors before the 17th amend­ment [10], but instead of state leg­is­la­tor select­ing nation­al sen­a­tors you have nation­al lead­ers select­ing the sin­gle head of the EU exec­u­tive branch. That’s how the sys­tem works, at least for now. And Angela Merkel isn’t too keen on chang­ing it.

Keep in mind that this isn’t a new debate and also keep in mind that Angela Merkel does not have the back­ing of her par­ty on this mat­ter (at least not offi­cial­ly). Merkel’s finance min­is­ter, Wol­gang Schauble, was advo­cat­ing a direct­ly elect­ed EU pres­i­dent back in 2012 [11]. This was just months after the sign­ing of rad­i­cal new ‘Fis­cal Com­pact’ that bound all EU mem­ber states to near­ly-bal­anced bud­gets indef­i­nite­ly [12].

And, until last sum­mer, it seemed to many observers that Angela Merkel was ful­ly onboard this vision of a more unit­ed Europe. But last sum­mer, Merkel make a strong about face. Brus­sels has become part of ‘the prob­lem’ in Merkel’s mind, where ‘the prob­lem’ is a waver­ing will to impose aus­ter­i­ty indef­i­nite­ly [13]:

Der Spiegel
About Face: Chan­cel­lor Merkel Cools on Euro­pean Inte­gra­tion

Ger­man con­ser­v­a­tives have long been pas­sion­ate sup­port­ers of increased Euro­pean inte­gra­tion. But late­ly, Chan­cel­lor Angela Merkel has applied the brakes to the process. Brus­sels, she believes, has become part of the prob­lem.

June 25, 2013 – 11:10 AM
BY MELANIE AMANN, PETER MÜLLER, RENÉ PFISTER and CHRISTOPH SCHULT

A par­ty needs two things to win elec­tions: a top can­di­date and a cam­paign plat­form. The Euro­pean Peo­ple’s Par­ty (EPP), a col­lec­tion of con­ser­v­a­tives and Chris­t­ian Democ­rats in Europe, has nei­ther at the moment. And that has a lot to do with CDU leader Angela Merkel [14].

Just one year ago, the Ger­man chan­cel­lor was call­ing for “more Europe, not less.” But now she has com­plet­ed a rad­i­cal about-face. At the EPP sum­mit in the Vien­na Kur­sa­lon con­cert hall last Thurs­day, Merkel showed that she had trans­formed her­self into an EU-skep­tic. Her con­ser­v­a­tive col­leagues were left with the impres­sion that the Ger­man chan­cel­lor now believes that there is too much Europe.

Merkel spoke with notable fre­quen­cy about the prob­lems asso­ci­at­ed with choos­ing a can­di­date to rep­re­sent the par­ty on a Euro­pean lev­el. And in the end, the group made no progress on its plat­form or on the issue of a can­di­date.

What is wrong with the CDU leader? The meet­ing in Vien­na coin­cides with the image of a chan­cel­lor who is devi­at­ing more and more open­ly from her par­ty’s tra­di­tion­al posi­tions on Euro­pean pol­i­cy. She is increas­ing­ly dis­tanc­ing her­self from the for­eign pol­i­cy tra­di­tion that the CDU, more than any oth­er par­ty, has main­tained and upheld since the post­war peri­od.

The con­trast between Merkel and Finance Min­is­ter Wolf­gang Schäu­ble, who embod­ies this tra­di­tion of Chris­t­ian Demo­c­ra­t­ic Euro­pean pol­i­cy, is also becom­ing more notice­able. Whether it is the pace of inte­gra­tion, the neces­si­ty for changes to Euro­pean treaties or the direct elec­tion of the Euro­pean Com­mis­sion pres­i­dent, there are no major issues on which the chan­cel­lor and her finance min­is­ter are of the same mind.

Nev­er a Pas­sion­ate Sup­port­er

Merkel, now in her 14th year as par­ty leader, has learned that she must inject a lit­tle pathos into her voice when the dis­cus­sion turns to Europe. She will no doubt do so when she deliv­ers her state­ment to Ger­man par­lia­ment pri­or to the Euro­pean Union sum­mit this Thurs­day. And because she is aware of the mood in her par­ty, she did not inter­vene when the CDU, at its par­ty con­ven­tion in Leipzig two years ago, approved a posi­tion paper that advo­cat­ed pro­vid­ing Brus­sels with sig­nif­i­cant­ly more pow­er.

But she was nev­er a pas­sion­ate sup­port­er of such a path. More recent­ly, she has been stand­ing firm against expand­ing the pow­er of Brus­sels insti­tu­tions. And she has been par­tic­u­lar­ly vehe­ment when it comes to any­thing that might lim­it the pow­ers held by nation­al lead­ers such as her­self.

Many of her fel­low con­ser­v­a­tives, of course — par­tic­u­lar­ly those who grew up in West Ger­many — still believe that Ger­many must be merged as com­plete­ly as pos­si­ble into the Euro­pean enti­ty. They see it as a nat­ur­al con­se­quence of the wrongs Ger­many com­mit­ted dur­ing the Nazi era. Finance Min­is­ter Schäu­ble enthu­si­as­ti­cal­ly invokes the “vision of a con­ti­nent grow­ing more and more strong­ly togeth­er.” He believes that the cri­sis offers an oppor­tu­ni­ty to pur­sue this path more quick­ly.

Offi­cial­ly, at least, this is the posi­tion of the par­ty as a whole. The CDU con­tin­ues to cel­e­brate itself as cham­pi­ons of Euro­pean uni­fi­ca­tion and their posi­tion papers read as if they had been writ­ten by for­mer Chan­cel­lor Hel­mut Kohl, who became teary-eyed when he spoke of the “House of Europe.” “The com­mit­ment to Europe is for us both a mat­ter of rea­son and a mat­ter of the heart,” reads the CDU cam­paign plat­form [15], which was approved on Sun­day.

Top par­ty offi­cials have been instru­men­tal in keep­ing such pas­sion alive. Deputy par­ty leader Ursu­la von der Leyen, who is Ger­many’s labor min­is­ter, dreams of the con­ti­nent grow­ing togeth­er into a “Unit­ed States of Europe.” Schäu­ble came up with the idea of a Euro­pean finance min­is­ter, who would have the pow­er to dic­tate to the indi­vid­ual coun­tries how much debt they could take on. And if recent CDU res­o­lu­tions are to be tak­en seri­ous­ly, the Euro­pean Com­mis­sion pres­i­dent, who is cur­rent­ly appoint­ed by Euro­pean lead­ers, will soon be elect­ed direct­ly by the peo­ple.
...

Notice how Wol­fang Schauble was­n’t just an advo­cate of a direct­ly elect­ed EU pres­i­dent, some­thing that could be seen as a move towards greater democ­ra­cy com­pared to the cur­rent sys­tem of nation­al lead­ers pri­vate­ly nego­ti­at­ing who gets to be pres­i­dent. Schauble was also float­ing ideas like cre­at­ing a Euro­pean finance min­is­ter who would have the pow­er to dic­tate to the indi­vid­ual coun­tries how much debt they could take on. So, basi­cal­ly, the oppo­site of demo­c­ra­t­ic empow­er­ment. And this would be in addi­tion to the Fis­cal Com­pact. More on that lat­er.

Con­tin­u­ing..

Indi­vid­ual Coun­tries

For Merkel, how­ev­er, rea­son trumps emo­tion, and her rea­son has led her for some time now to do every­thing she can to pre­vent fur­ther steps toward inte­gra­tion and pre­vent Brus­sels from gain­ing more pow­er. She believes that it was pre­cise­ly the unre­al­is­tic pas­sion for a unit­ed Europe that led to the estab­lish­ment of a com­mon Euro­pean cur­ren­cy which lacked a sol­id foun­da­tion. Vision? In an inter­view with SPIEGEL [16] three weeks ago, Merkel warned against spend­ing time “on the­o­ret­i­cal dis­cus­sions of how the Euro­pean struc­tures will look like in 10 or 15 years.” She believes that it makes more sense to tack­le the urgent prob­lems of the euro cri­sis before engag­ing in com­plex debates over restruc­tur­ing the bloc.

Fur­ther­more, Merkel has no inten­tion of tak­ing her par­ty’s res­o­lu­tions seri­ous­ly. She wants the EU to work. But when there is trou­ble, she believes that the indi­vid­ual coun­tries should take the reins, most notably Ger­many and France [17]. This atti­tude leads Ruprecht Polenz, one of the CDU’s most respect­ed for­eign pol­i­cy experts, to con­clude “that dis­il­lu­sion­ment is spread­ing with­in the par­ty over the issue of Europe.”
...

Take a moment to review the descrip­tion of Merkel’s vision for how the EU should work: When there is trou­ble, she believed that the indi­vid­ual coun­tries should take the reins, most notably Ger­many and France?! How is that sup­posed to be inter­pret­ted? Does is sug­gest that Merkel envi­sions an EU where the mot­to is “we’re all in this togeth­er, until there’s trou­ble, and then its every coun­try for itself, so the big­ger the bet­ter at that point”? Or is it more like “we’re all in this togeth­er, until there’s trou­ble, and then Ger­many (and France to a much less­er degree) ‘take the reins’ and impos­es anti-sol­i­dar­i­ty aus­ter­i­ty”? Or how about a bit of both?

Con­tin­u­ing...

...

It has got­ten to the point that Merkel feels strong enough to open­ly con­front pro-Euro­pean ele­ments both in the Ger­man CDU and abroad. Euro­pean Coun­cil Pres­i­dent Her­man Van Rompuy, for exam­ple, was sup­posed to pre­pare a strat­e­gy paper on the future of the EU and present it at the sum­mit this Thurs­day. But Merkel made it clear to Van Rompuy in Jan­u­ary that he could for­get about his paper.

Indeed, she has made sure that there will be no ground­break­ing res­o­lu­tions at all when EU lead­ers meet this week. Van Rompuy’s efforts have been replaced by a doc­u­ment Merkel wrote togeth­er with French Pres­i­dent François Hol­lande. Instead of strength­en­ing the exist­ing insti­tu­tions, Merkel and Hol­lande mere­ly pro­pose a full-time pres­i­dent for the Euro Group, the group of euro-zone finance min­is­ters that over­see the com­mon cur­ren­cy. Offi­cials in Brus­sels are out­raged. “You can’t be con­stant­ly send­ing Mr. Van Rompuy on trips to address the issue of Europe’s con­tin­ued devel­op­ment and then sud­den­ly intro­duce your own paper,” says Euro­pean Par­lia­ment Pres­i­dent Mar­tin Schulz, who will like­ly be the top can­di­date for the Social Democ­rats in next year’s Euro­pean elec­tions.

Part of the Prob­lem

Merkel’s stalling tac­tics are reignit­ing the old basic con­flict that has accom­pa­nied Europe since its found­ing. For those on the one side, Europe will only make progress if inte­gra­tion and the trans­fer of pow­er con­tin­ues to progress. This is the bicy­cle the­o­ry espoused by long-serv­ing Euro­pean Com­mis­sion Pres­i­dent Jacques Delors: Those who don’t keep mov­ing ulti­mate­ly fall over. With­in the Ger­man gov­ern­ment, Schäu­ble is a sup­port­er of this the­o­ry.

Merkel, though, believes that Brus­sels has become part of the prob­lem rather than part of the solu­tion, espe­cial­ly in the euro cri­sis. The chan­cel­lor would like to see Euro­pean Com­mis­sion Pres­i­dent José Manuel Bar­roso, in par­tic­u­lar, lean more strong­ly on heav­i­ly indebt­ed South­ern Euro­pean coun­tries to tack­le domes­tic reform and get their bud­gets under con­trol. Instead, he is now say­ing that the pol­i­cy of aus­ter­i­ty has reached its lim­its.
...

Keep in mind that when Merkel calls for the Euro­pean Comm­si­sion Pres­i­dent to lean more strong­ly on heav­i­ly indebt­ed South­ern Euo­pean coun­tries to “tack­le domes­tic reform” (e.g. gut their safe­ty-net and gut gov­ern­ment spend­ing), she’s refer­ring to coun­tries that have alread had their gov­ern­ments tak­en over by a Troi­ka that imposed bru­tal aus­ter­i­ty, so it’s not exact­ly clear what more Merkel wants from these nations. Love? [18]

Con­tin­u­ing...

...

But Merkel’s Europe-skep­ti­cism is also dri­ven by self-inter­est. As a result of the cri­sis the Ger­man chan­cel­lor has seen her pow­er increase con­sid­er­ably. When she trav­els to Brus­sels for meet­ings of Euro­pean lead­ers, her voice tends to hold the most sway — if only because Ger­many is the strongest econ­o­my in the euro zone. She sees lit­tle rea­son to share her pow­er with, for exam­ple, Bar­roso, a man who she helped maneu­ver into his cur­rent posi­tion in 2004.

This also helps explain why she oppos­es the direct elec­tion of the Com­mis­sion pres­i­dent — a mod­el sup­port­ed by Finance Min­is­ter Schäu­ble. If Euro­pean vot­ers were to decide, heads of state and gov­ern­ment would have less of a say, a sce­nario which Merkel would like to pre­vent. “I’m cau­tious in this regard,” she said in the SPIEGEL inter­view. She argues that it is good for equi­lib­ri­um among the insti­tu­tions if Euro­pean lead­ers are also involved in the deci­sion.
...

So it sounds like the core of Merkel’s argu­ment against direct­ly elect­ing the head of the EU’s exec­u­tive branch is that it’s good for equi­lib­ri­um amongst EU insti­tu­tions. What exact­ly does that mean? Well, the answer she gave Der Spiegel was, “Because I want the Com­mis­sion pres­i­dent to be giv­en a coor­di­nat­ing func­tion over the poli­cies of the nation­al gov­ern­ments, I think it’s essen­tial that the nation­al heads of state and gov­ern­ment have a voice in his or her appoint­ment. [19]” In oth­er words, since Merkel wants to see an EU Com­mis­sion pres­i­dent with the pow­ers to “coor­di­nate” nation­al poli­cies, per­haps she might want to keep that infor­mal veto pow­er over who gets the spot.

Con­tin­u­ing...

...
‘A Real Break­through’

While the chan­cel­lor is apply­ing the brakes, Schäu­ble raves about a “his­toric moment of Euro­pean uni­fi­ca­tion.” The direct elec­tion, he says, would be “a real break­through for a true Euro­pean pub­lic.”

And he’s not the only one. Indeed, increas­ing num­bers of Ger­man con­ser­v­a­tives are vexed that Merkel no longer wants to dis­cuss the long-term future of the Euro­pean Union. “Europe will only emerge from the cri­sis if we know where we want to go,” says Nor­bert Röttgen, a CDU mem­ber of Ger­man par­lia­ment and for­mer envi­ron­ment min­is­ter. Europe, he adds, needs a new polit­i­cal archi­tec­ture.

...

Spread­ing Dis­con­tent

“We need an answer to the ques­tion of where we want to go with Europe,” says Euro­pean Ener­gy Com­mis­sion­er Gün­ther Oet­tinger, who is a long-time CDU mem­ber. Oet­tinger isn’t will­ing to sim­ply go along with Merkel’s about-face. “The direct elec­tion of the Com­mis­sion pres­i­dent is the goal of the nation­al CDU,” he adds. Deputy CDU Chair­man Armin Laschet agrees, say­ing: “The cri­sis has shown that we must strength­en Euro­pean insti­tu­tions.”

The dis­con­tent could soon spread. A rare act of resis­tance was on dis­play last Fri­day evening in Arns­berg, a small town near Dort­mund. At a meet­ing of state, fed­er­al and Euro­pean law­mak­ers from the state of North Rhine-West­phalia, Laschet, the head of the CDU in the state, made no secret of his dis­sat­is­fac­tion with the part of the cam­paign plat­form deal­ing with Euro­pean pol­i­cy.

Laschet wants his par­ty to express more con­crete prospects for Europe and said that the North Rhine-West­phalia state chap­ter of the CDU would adopt its own Euro­pean pol­i­cy guide­lines before Sep­tem­ber gen­er­al elec­tions. Laschet seeks to strength­en Brus­sels on issues such as fight­ing inter­na­tion­al ter­ror­ism and orga­nized crime, as well as ener­gy pol­i­cy. He also wants to see the Com­mis­sion pres­i­dent be elect­ed direct­ly by Euro­pean vot­ers.

It is a demand that Merkel aban­doned long ago.

Now that’s a dis­agree­ment, and rather pro­found one when you look at all the changes that have tak­en place in recent years and all the poten­tial­ly fun­da­men­tal changes that could take place going for­ward. Angela Merkel appears to be basi­cal­ly reject­ing her par­ty’s long term vision for cre­at­ing a “Unit­ed States of Europe”. At least that what it sounds like in the above arti­cle.

When the Decider Votes, Oth­ers Lis­ten
But is she real­ly reject­ing the idea of trans­fer­ring more pow­er to Brus­sels, or is she mere­ly reject­ing trans­fer­ring addi­tion­al pow­ers to resist the exist­ing aus­ter­i­ty-man­dates? If you already man­aged to get EU mem­bers to agree to put a cap on their bud­gets (the Fis­cal Com­pact [20]), why run the allow­ing for a pop­u­lar­ly elect­ed EU Pres­i­dent that has the pow­ers to cam­paign on an anti-aus­ter­i­ty plat­form and win? Why take that risk when the cur­rent sys­tem effec­tive­ly gives Ger­many’s leader a kind of veto pow­er over who becomes pres­i­dent. If guar­an­tee­ing far right eco­nom­ic poli­cies is a top pri­or­i­ty for your agen­da, why risk that agen­da to the whims of democ­ra­cy?

These are the ques­tions Merkel appears to be grap­pling with over the past year. And with the elec­tions loom­ing, it’s only a mat­ter of time before we get answers. Well, maybe. It sort of depends on which can­di­date wins the pop­u­lar vote. Pop­u­lar will could def­i­nite­ly pre­vail, but only if Junck­er wins [21]:

Junck­er says Merkel assured him of Com­mis­sion pres­i­den­cy if EPP wins
Reuters

May 12, 2014, 12:09 am

By Erik Kirschbaum

BERLIN (Reuters) — Jean-Claude Junck­er said on Sun­day he had won assur­ances from Ger­man Chan­cel­lor Angela Merkel that he would become the next Euro­pean Com­mis­sion pres­i­dent if their cen­tre-right bloc wins the Euro­pean par­lia­men­tary elec­tions on May 22–25.

Junck­er’s com­ments, made in an inter­view with Bild am Son­ntag news­pa­per, con­trast­ed with Merkel’s own sug­ges­tion on Sat­ur­day that the real choice might be made — as in the past — only after pro­longed horse-trad­ing between nation­al gov­ern­ments.

Junck­er, a for­mer prime min­is­ter of Lux­em­bourg, said he expect­ed lead­ers of the 28 Euro­pean Union gov­ern­ments to respect the will of the vot­ers after the elec­tion.

“(If they did not) the vot­ers would then know there was no need next time for them to both­er vot­ing because the par­ties would have bro­ken their promis­es from before the elec­tion,” said Junck­er, lead­ing can­di­date of the Euro­pean Peo­ple’s Par­ty (EPP).

“That’s why it won’t come to that. The EU gov­ern­ment heads will respect the vote,” said Junck­er, 59, a long-stand­ing believ­er in a more fed­er­al Europe.

Asked if Merkel, whose Chris­t­ian Democ­rats belong to the EPP, had giv­en him a “firm com­mit­ment” that he would head the Com­mis­sion if their bloc wins the elec­tion, Junck­er said: “Yes, I’ve got that.”

Under the EU’s Lis­bon Treaty, the 28 gov­ern­ments must take into account the results of the Euro­pean elec­tions in choos­ing a new head of the Com­mis­sion, the Brus­sels-based EU exec­u­tive that pro­pos­es laws and polices exist­ing rules and poli­cies.

“MOCKERY” OF VOTERS

How­ev­er, there is no auto­mat­ic guar­an­tee that either Junck­er or Mar­tin Schulz of Ger­many, whose cen­tre-left bloc is mar­gin­al­ly ahead in opin­ion polls, will final­ly get the top job — some­thing Merkel hint­ed at in her remarks on Sat­ur­day.

“It will cer­tain­ly take a peri­od of sev­er­al weeks (after the elec­tion) before one can come to the nec­es­sary deci­sions,” Merkel said, stress­ing the com­plex­i­ty of nego­ti­a­tions need­ed to sat­is­fy both vot­ers and nation­al gov­ern­ments around Europe.

...

Echo­ing Junck­er, Ger­many’s Schulz also warned of con­se­quences if EU gov­ern­ment lead­ers ignored the vot­ers and picked a can­di­date not on the bal­lots.

“If the gov­ern­ment lead­ers fid­dle and pick anoth­er can­di­date, they would bad­ly dam­age democ­ra­cy in Europe,” Schulz told Bild am Son­ntag. “It would be a mock­ery of the vot­ers and then there would be no rea­son to both­er with such elec­tions.”

Sor­ry EU vot­ers, you got mocked! When you have two can­di­dates- one that’s VERY pro-aus­ter­i­ty (Junck­er) and one less so (Schulz) — and Merkel says “It will cer­tain­ly take a peri­od of sev­er­al weeks (after the elec­tion) before one can come to the nec­es­sary deci­sions,” while “stress­ing the com­plex­i­ty of nego­ti­a­tions need­ed to sat­is­fy both vot­ers and nation­al gov­ern­ments around Europe”, it sounds like she’s telling you to get ready for “EU Pres­i­dent Junck­er”. Sure, Junck­er is sound­ing rather war-mon­ger‑y these days (but how bad could it be [22], right?)

Now, take a moment and let this soak in: There are two can­di­dates cur­rent­ly jock­ey­ing to become not only the EU Com­mis­sion Pres­i­dent but the first EU Com­mis­sion Pres­i­dent that the EU vot­ers actu­al­ly vot­ed for(abeit indi­rect­ly). So this is a rather his­toric elec­tion. And Angela Merkel com­plet­ed dissed that entire plan just weeks before the elec­tion and every­one knows she did it because the only vote that real­ly mat­ters in the elec­tion of the EU Com­mis­sion Pres­i­dent is Merkel’s vote. That’s pret­ty amaz­ing!

Might Merkel still approve the less aus­ter­i­ty-friend­ly Mar­tin Schulz should he come out on top? Well sure, it could hap­pen. That’s up to Angela.

But if she does end up choos­ing Schulz, she’s already told us that it will “cer­tain­ly” be after weeks of nego­ti­a­tions and that rais­es the ques­tion of what kind of promis­es might have to be made in order to see a “Pres­i­dent Schulz”? If win­ning the pop­u­lar vote isn’t enough, what oth­er com­mit­ments will have to be made to secure Merkel’s bless­ing? Keep in mind that the rea­son giv­en in 2013 [13] for Merkel’s sud­den oppo­si­tion to direct­ly elect­ing an EU pres­i­dent were con­cerns that Brus­sels would­n’t be adamant enough about con­tin­u­ing the aus­ter­i­ty poli­cies and per­ma­nent­ly shrink­ing social safe­ty-nets. And also keep in mind that Junck­er is the only major can­di­date mak­ing this exact pledge right now. So what’s it going to take for Merkel to turn down Junck­er and select Schulz, espe­cial­ly if the vote is close? These are rather sig­nif­i­cant (and some­what ter­ri­fy­ing) ques­tions fac­ing the EU.

Less “More Europe?”
But per­haps an even big­ger ques­tion fac­ing the EU is whether not this lat­est poo-poo­ing of direct democ­ra­cy indi­cates that Merkel and the CDU could be plan­ning on turn­ing its back on the entire “Unit­ed States of Europe” plan, because an “ever clos­er Europe” has been the vague guid­ing vision jus­ti­fy­ing rad­i­cal changes like the “Fis­cal Com­pact” through­out the finan­cial cri­sis. Not only has it been the vision guid­ing the evo­lu­tion of the EU in recent years, it’s also been the promise. First, the promise goes, comes the bank­ing and fis­cal union. And THEN comes the polit­i­cal union. That was the vision back in 2012, before Merkel changed her mind [23]:

Euro­zone cri­sis: Unit­ed States of Europe may be the only way to save euro
With France and Ger­many at odds, and events mov­ing quick­ly, a strat­e­gy for fis­cal and polit­i­cal union is being drawn up

Ian Traynor, Europe edi­tor
The Guardian, Mon­day 4 June 2012 14.22 EDT

It is a mea­sure of the speed at which the pol­i­tics of the euro cri­sis is chang­ing. Only a fort­night ago all the atten­tion was being lav­ished on France’s new pres­i­dent, François Hol­lande, being sworn in in Paris as Mon­sieur Growth and rush­ing off on his first assign­ment to chal­lenge Europe’s Frau Aus­ter­i­ty, Chan­cel­lor Angela Merkel.

“We need new solu­tions. Every­thing’s on the table,” Hol­lande pledged, mean­ing he would force Merkel to remove the nose­clip and con­sid­er things that give off a foul odour in Berlin, fore­most among them eurobonds – Ger­many solv­ing the cri­sis at a stroke by agree­ing to under­write the debt of Spain, Greece, Italy and all the rest. Fat chance.

By Sat­ur­day the growth ver­sus aus­ter­i­ty con­test had reced­ed as Merkel turned the tables on Hol­lande.

It was her turn to declare there should be no taboos in grap­pling with the hard options fac­ing Europe’s lead­ers as they wait to see what will hap­pen in Greece and Spain, and plot their next moves at what is shap­ing up to be a momen­tous sum­mit at the end of the month.

Merkel appeared to be call­ing not only Hol­lan­de’s but France’s bluff. By announc­ing there could be no cen­sor­ship of the euro­zone to-do list, she meant tabling rad­i­cal, fed­er­al­ist steps involv­ing grad­ual loss of nation­al sov­er­eign­ty over bud­getary, fis­cal, social, pen­sions, and labour mar­ket poli­cies with the aim of forg­ing a new Euro­pean polit­i­cal union over five to 10 years.

The USE – Unit­ed States of Europe – is back. For the euro­zone, at least. Such “polit­i­cal union”, sur­ren­der­ing fun­da­men­tal pow­ers to Brus­sels, Lux­em­bourg and Stras­bourg, has always been sev­er­al steps too far for the French to con­sid­er.

But Berlin is sig­nalling that if it is to car­ry the can for what it sees as the fail­ures of oth­ers there will need to be incre­men­tal but major inte­gra­tionist moves towards a bank­ing, fis­cal, and ulti­mate­ly polit­i­cal union in the euro­zone.
...

Recall that the bank­ing “union” has recent­ly become a real­i­ty [24].

Con­tin­u­ing...

...
It is a divi­sive and con­test­ed notion which Merkel did not always favour. In the heat of the cri­sis, how­ev­er, she now appears to see no alter­na­tive.

The next three weeks will bring fran­tic activ­i­ty to this end as a quar­tet of senior EU fix­ers race from cap­i­tal to cap­i­tal sound­ing out the scope of the pos­si­ble.

Her­man Van Rompuy, pres­i­dent of the Euro­pean coun­cil, Mario Draghi, head of the Euro­pean Cen­tral Bank, Jean-Claude Junck­er, Lux­em­bourg leader and long­stand­ing head of the eurogroup of sin­gle cur­ren­cy coun­tries, and José Manuel Bar­roso, chief of the Euro­pean com­mis­sion, are to deliv­er a euro­zone inte­gra­tion plan to an EU sum­mit on 28–29 June.

All four are com­mit­ted Euro­pean fed­er­al­ists.
...

Notice how Jean-Claude Junck­er was part of the “quar­tet of senior EU fix­ers” that was tasked back in 2012 to flesh out the “Unit­ed States of Europe” plan that Merkel was sud­den­ly so keen on pro­mot­ing back in 2012. While he may not be on the same page with Merkel on the elec­toral rules for the EU Comms­sion Pres­i­dent, Junck­er is strong pro­po­nent of “More Europe”.

Also note that Her­man Van Rompuy, the cur­rent pres­i­dent of the Euro­pean Coun­cil [25], opposed the plan to have actu­al can­di­dates for the Euro­pean Com­mis­sion (instead of hav­ing the Coun­cil decide) back in 2012, argu­ing that it would only “organ­ise the dis­ap­point­ment in advance” unless the pres­i­dent was grant­ed sub­stan­tial­ly more pow­ers [26] (inspir­ing lan­guage, isn’t it?). He con­tin­ues to oppose the new pro­posed sys­tem [27].

Con­tin­u­ing...

Before the sum­mit there is a fate­ful Greek elec­tion and French par­lia­men­tary polls, while time appears to be run­ning out for the Span­ish bank­ing sec­tor. The finance min­is­ter in Madrid, Luis de Guin­dos, says that the fate of the euro will be decid­ed over these weeks in Spain and Italy.

The quan­tum leap in inte­gra­tion being mulled will not save Greece, res­cue Spain’s banks, sort out Italy, or fix the euro cri­sis in the short term.

The lead­ers may even run out of time, exhaust­ing the reserves of brinkman­ship and last-minute calls that have char­ac­terised the “cri­sis man­age­ment” of the past 30 months.

But they hope that by unveil­ing a medi­um-term strat­e­gy for a fis­cal and polit­i­cal union in the euro­zone they will con­vince the finan­cial mar­kets of their resolve to save the euro, that the cur­ren­cy is irre­versible, and that the heat will be off.
...

Notice how the motive behind Merkel’s sud­den 2012 plunge into “Unit­ed States of Europe” ter­ri­to­ry was dri­ven by an urgent need to con­vince finan­cial mar­kets that the euro was­n’t com­plete­ly doomed. In oth­er words, the intend­ed audi­ence for all the talk about a “Unit­ed States of Europe” was the finan­cial mar­kets.

Keep in mind that the above arti­cle was pub­lished just keeks before Euro­pean Cen­tral Bank chief Mario Draghi’s famed “we will do ‘what­ev­er it takes’ speech” [28] to calm the finan­cial mar­kets and buy the euro­zone some finan­cial breath­ing room. Also keep in mind that the pledge to “do what­ev­er it takes” has turned out to be a false [29], yet use­ful [30] pledge thus far.
So what about the “Unit­ed States of Europe” vision? Was that a false pledge too? It’s a big ques­tion because the “Unit­ed States of Europe” relies on three main com­po­nents:
1. A bank­ing union, which is already here.
2. A polit­i­cal union, which would pre­sum­ably involve trans­fer­ring sub­stan­tial­ly more nation­al sov­er­eign­ty to a cen­tral gov­ern­ment [31]. And pre­sum­a­by there would be direct elec­tions of union-wide offi­cials (like EU Com­mis­sion pres­i­dent).
3. And a fis­cal union.

So what about that fis­cal union? What would that involve? There’s already the “Fis­cal Com­pact” and so many oth­er treaty-based bud­getary con­straints in place. So how dif­fer­ent would a full fis­cal union be from what exists today? More of the same, per­haps? [32]

main­ly macro
Fri­day, 2 May 2014
The Euro­zone: out of the ash­es?
Simon Wren-Lewis

I was at a gath­er­ing a year or so back in which sen­si­ble econ­o­mists were think­ing about the tran­si­tion path for the Euro­zone to full fis­cal (and bank­ing) union. They viewed recent events as con­firm­ing that mon­e­tary union alone was not ten­able, and that fis­cal union was the way for­ward. Many share [33] that view. I remem­ber ask­ing whether there was any like­li­hood that the treaty changes required for fis­cal union would find demo­c­ra­t­ic sup­port, giv­en recent events. To say that this inter­jec­tion was regard­ed as unwel­come was an under­state­ment.

In one sense this reac­tion was under­stand­able. Democ­ra­cy with­in the Euro­zone is a strange thing. On occa­sions [34] it has been of the ‘last time you vot­ed you got the answer wrong, but don’t wor­ry, we are going to give you a sec­ond chance by hav­ing anoth­er vote’ vari­ety. On oth­ers [35] it has been ‘if you vote the wrong way you will have to leave’ type. In these cir­cum­stances wor­ry­ing about demo­c­ra­t­ic opin­ion and fis­cal union may seem beside the point.

But in a way, that is the point. My inter­jec­tion at that meet­ing could have been far blunter. How can you be plan­ning to move towards fis­cal union when the gov­er­nance struc­tures of the Euro­zone have clear­ly failed with a more lim­it­ed set of tasks? That would be a clas­sic economist’s mis­take: of design­ing a set-up which works well in the hands of a benev­o­lent social plan­ner, but falls apart when run by actu­al politi­cians.

Take, for exam­ple, the ECB. Com­pared to the US Fed or the UK Bank of Eng­land, it comes a poor third. It actu­al­ly raised inter­est rates in 2011, mak­ing its own con­tri­bu­tion to the sub­se­quent reces­sion. It has con­sis­tent­ly gone well beyond its remit in pro­mot­ing [36] cer­tain fis­cal poli­cies or struc­tur­al reforms. It took two years before com­ing up with OMT [37], giv­ing us two years of con­tin­u­al cri­sis. It is only now think­ing about QE. A basic prob­lem is that it is not account­able for its actions, which is a seri­ous defi­cien­cy for an unelect­ed insti­tu­tion with such pow­er.

The oth­er rea­son [38] for the 2012 reces­sion was fis­cal con­trac­tion. If you regard some fis­cal con­trac­tion in the periph­ery coun­tries as nec­es­sary to cor­rect a lack of com­pet­i­tive­ness, then the prob­lem has been the lack of off­set­ting fis­cal expan­sion else­where (not just Ger­many, but coun­tries like the Nether­lands). This has not hap­pened in Ger­many in part because there is no com­pelling need with­in Ger­many for fis­cal expan­sion: it has been ben­e­fit­ing from the lack of com­pet­i­tive­ness of oth­er coun­tries, as its cur­rent account sur­plus shows.

In a fis­cal union, fis­cal pol­i­cy is decid­ed at the cen­tre, so these nation­al obsta­cles to fis­cal expan­sion could be brushed aside. (This, of course, is one good rea­son why Ger­mans might be rather reluc­tant to vote for such a union.) But in prac­tice what would aggre­gate fis­cal pol­i­cy deter­mined in Brus­sels look like? All the indi­ca­tions are that it would look much like the fis­cal pol­i­cy we cur­rent­ly have: obsessed with debt, and com­plete­ly igno­rant of any sig­nif­i­cant mul­ti­pli­er effects. The fun­da­men­tal mis­un­der­stand­ings [39] about fis­cal pol­i­cy that are embed­ded in Ger­man think­ing are now deeply ingrained else­where [40].

To make the more gen­er­al point, if a core prob­lem is with the gov­er­nance struc­tures of the Euro­zone, then hand­ing those struc­tures more pow­er through fis­cal union could be a huge mis­take. But this real­i­sa­tion seems to leave us in a hor­ri­ble posi­tion: we do not like the place we are in, we can­not and/or should not ‘go for­ward’ to fis­cal union, yet ‘going back’ by leav­ing the Euro seems too trau­mat­ic. (See, for exam­ple, Kevin O’Rourke [41].)
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Note the impor­tant point Simon Wren-Lewis just made about the con­se­quences of hav­ing a fis­cal union in the mid­dle of reces­sion: One of the key prob­lems the EU (and espe­cial­ly the euro­zone with its mon­e­tary inflex­i­bil­i­ty) has faced ever since aus­ter­i­ty became the default pol­i­cy solu­tion is that aus­ter­i­ty in one part of the EU requires more spend­ing in oth­er coun­tries if you want to avoid a gen­er­al down­ward spi­ral. It’s just math. Cur­rent­ly, there’s no way to force Ger­many to spend more but that could change under a fis­cal union. So it isn’t just a lack a resolve for impos­ing aus­ter­i­ty that folks like Merkel poten­tial­ly have to fear from a fis­cal union. Forced stim­u­lus spend­ing intend­ed to help Ger­many’s neigh­bors might also be put on the table. Hor­ror of hor­rors.

So, as we can see, there are some sig­nif­i­cant rea­sons why Merkel may not be so keen the fis­cal union, at least not a full blown fis­cal union with­in the con­text of a “Unit­ed States of Europe” that includes a direct­ly elect­ed cen­tral gov­ern­ment. After all, what hap­pens if a Euro­pean cen­tral gov­ern­ment is elect­ed on a pro-stim­u­lus plat­form. *gasp* Would­n’t that be a com­plete night­mare for the eco­nom­i­cal­ly con­fused [39]? Now you can see why Merkel had such an about face last year on this whole “More Europe” plan [13].

No, the Plans Haven’t Been Can­celled. But They Have Been Defined
So did Angela Merkel also sour on the vision for a fis­cal union last year too? And did she even reject the polit­i­cal union or was it just a rejec­tion of the idea that the per­son run­ning the new polit­i­cal union (the Euro­pean Com­mis­sion Pres­i­dent) would be elect­ed by a vote?. Well, if you look at the sig­nals she was send­ing last fall after win­ning reelec­tion, Angela Merkel has­n’t rul­ing out a polit­i­cal union or a fis­cal union. She still had big plans for both and an ever clos­er Europe. An ever clos­er Europe on aus­ter­i­ty autopi­lot [42]:

Der Spiegel
Ange­la’s Agen­da: A Grand, Con­tro­ver­sial Plan for Europe

By SPIEGEL Staff
Angela Merkel’s domes­tic pol­i­cy in her third term will like­ly be con­fined to high­er spend­ing. But she has grand plans for Europe. SPIEGEL has learned she wants Brus­sels to have far more pow­er over nation­al bud­gets. It’s a risky move that EU part­ners and the Social Democ­rats are like­ly to oppose.
Octo­ber 21, 2013 – 04:29 PM

In the end, the atmos­phere became down­right fes­tive in the Berlin Hall of the Par­lia­men­tary Soci­ety, a build­ing next to the Reich­stag. Chan­cel­lor Angela Merkel’s con­ser­v­a­tives and the cen­ter-left Social Demo­c­ra­t­ic Par­ty (SPD) had met there three times in the last three weeks to sound out whether they could form a coali­tion gov­ern­ment. The deci­sion was still up in the air.

Merkel gave SDP Chair­man Sig­mar Gabriel a ques­tion­ing look, and said: “Would you like to say some­thing?” But Gabriel beck­oned to her to speak. “I have my del­e­ga­tion’s sup­port for what we dis­cussed,” she said. “So do I,” Gabriel replied.

The grand coali­tion took shape short­ly before 3 p.m. last Thurs­day. For the third time in post­war Ger­man his­to­ry, Merkel’s Chris­t­ian Demo­c­ra­t­ic Union, togeth­er with its Bavar­i­an sis­ter par­ty, the Chris­t­ian Social Union (CSU), and the SPD are prepar­ing to form a coali­tion gov­ern­ment [43]. The talks are expect­ed to begin this Wednes­day. The chan­cel­lor is in a hur­ry because she wants to have a new gov­ern­ment by Christ­mas at the lat­est. “Christ­mas will be here soon­er than you think,” she told fel­low mem­bers of the CDU exec­u­tive board on Fri­day after­noon.

At the begin­ning of her third term, Merkel has more pow­er in Ger­many and Europe than any chan­cel­lor before her. There has­n’t been such a strong major­i­ty behind a gov­ern­ment in Ger­many’s par­lia­ment, the Bun­destag, since the first grand coali­tion half a cen­tu­ry ago. In the midst of the Euro­pean cri­sis, Ger­many has become the undis­put­ed dom­i­nant pow­er in Europe.

The grand coali­tion will hand Merkel a major­i­ty she could use to shape Ger­many and Europe and address major issues, includ­ing con­sti­tu­tion­al reforms in Ger­many and the reform of Euro­pean Union insti­tu­tions.

Merkel, unlike SPD Chair­man Gabriel, has been unchal­lenged in her own par­ty since her elec­tion vic­to­ry. Lit­tle is left of the accu­sa­tions that crit­ics had lev­eled at Merkel, except one: That she is a chan­cel­lor with­out an agen­da, plan or vision; that her style of gov­ern­ment is reac­tive rather than proac­tive; and that she does­n’t know where she wants to take her gov­ern­ment and Ger­many.

Big Plans for Europe

In the past, Merkel has treat­ed gov­ern­ing pri­mar­i­ly as repair work. The major issues of her first two terms in office, the finan­cial cri­sis and the fight to save the euro, were suit­able for that approach. Will that change, now that she has the nec­es­sary pow­er and means? Hard­ly at all, when it comes to Ger­many. There are no major reforms in the works at gov­ern­ment min­istries, and the grand coali­tion will focus on increas­ing spend­ing to ful­fil some of the par­ties’ cam­paign promis­es.
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Keep in mind that the state­ment “In the past, Merkel has treat­ed gov­ern­ing pri­mar­i­ly as repair work,” isn’t [44] real­ly [23] accu­rate [13]. Still, it’s a jour­nal­is­tic tone that sug­gests the “I have big plans” vibe Merkel was exud­ing fol­low­ing her reelec­tion was more notice­able to reporters than nor­mal.

Con­tin­u­ing...

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In con­trast, offi­cials at the Chan­cellery are forg­ing plans for Europe that are prac­ti­cal­ly vision­ary for some­one like Merkel. If she pre­vails, they will fun­da­men­tal­ly change the Euro­pean Union. The goal is to achieve exten­sive, com­mu­nal con­trol of nation­al bud­gets, of pub­lic bor­row­ing in the 28 EU cap­i­tals and of nation­al plans to boost com­pet­i­tive­ness and imple­ment social reforms. The hope is that these mea­sures will ensure the long-term sta­bil­i­ty of the euro and steer mem­ber states onto a com­mon eco­nom­ic and fis­cal path. This would be the oft-invoked and ambi­tious polit­i­cal com­ple­tion of Europe’s mon­e­tary union — a huge achieve­ment.
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Notice how “oft-invoked and ambi­tious polit­i­cal com­ple­tion of Europe’s mon­e­tary union” did­n’t seem to involve a polit­i­cal dimen­sion. Lot’s of new pow­ers for the EU (and espe­cial­ly euro­zone) cen­tral gov­ern­ment, but not too many new ways to cre­ate more direct demo­c­ra­t­ic account­abil­i­ty. Fun­ny how that works.

Con­tin­u­ing...

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It isn’t a new goal, but what is new is the thumb­screws Brus­sels will be allowed to apply if Merkel has her way, includ­ing soon­er and sharp­er con­trols and veto rights, as well as con­trac­tu­al­ly bind­ing agree­ments and require­ments. In short, this would amount to a true recon­struc­tion of the euro zone and a major step in the direc­tion of an “eco­nom­ic gov­ern­ment” of the sort the SPD too would like to see put in place.
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Yikes! Merkel wants aus­ter­i­ty “thumb­screws” for a new­ly empow­ered EU Com­mis­sion! That’s not good. And the fact that the SPD is appar­ent­ly also onboard with this ‘thumb­screws’ plan isn’t a good sign either although, as we’ll see below, Mar­tin Schulz (an SPD mem­ber) is NOT on board with this plan. At least not the plan to rapid­ly and rad­i­cal­ly imple­ment the changes Merkel wants to see.

Con­tin­u­ing...

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Ger­many’s cur­rent eco­nom­ic strength helps to explain these visions for Europe, since stricter bud­get con­trols would­n’t pose a threat to Berlin at the moment. Job­less lev­els are so low that the coun­try has almost reached full employ­ment, and the bud­get is in good shape, at least at the nation­al gov­ern­ment lev­el. In fact, pub­lic cof­fers are so full that the gov­ern­ment can afford to boost domes­tic spend­ing.

More Mon­ey to Spend

And that’s pre­cise­ly what the mem­bers of that coali­tion intend to do. The first item on their agen­da is to hand out ben­e­fits and spend mon­ey. Thanks to the strong econ­o­my, this won’t even require rais­ing tax­es. In his finan­cial plan­ning for the medi­um term, Finance Min­is­ter Wolf­gang Schäu­ble antic­i­pates grow­ing nation­al bud­get sur­plus­es from the year after next: €200 mil­lion ($274 mil­lion) in 2015, €5.2 bil­lion in 2016 and €9.6 bil­lion in 2017.

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More Pow­ers For Euro­pean Com­mis­sion

Dur­ing the nego­ti­a­tions, CSU Chair­man Horst See­hofer pre­sent­ed a plan for how the toll could become a real­i­ty. It calls for dri­vers to pay an “infra­struc­ture fee” in the future. Ger­mans would be able claim the fee as a cred­it against the motor vehi­cle tax, so that the cost could ulti­mate­ly be imposed on for­eign dri­vers. Accord­ing to the doc­u­ment, pre­pared by Trans­porta­tion Min­is­ter Peter Ram­sauer, this would be pos­si­ble under Euro­pean law.

The new coali­tion won’t face seri­ous resis­tance to its spend­ing poli­cies, not even from the oppo­si­tion. With the elim­i­na­tion of the pro-busi­ness Free Demo­c­ra­t­ic Par­ty (FDP) from the Bun­destag, the voice of mod­er­a­tion in bud­get pol­i­cy has dis­ap­peared. Only the eco­nom­ic wing of the CDU/CSU is like­ly to put up weak resis­tance.

So See­hofer will get his toll, the states will be kept hap­py with finan­cial gifts and the social secu­ri­ty offices will hand out ben­e­fits. This does­n’t exact­ly sound like an ambi­tious pro­gram for Merkel’s sec­ond coali­tion gov­ern­ment with the Social Democ­rats. Instead, it feels like more of the same, or a pro­gram of minor improve­ments, at least on the home front.

But regard­ing Europe, Merkel is head­ing for strate­gic deci­sions — and is like­ly to show more courage to take polit­i­cal risks than usu­al.

Schäu­ble, the last dyed-in-the-wool Euro­pean among Ger­many’s top pol­i­cy­mak­ers, can be pleased. Merkel wants tan­gi­ble amend­ments to the Euro­pean Union treaties: more pow­er for Brus­sels, and even more pow­er for the much-crit­i­cized Euro­pean Com­mis­sion. “Unfor­tu­nate­ly, there is no oth­er option,” say gov­ern­ment offi­cials.

Car­rot-And-Stick Approach

Last Thurs­day, after the final round of explorato­ry talks with the SPD, Merkel brought Euro­pean Coun­cil Pres­i­dent Her­man Van Rompuy into the loop in a pri­vate con­ver­sa­tion at the Chan­cellery. It was a back-door ini­tia­tive of the kind so typ­i­cal in EU pol­i­cy­mak­ing. Doc­u­ments are already being put togeth­er at the Ger­man Finance Min­istry over how “Pro­to­col 14” of the EU Treaty could be beefed up. It cur­rent­ly con­tains a few gen­er­al state­ments on coop­er­a­tion in and con­trol of the euro zone. But now, if Berlin is able to imple­ment its car­rot-and-stick approach, tan­gi­ble pow­ers for the Euro­pean Com­mis­sion will be added to the pro­to­col.

For instance, the Com­mis­sion could be giv­en the right to con­clude, with each euro coun­try, an agree­ment of sorts to improve com­pet­i­tive­ness, invest­ments and bud­getary dis­ci­pline. Such “con­trac­tu­al arrange­ments” would be rid­dled with fig­ures and dead­lines, so that they could be mon­i­tored and pos­si­bly even con­test­ed at any time. In return, a new, long-dis­cussed Brus­sels bud­get will become avail­able to indi­vid­ual coun­tries, an addi­tion­al euro-zone bud­get with sums in the dou­ble-dig­it bil­lions for obe­di­ent mem­ber states.

Pro­to­col 14 could also be used to install the full-time head of the Euro Group. The influ­en­tial job is now held by one the mem­ber states’ finance min­is­ters, cur­rent­ly Dutch Finance Min­is­ter Jeroen Dijs­sel­bloem. Devot­ed Euro­peans like Schäu­ble have long dreamed of installing a “euro finance min­is­ter.”
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Note the ref­er­ence to Wolf­gang Schae­ble’s pre­sumed plea­sure over Merkel’s declared plans last fall to imple­ment “more pow­er for Brus­sels, and even more pow­er for the much-crit­i­cized Euro­pean Com­mis­sion,” and how he has long dreamed for a “euro zone finance min­is­ter”. We’re going to turn to this top­ic below (hint: he’s still dream­ing the dream).

Con­tin­u­ing...

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Resis­tance Against Merkel’s Euro­pean Plans

If Chan­cel­lor Merkel is focus­ing on an amend­ment of this cen­tral part of the EU treaties, it is a remark­able about-face. Still, the new course is risky, and it has many detrac­tors and an uncer­tain out­come. None of this is to the chan­cel­lor’s taste, at least not the chan­cel­lor we know. But Merkel has already deployed her key Euro­pean strate­gist. The rel­e­vant depart­ment head in the Chan­cellery, Niko­laus Mey­er-Lan­drut, out­lined the Ger­man plan at a Brus­sels meet­ing in ear­ly Octo­ber. It did­n’t go down very well.

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The pres­i­dent of the Euro­pean Par­lia­ment, Ger­man Social Demo­c­rat Mar­tin Schulz, has already warned Merkel pri­vate­ly that he won’t back any change in EU treaties. He wants nation­al gov­ern­ments to make the euro zone resilient to future crises by using the instru­ments cre­at­ed step-by-step over the last three years — with­out treaty changes. Schulz fears that a treaty change would take too long and that ref­er­en­dums nec­es­sary in some coun­tries could­n’t be won giv­en cur­rent poor pub­lic sen­ti­ment regard­ing the EU. “We will check all the chan­cel­lor’s pro­pos­als to see whether they can be imple­ment­ed in all EU states,” says Schulz, who will be part of the SPD’s nego­ti­at­ing team in the coali­tion talks, respon­si­ble for all issues per­tain­ing to Europe.

But Merkel seems undaunt­ed by these obsta­cles. And she already has a timetable. First she wants to wait and see what hap­pens in the May 2014 Euro­pean par­lia­men­tary elec­tion. Then the new pres­i­dent of the Euro­pean Com­mis­sion [45] will have to be cho­sen once the sec­ond term of the cur­rent incum­bent, José Manuel Bar­roso, ends in 2014. Merkel got him the job and ensured he got a sec­ond term. But these days, she does­n’t even both­er dis­guis­ing her con­tempt for Bar­roso.

Once the new Euro­pean Com­mis­sion is in office, the polit­i­cal win­dow for Merkel’s Euro­pean vision is expect­ed to open. It does­n’t seem to both­er her that she will be in a clear minor­i­ty when she embarks on her reform plans. She is famil­iar with this posi­tion from the first days of the euro debt cri­sis, when she want­ed to include the Inter­na­tion­al Mon­e­tary Fund as a key author­i­ty in dis­trib­ut­ing aid pack­ages, and almost all oth­er euro coun­tries were against the idea. At the time, she said pri­vate­ly: “I’m pret­ty much alone here. But I don’t care. I’m right.”

Well, well, well, that is quite an agen­da that Angela Merkel had in mind back in Octo­ber: “Thumb­screw” pow­ers and a “car­rot and stick” approach to indi­vid­ual states involv­ing con­trac­tu­al agree­ments to improve “com­pet­i­tive­ness”. So, basi­cal­ly, Angela Merkel wants to turn the EU into a far right eco­nom­ic DREAM LAND where indi­vid­ual nations cede sov­er­eign­ty over their bud­get to a cen­tral EU pow­er in exchange for the “car­rots” that come with being an obe­di­ent mem­ber state. A poor­house [46] for nations.

Wol­gang Approves of the Plan, ASAP
This was Merkel’s plan back in Octo­ber. Has any­thing changed, espe­cial­ly since Mar­tin Schulz was pledg­ing not to advance any new treaty changes? Well, back in March there was one request­ed amend­ment to the plan, but it was­n’t made by Merkel. Recall the “euro finance min­is­ter” dream of Wolf­gang Schae­ble’s and the pre­sumed plea­sure he must have had over Merkel’s sud­den “more Europe” agen­da. Schae­ble still wants the dream to come alive. Soon. Specif­i­cal­ly, “as soon as pos­si­ble” fol­low­ing the upcom­ing elec­tions [47]:

Finan­cial Times
March 27, 2014 6:37 pm
Schäu­ble revives push for euro­zone inte­gra­tion

By Ste­fan Wagstyl in Berlin and Alex Bark­er in Bruges

Ger­many is push­ing for changes to EU treaties “as soon as pos­si­ble” after the May Euro­pean elec­tions, in an over­haul to fuse euro­zone eco­nom­ic gov­er­nance [48] behind a bud­get chief and euro area par­lia­ment.

In inter­views, speech­es and arti­cles, Wolf­gang Schäu­ble, Germany’s finance min­is­ter, has giv­en urgency and polit­i­cal impe­tus to Berlin’s long­stand­ing ideas for a refash­ioned and more cen­tralised euro­zone.

Speak­ing at the Col­lege of Europe in Bruges, Mr Schäu­ble out­lined a vision for a chang­ing EU treaties to estab­lish a “bud­get com­mis­sion­er” empow­ered to use com­mon funds and reject nation­al fis­cal plans if they “don’t cor­re­spond to the rules”.

Asked when he envis­aged agree­ing the treaties, he said “today is bet­ter than tomor­row” and called for nego­ti­a­tions to start straight after the Euro­pean par­lia­ment elec­tions in May.

These reforms to inte­grate the euro­zone, he added, must be paired with mea­sures to ensure those coun­tries out­side are not “sys­tem­at­i­cal­ly dis­ad­van­taged” – an approach that will be wel­comed by Britain.

In a joint Finan­cial Times arti­cle with George Osborne [49], the UK chan­cel­lor, he wrote that future treaty change “must include reform of the gov­er­nance frame­work to put euro area inte­gra­tion on a sound legal basis, and guar­an­tee fair­ness for those EU coun­tries inside the sin­gle mar­ket but out­side the sin­gle cur­ren­cy”.

Mr Schäuble’s inter­ven­tion to restart the reform debate high­lights Berlin’s deter­mi­na­tion that the EU should build on the eurozone’s frag­ile eco­nom­ic recov­ery from the finan­cial cri­sis by cre­at­ing insti­tu­tions strong enough to with­stand future tur­moil.

The vet­er­an finance minister’s pledge to fight for reform comes after the joint dec­la­ra­tion in Jan­u­ary from Ger­man chan­cel­lor Angela Merkel and French pres­i­dent François Hol­lande, pledg­ing to work for clos­er eco­nom­ic and mon­e­tary union.

But the Ger­man gov­ern­ment has now gone a step fur­ther, argu­ing in the FT that treaty change must also address one of key nego­ti­at­ing demands of Mr Cameron, the UK prime min­is­ter, before his planned 2017 ref­er­en­dum: the pro­tec­tion of the inter­ests of euro “outs”.

Mr Schäu­ble, a long-term advo­cate of reform, wants to estab­lish an insti­tu­tion­al archi­tec­ture for a com­mon fis­cal and eco­nom­ic pol­i­cy, with a par­lia­ment, finance min­is­ter and bud­get to sup­port coun­tries in cri­sis and encour­age reform.

He said it was “non­sense” to sug­gest the pow­er for a euro­zone com­mis­sion­er to reject nation­al bud­gets would impinge on sov­er­eign­ty. “To stick to the rules is not a vio­la­tion of bud­get sovereignty...of nation­al sov­er­eign­ty. We have moved sov­er­eign­ty to the Euro­pean lev­el,” he said.

Germany’s renewed appetite for treaty reform will rat­tle some euro­zone mem­ber states, which fear the cen­tral­i­sa­tion of bud­get pow­er would poten­tial­ly trig­ger nation­al plebiscites that could not be won.

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To stick to the rules is not a vio­la­tion of bud­get sovereignty...of nation­al sov­er­eign­ty. We have moved sov­er­eign­ty to the Euro­pean lev­el,” says Wolf­gang Schae­ble. And it’s a sen­ti­ment clear­ly shared by Merkel too. As long as the Euro­pean Com­mis­sion is over­see­ing nation­al bud­gets, it’s not real­ly a loss of sov­er­eign­ty. It’s just a trans­fer­ence and con­cen­tra­tion of sov­er­eign­ty into a sin­gle insti­tu­tion. At least that seems to be the argu­ment.

But it’s an argu­ment that ignores the fact that the per­son head­ing the Euro­pean Com­mis­sion — the role Jean-Claude Junck­er and Mar­tin Schulz are cur­rent­ly in a neck and neck race for — is still to be ‘elect­ed’ by Angela Merkel or a future Ger­man chan­cel­lor in a back­room deal. This is why Merkel’s recent refusal [1] to sim­ply back the can­di­date from the par­ty that wins the elec­tions was so jaw drop­ping [50]. Any­one pay­ing atten­tion can see what she’s promis­ing: A mas­sive trans­fer­ence of nation­al sov­er­eign­ty to a cen­tral EU-wide insti­tu­tion that Ger­many would have unof­fi­cial veto-pow­er over.

Can this pos­si­bly be the long-term plan? It does­n’t look very sus­tain­able. Could we real­ly have one elec­tion after anoth­er where back­room deals dom­i­nat­ed by Ger­many select a sin­gle indi­vid­ual with incred­i­ble pow­ers over nation­al poli­cies? Indef­i­nite­ly? Is that at all real­is­tic? Maybe not. But keep in mind that, should Merkel’s agen­da be ful­ly imple­ment­ed, she might not care if the EU Com­mis­sion pres­i­dent is direct­ly elect­ed or not. Why? Because the more we learn about Merkel’s plans, the more appar­ent it’s becom­ing that the new “Unit­ed States of Euorope” will play a role alarm­ing­ly sim­i­lar to the eco­nom­ic poli­cies of the Euro­pean Cen­tral Bank: High deficits will result in the “stick” of forced aus­ter­i­ty. But what about high unem­ploy­ment? Have we heard any­thing in Merkel’s plan about address­ing the chron­i­cal­ly high unem­ploy­ment? How about a guar­an­teed “stim­u­lus” plan that kicks in dur­ing a reces­sion, have heard any­thing about that? Of course not. The “car­rot and stick” approach that Angela had in mind [51] is sole­ly focused on debt and deficits. It’s the political/fiscal ana­log to the ECB’s sin­gle-mind­ed focus on infla­tion [52]. Recall Simon Wren-Lewis’s obser­va­tion above [32]:

...
In a fis­cal union, fis­cal pol­i­cy is decid­ed at the cen­tre, so these nation­al obsta­cles to fis­cal expan­sion could be brushed aside. (This, of course, is one good rea­son why Ger­mans might be rather reluc­tant to vote for such a union.) But in prac­tice what would aggre­gate fis­cal pol­i­cy deter­mined in Brus­sels look like? All the indi­ca­tions are that it would look much like the fis­cal pol­i­cy we cur­rent­ly have: obsessed with debt, and com­plete­ly igno­rant of any sig­nif­i­cant mul­ti­pli­er effects. The fun­da­men­tal mis­un­der­stand­ings [39] about fis­cal pol­i­cy that are embed­ded in Ger­man think­ing are now deeply ingrained else­where [40]
...

Yep! And if Merkel’s plans come to fruition, that obses­sion with debt, dri­ven by a fun­da­men­tal mis­un­der­stand­ing about fis­cal poli­cies, won’t sim­ply be a con­tem­po­rary insti­tu­tion­al pref­er­ence. It will be embed­ded into lay­ers and lay­ers of law at the nation­al and supra­na­tion­al lev­el. Who knows, maybe once the “fis­cal union” is in place, and elect­ed offi­cials are pow­er­less to turn off the aus­ter­i­ty-engine, a more demo­c­ra­t­ic “polit­i­cal union” will be allowed to emerge too. At that point, why not? Even if there’s a land­slide vic­to­ry of an anti-aus­ter­i­ty agen­da the imple­men­ta­tion of that agen­da may not be a real­is­tic option in the future.

So, with all that in mind [53]...hap­py vot­ing EU [54]!