Wednesday, 16 November 2011

German Think-tanks, Ireland and the European Crisis

Nat O'Connor: The Taoiseach, Enda Kenny, is making an official visit to Berlin today. As well as meeting Chancellor Angela Merkel, he will speak to the Konrad Adenauer Stiftung (see also, their UK branch).

The Stiftungen (aka think-tanks, foundations) are central to the German political landscape. They are independent of the political parties, but there is one political Stiftung per party, as well as a range of other ones.

I've been reviewing what the different German foundations have to say about the Irish situation and the euro crisis (with the assistance of our intern, Nina Roβmann). What this review shows is that, unlike the rather one-dimensional view that's often reported about what 'Germany says', there is a lively and nuanced policy debate going on in Germany. What follows are some highlights of this debate.

The Konrad Adenauer Stiftung (KAS) is linked to Angela Merkel's Christian Democrat party. Fine Gael, especially in the European parliament, has fashioned itself as a Christian democratic party, although there are important historical differences in the origins of most continental parties of this type. Also, mainstream Irish liberal economics would be far to the right of the German mainstream.

KAS's economic policy is centred on the 'social market economy', regulated markets balanced with social protection and responsibility towards wider society. In terms of Ireland, KAS has identified the emigration of workers as one of the major challenges Ireland faces. They identify cuts to child benefits and public sector wages as hitting ordinary households. They point to €114.7 billion of German claims in Irish banks and the direct repercussions to German banks if these were not repaid.

In their wider analysis, they ask: Is Ireland a new Greece? But they answer 'no'. They explain Ireland's crisis as one of refinancing, whereas the Greek crisis is explained as having more problems of lost competitiveness and structural problems. In one paper, KAS argues against a political union at EU level. They do advocate structural and fiscal reforms in deficit countries and complain that the 'no bailot clause' of the EU treaties was undermined (Article 125 of the Treaty of the Functioning of the EU). However, in a more recent paper KAS's chairman makes an argument for economic government at EU level, which is a changed position.

The other large political foundation is the Friedrich Ebert Stiftung (main site in German only), linked to the social democratic party. The Friedrich Ebert Stiftung (FES) has a different perspective on Ireland and the crisis. Their analysis is that the establishment of monetary union without political union has brought the EU to the brink of collapse. They argues that it is false to claim wage policies in deficit countries are responsibile for the current account imbalances. Instead they point to global economic and financial factors. They argue that Ireland's pro-cyclical spending cuts only aggravated the crisis here and harmed the welfare state.

FES argue that before countries like Ireland lower their wages, relatively low wage countries like Germany have to raise theirs. They also criticise the unequal distribution of wealth in Ireland. FES call for better co-ordination of fiscal and social policies across EU member states, including harmonised corporation tax.

On the wider crisis, FES criticises the policies imposed by the EU on deficit countries, and it warns that this will only lead to rising unemployment, cuts in social services and growing euroscepticism within European trade union and labour movements. FES proposes a four-part change: 1. A European New Deal infrastructure investment strategy for employment; 2. some form of economic government at EU level, including stronger democracy at EU level; 3. co-ordination of wage, fiscal and social policies across Europe; and 4. Eurobonds as a new way of financing government debt. FES argue against a 'growth' strategy for Europe per se, but a strategy for sustainable prosperity based on a real culture of solidarity.

The other four Stiftungen are Heinrich Böll (green), Friedrich Naumann (liberal), Rosa Luxemburg (democratic socialist) and Hanns Seidel (Christian social union).

Heinrich Böll Stiftung (HBS) view Ireland's tax policies as negative. They identify the migration of German companies and jobs to Ireland due to lower taxes. They advocate saving German banks who suffered from 'toxic' Irish stocks. However, they argue that there is of course no alternative to saving Ireland, and the lesson learned should be the establishment of common fiscal and economic policy. They note the German Green Party's Gerhart Schick's call for Ireland to raise corporation tax, not VAT. He also stated that the rich in Ireland have profited above average and should now share their wealth, and that spreading out the burden of the crisis is unfair, as the poor are hit hardest. In another publication, HBS criticise the cuts to unemployment benefit and eduction in Ireland.

On the wider crisis, HBS see a federal EU as necessary and the natural consequence of monetary union. However, they note the evidence of a lack of support for this. They also note the fear of 'Germanisation' of economic policy, and they call for more attention to be paid to the banking sector.

The other foundations have less to say about Ireland in particular, but have their own analyses of the European crisis.

Friedrich Naumann Stiftung (FNS) strongly condemns the violation of the EU's no bailout clause. They argue that the current crisis is not about the euro currency, but about public debt. They argue that any move to European co-ordination of economic and financial policies would be like a 'centrally-planned economy' and they compare any such regulatory framework with George Orwell's 1984. FNS argue the pressure being exerted on Greece by the markets (i.e. by us as free citizens) to get its public finances in order is viewed by the Greek government as slavery which must be resisted.

FNS point out that the global ratings agencies (e.g. Standard & Poors, Moody's and Fitch) are in a conflict of interest when they provide consulting alongside credit rating of states at the same time. FNS also have a paper supporting private currencies to compete with the state's monopoly on currency.

The Rosa Luxemburg Stiftung (RLS) identifies a balance to be struck between the fears of many on the Left of neo-liberal economic policy, and the potential benefits of closer European integration for citizens and society. At one RLS conference, the Jesuit social ethicist Friedhelm Hengsbach SJ argues that the ongoing debate on the EU 'transfer union' is absurd as mechanisms like the European cohesion fund, whose aim it is to balance inequalities among member states, are already in place. He criticises austerity and calls instead for co-ordination of employment, growth, financial, fiscal, wage and social policy. However, he is against common EU economic governance.

RLS argues that the Greek crisis has been oversimplified. The many differences in development in Greece underlie the problems they face, not just wage cost competition. The lack of a social union in the EU permitted redistribution from the bottom to the top, and they call for an EU wide structural policy to trigger a conversion process to help them develop what they lack in public administration, legal framework, social security, regulation, company strength, banking, procurement, infrastructure, etc.

Hanns Seidel stiftung (HSS) focuses more on its core mission, supporting "the democratic and civic education of the German people with a Christian basis". They argue for free personality development and autonomy as well as social responsibility and solidarity. They argue this mission is more important than ever, since requirements for more autonomy, a new "culture of independence" and an "active society of citizens" are increasingly evolving.

The existence of the democracy education foundations is a requirement of the post-war constitution, as is their funding by the state. While this originated as an idea imposed by the Allies that the Germans needed to be 'taught democracy', the Stiftungen have evolved into a major resource for the German political system, and they carry out a wide range of policy research. The foundations also invest a lot of their resources around the world engaged in democracy education.

The funding of the Stiftungen is linked to the long-term success of their political party in parliament, so they have an incentive to supply them with policies that will be successful in the long-term, not just in advance of the next election. This investment pays dividends to the German policy-makers by providing them with a range of well-researched options. This also provides the German public with a more nuanced debate, which is helpful in building public support for pragmatic solutions.


Paul Hunt said...

@Nat O'Connor,

This is a valuable and timely post. I expect a 'Vielen Dank' is owed to your colleague, Nina. Highlighting the contribution that these stiftungen make in the public sphere provides another reason why Germany is so much more better governed than Ireland. Although the content is obviously important, the process is probably more important in that it allows for genuine engagement and adversarial disputation based on facts, evidence and analysis, for common ground to be identified and secured and for sensible policies to be formulated that have a sporting chance of securing some genuine democratic legitimacy.

But we wouldn't want that sort of foreign nonsense in Ireland. It's far more comfortable to stay in our own little corners, surrounded by much-loved ideological baggage, dreaming about a utopia that either never was nor ever will be and ranting at those who dare to criticise the 'household gods' or view the world differently.

And there's absolutely no question of engaging in a genuine debate where minds might be changed in response to new facts or evidence, where previously firmly held views might be challenged and changed and where some common ground might be staked out.

So it is not surprising that any real policy debate and policy decision-making is conducted behind closed doors by senior ministers, their special advisers and senior officials and delivered as a fait accompli.

This piece in the Indo captures it perfectly:

The only difference between this and the previous approach (which got us into this economic mess) is that the various influential vested interests are not affecting policy outcomes as visisbly as they previously were - but we can be sure that they're there in spirit.

Tomboktu said...

"The other four Stiftungen are Heinrich Böll (green), Friedrich Naumann (liberal), Rosa Luxemburg (democratic socialist) and Hanns Seidel (Christian social union)."

Umm... I take it you meant "The four other party-linked Stiftungen are ...".

An important one for the like of TASC would be the Hans Böckler Stiftung (although it work is mainly in German):

Stabilising an unequal economy?

Niechoj, Torsten / Onaran, Özlem / Stockhammer, Engelbert / Truger, Achim / van Treeck, Till

Public debt, financial regulation and income distribution. Reihe: Schriftenreihe des Forschungsnetzwerk Makroökonomie und Makropolitik (FMM), Band 14.
Marburg: Metropolis-Verl. 2011, ISBN: 978-3-89518-878-7. 432 Seiten

Preis: 29,80 EUR

Im Buchhandel


The macroeconomic stabilisation policies which were put in place in most countries hit by the financial and economic crisis of 2008 - 09 have been successful in preventing a great depression. Economic policy has witnessed a certain "return of Keynesianism" (see, e.g., Dullien et al. 2010), but it is a strange sort of Keynesianism. Hyman Minsky's (1986 [2008]) famous question of how to "stabilise an unstable economy" in the light of "financial fragility" is still the burning question of our time. Minsky's answer to the question was "big government". Keynes's vision was one of not merely stabilising the economy, but also one of creating a more equal society. However, this is not what Keynesian, anti-cyclical policies are aiming at today.With the crisis the 'efficient market' consensus in academia and politics has begun to crack. There has been, at least so it appeared for a few months, a new consensus in economic policy that financial markets need to be tightly regulated and that under some conditions discretionary stabilisation policies can be necessary in the face of negative aggregate demand shocks. But if there is to be veritable "return of Keynesianism", it will require more thorough revisions and in particular a rethinking of the role of inequality, which, as many argue, contributed importantly to the global crisis.In light of these remaining global problems, unequal national economic outlooks, and the return of the austerity policies, the initial success of the stabilisation policies put in place since 2008 - 09 may turn out to be insufficient. This raises the following questions: Are the present policies merely stabilising an unsustainable accumulation regime based on income polarisation and the dominance of financial markets? What are the economic and political implications of rising public debt? How can financial regulation contribute to stability as well as equity? These questions are addressed, among others, in this book.

Nat O`Connor said...

@ Tomboktu

Yes, I limited my post to the party-linked Stiftung in order to more clearly explain the formal system that the German's have to ensure well-informed, diverse points of view in their policy debates (as Paul Hunt also notes).

You are quite right that the Hans Böckler Stiftung (linked to trade unions) is also a major research institute. We've been looking at their work too.

On the wider crisis, they argues that the 3% deficit and 60% debt GDP ratios are too optimistic. They call for systematic increased public spending by surplus countries.

They cited work by the IMK (Macroeconoimc Policy Institute) arguing that further 'haircuts' are unnecessary in Greece, due to successful consolidation to date. They also identify Germany's benefit from the euro currency; that is, the euro's relative weakness compared to a Deutschmark means that German exports are cheaper than they would have been). Hans Böckler cite a German development bank KfW, who estimate German economic growth would have been €50-60 billion less in the last two years if they had their own currency. This type of argument - of Germany's benefit from sharing a currency with 'weaker' states - is actually circulating inside Germany, but is not getting out into the European debate enough.

In relation to Ireland specifically, Hans Böckler criticises our lower corporation tax rate. They favour minimum levels of taxation, as well as EU-wide common tax rates.