The Master Tactician

Alexander Privitera

AGI Non-Resident Senior Fellow

Alexander Privitera a Geoeconomics Non-Resident Senior Fellow at AGI. He is a columnist at BRINK news and professor at Marconi University. He was previously Senior Policy Advisor at the European Banking Federation and was the head of European affairs at Commerzbank AG. He focuses primarily on Germany’s European policies and their impact on relations between the United States and Europe. Previously, Mr. Privitera was the Washington-based correspondent for the leading German news channel, N24. As a journalist, over the past two decades he has been posted to Berlin, Bonn, Brussels, and Rome. Mr. Privitera was born in Rome, Italy, and holds a degree in Political Science (International Relations and Economics) from La Sapienza University in Rome.

The decision by the German government to ask for a two-thirds majority of lawmakers to ratify the fiscal compact should not have come as a surprise. It was born out of both constitutional and political necessity and has probably been in the making for some time. Last week’s vote in the German Bundestag on the latest Greek rescue package lifted the fog and shed light on the battle lines. According to some observers in Germany, Chancellor Merkel has now crossed the Rubicon. Her political future is now inextricably linked to further European integration. A retreat would mean defeat and her political demise.

In theory, passing the fiscal compact with a constitutional majority in both chambers of German parliament, while avoiding the need to submit the pact to a referendum, represents a bow by Merkel to both the main opposition parties as well as to the constitutional court in Karlsruhe, with its potential power to derail the process of further European integration. In fact, I suspect that it could end up being a brilliant tactical move by a consummate tactician.

Angela Merkel is taking on three powerful domestic foes at the same time: the main opposition parties, emboldened by the latest vote in the Bundestag on the Greek rescue plan, the constitutional court and its propensity to torpedo closer European integration, and last but not least, the once powerful national central bank, the Bundesbank, which not only appears to be isolated within the governing council of the European Central Bank (ECB) in Frankfurt, but is also increasingly losing allies in Berlin.

Despite the negative reaction by Merkel’s political opposition, the Social Democrats (SPD) and the Greens – who are now calling for a growth agenda to be included in the vote as a condition for their endorsement of the fiscal compact – no one thinks that either opposition party will seriously consider withdrawing its support for ‘more Europe’ in the name of largely symbolic technicalities. The main purpose of the pact is to open the door to shared economic policies and therefore to deeper integration, a goal the SPD and the Greens have supported throughout the crisis. In fact, Merkel is trying to coopt SPD and Greens into a “grand coalition for Europe.” Once they are on board for the fiscal pact, it will be much harder for them to shake off Merkel’s tight embrace on other controversial steps, such as boosting the strength of the so called firewall. Once this German political alliance on Europe takes shape, dissenters within Merkel’s own coalition will become a nuisance, vocal perhaps, but largely irrelevant. Of course the opposition parties have no political incentive to cede complete control of this process to Merkel. On the other hand, they probably have no choice but to play along.

If crossing the Rubicon is in fact what Merkel is about to embark on, she needs to defuse another potential source of disruption, the constitutional court. That is why the ratification of the fiscal compact with a two-thirds majority of lawmakers is crucially important. It makes the attempts by the high judges to further limit the government’s maneuvering room on Europe much harder. It also makes it impossible for euro skeptics to call for a referendum on the new European pact. The German Constitution only requires a referendum in the event that the German constitution, the Grundgesetz, is replaced by a new one (Art. 146). Does the fiscal compact apply to such high standards? Merkel’s constitutional experts clearly believe not.

As to the once all powerful Bundesbank, Merkel and several key politicians in the main opposition party are clearly becoming disillusioned with its new head Jens Weidmann. His hard-nosed stance on the cheap loans that the ECB has offered to banks as part of its longer term refinancing operation (LTRO) has not been met with the political reaction the Bundesbank was hoping for. Instead of voicing concern about the ECB program, both the opposition and the government have endorsed it. Only now that the LTRO (which was launched by the ECB in December last year) has been completed, has Weidmann openly voiced his criticism. Perhaps, some commentators observe, Weidmann is only paying lip service to the orthodox line of the Bundesbank, and has no problem with the ECB’s decision as long as the LTRO won’t be repeated. In that view, Weidmann is simply trying to keep the “ayatollahs” within the central bank quiet, and to assert his leadership. Another more skeptical view is that the Bundesbank chief is trying to stop the ECB’s head, Mario Draghi, from completely abandoning the hawkish principles of the Bundesbank, and that he is genuinely worried about the direction the European Central Bank is taking. Some suspect that he is making these repeated appeals to the German public because politicians in Berlin have stopped listening to him.

What is clear is that with or without Weidmann’s complicity, the Bundesbank’s traditionalist approach to solving the crisis is still experiencing headwinds both in the rest of the Eurozone and in Berlin. If it has in fact chosen to fight, the Bundesbank will lose its battle, particularly if Merkel succeeds in forging a broad political coalition in support of more integrated Europe. For the German central bank, half-hearted support in Berlin and almost complete isolation within the governing council of the ECB would simply be two hurdles too big to overcome.

And so after a rocky start last week, when she faced a shrinking political majority, Angela Merkel has assessed the damage and once again quickly adapted to changing conditions. If she wins the two-thirds majority on the fiscal compact, she will have overcome a huge hurdle on the path to closer European integration, at least domestically. For Merkel, at this point turning back is not an option anymore.

The views expressed are those of the author(s) alone. They do not necessarily reflect the views of the American-German Institute.