Tuesday, 10 April 2012

Germany in and with and for Europe

Nat O'Connor: As noted in an earlier post, it is useful to see that there is lively debate going on in Germany about Europe and alternatives to austerity. This is an important counterbalance to the 'Austerity Germany' we see presented in much of the media, which creates the illusion that the German people are united in a desire to punish Ireland and other peripheral EU states for our economic and fiscal woes. On the contrary, Helmut Schmidt makes a major contribution to the debate by pointing out Germany's benefit from ensuring solidarity between the centre and periphery of the EU.

Helmut Schmidt was the Social Democratic Chancellor of West Germany from 1974 to 1982. In a key speech to the German Social Democrat party conference in 2011, he outlines the importance of Germany's integration with the other countries of Europe and proposes "radical regulations" for the EU's financial markets as well as the "financing of growth-enhancing projects" to help EU member-states achieve balanced budgets.

The Foundation for European Progressive Studies (FEPS) has recently republished this speech in 15 other European languages in order for Schmidt's message to be widely heard across Europe. An online, English version of the speech is here.

Born in 1918, Schmit takes a long view of the challenges of the 21st Century, as well as the failures of the 20th. He notes that there has been conflict between the centre and periphery of Europe since the Middle Ages - and it most often ended in war. The founders of the European Coal and Steel Community were explicitly motivated to bind Germany into an integrated Europe and to avoid further conflict.

At the same time, Schmidt argues that German strategic interests are also better served by integration into Europe. By 2050, European nations will each constitute "just a fraction of one per cent of the world's population." ... "That is why the European nation states have a long-term strategic interest in their mutual integration."

Schmidt points to recent German budget surpluses as a "very undesirable development". ... "as in reality all our surpluses are the deficits of other countries." (There is a lesson there for those who claim that Ireland can restore its economy on the back of exports alone).

Schmidt supports some sort of fiscal transfer at EU level. In terms of contributions to the EU's budget, he notes: "It is a fact that, for decades now, Germany has been a net contributor. ... And of course Greece, Portugal and Ireland have always been net recipients."

Schmidt identifies the weakness of the EU's institutions in addressing the financial crisis. "Umpteen thousands of financial traders in the USA and Europe, plus a number of ratings agencies, have succeeded in turning the politically responsible governments in Europe into hostages." ... "In 2008/2009, governments the world over managed to rescue the banks with the help of guarantees and the taxpayers' money. Since 2010, however, this herd of highly intelligent, psychosis-prone financial managers has gone back to its old game of profits and bonuses."

He argues that the EU or Eurozone could and should "introduce radical regulations for the common financial market in the euro currency area. These regulations should cover the separation of normal commercial banks from investment and shadow banks; a ban on the short selling of securities at a future date; a ban on trading in derivatives, unless they have been approved by the official stock exchange supervisory body; and the effective limitation of transactions affecting the euro area carried out by the currently unsupervised rating agencies."

Various other policies are also required, including "monitoring mechanisms, a common economic and fiscal policy as well as a series of tax, spending, social and labour market reforms in the different countries." However, despite the need for closer coordination in a range of area, Schmidt argues that the EU will not become a federation any time soon.

"A common debt will be inevitable too. We Germans should not refuse to accept this..."

"We should also avoid advocating an extreme deflationary policy for the whole of Europe. On the contrary, Jacques Delors is quite right to insist that a balancing of the budgets should be accompanied by the introduction and financing of growth-enhancing projects. No country can consolidate its budget without growth and without new jobs. Those who believe that Europe can recover solely by making budgetary savings should take a close look at the fateful effects of Heinrich BrĂ¼ening's deflationary policy in 1930/32. It triggered depression and intolerable levels of unemployment, thus paving the way for the demise of the first German democracy."

In short, Helmut Schmidt's speech is a reminder that, taking the long view, not only are there alternatives to austerity - but austerity on its own is not a solution at all. Solidarity and leadership are needed to bring about recovery, led by an integrated EU, with centre and periphery working together for their mutual benefit.

1 comment:

Paul Hunt said...

I recall providing a link to this speech in a comment just after the SDP's annual conference (can't find it though), but it didn't provoke any reaction then. Perhaps you might be more successful this time.

It might also be worth recalling that Helmut Schmidt governed in coalition with Hans Dietrich Genscher's Free Democrats and that it was the latter's jumping ship that secured the 16 year ascendancy of Helmut Kohl's CDU-CSU alliance. Subsequently, Gerhard Schroeder was compelled to go in to coalition with the Greens - who, characteristically - and the same as Greens everywhere - accepted some imbecilic governance so to ensure the implementation of their wacky, woolly-brained and excessively costly environmental whizzo schemes. It was this 2-term government that initiated the wage repression (primarily in the export sector) - with the good intent of increasing employment by making it cheaper - that is a fundamental cause of the serious economic imbalances in the Euro Area. And while a super-efficient export machine was re-tooled and re-skilled the sheltered sectors were pampered in the usual manner. This was continued with some different emphases by the 2005-2009 'Grand Coalition' and by the CDU-CSU/FDP colaition from 2009.

It appears unlikely that the SDP will beat the CDU-CSU in the next Bundestag elections, so Angela Markel while have the first choice of deciding with whom she will form a governing colaition. The FDP may not reach the 5% threshold and her nuclear about-turn has allowed her to cosy up to the unprincipled Greens, but she may be forced to opt for the 2005-2009 'Grand Coalition' redux. Whichever way it goes there is unlikley to be a major shift in the current policy stance. But this already is slowly shifting to address the fundamantal imbalances in the Euro Area. Chancellor Merkel is a believer in a 'policy of small steps'. And that's most likley what we will see.