The New Greek Bailout and the Never-Ending Political Fallout in Germany

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.

Greece and its international creditors moved closer to securing a third bailout on Tuesday, paving the way for national parliaments to vote on the agreement before a crucial repayment to the European Central Bank (ECB) is due on August 20. The prospect of a deal is once again spurring an emotional debate among German politicians about Greece and its place in the monetary union, particularly (but not only) among conservatives.

While German media are now more openly challenging the risk-averse strategy of Chancellor Angela Merkel, her standing in public opinion polls continues to be rock solid. The paradox is that Wolfgang Schäuble, Germany’s finance minister, is also riding a wave of public sympathy, despite his harder stance tied to his recent proposal to give Greece a timeout from the monetary union. What appears to be a contradiction is in fact a sign that voters believe that Merkel and Schäuble are still a solid team with two distinct roles to play, combining carrots and sticks. I am not sure this benign interpretation is completely accurate, and will try to explain why that is later.

But first, it is worth mentioning that Social Democrats have unintentionally helped Merkel and Schäuble to firmly control the reins of the domestic euro debate. With Sigmar Gabriel, the SPD’s leader, flip-flopping on many issues, including Greece’s place in the euro area, voters are turning their backs on Social Democrats, thus allowing more Christian Democrats to openly challenge Merkel’s stance toward Greece. In fact, as long as voters continue to believe that the current SPD leadership is no match for Merkel, the internal debate among Christian Democrats will continue to be perceived as non-material. This attitude is obviously causing headaches in the chancellery. After all, Germany’s parliament has to approve the deal between creditors and Greece. While there is no doubt that even this time Merkel will muster a solid majority, sixty-five members of her party already deserted her last time they were called to vote on restarting negotiations with Athens. The closer that number creeps up to a hundred, the more embarrassing it all becomes for her image as the undisputed party leader. In a sign that Merkel is worried about the drift in her own CDU, her whip in the Bundestag, Volker Kauder, resorted to open blackmail against internal dissenters, saying in a newspaper interview that they could not expect to serve in sensitive committees in the future, if they refuse to follow the party line. The effect of all this appears to be even bigger dissent.

This is where the prevalent description of Merkel and Schäuble as a rock solid team is worth exploring in greater detail. Many backbenchers share the finance minister’s doubts about Greece’s viability within the euro area. They believe that freeing Athens from its monetary union commitments would save Germany’s taxpayers money and spur further integration among remaining members of the euro zone, based on strict adherence to clear and unbendable rules, in clear contrast to what they perceive as a lax, southern European monetary union, led by the examples of France and Italy. Avoiding such an outcome is a goal that Merkel and Schäuble share. However, while Merkel’s definition of closer integration would be more accurately defined as closer coordination among euro area governments, Schäuble is willing to go much further, envisaging a euro area government with a reformed European Commission and Parliament at its core. Hence, in past weeks, the anti-Greece voices among Christian Democrats were often those of staunch pro-euro area integration supporters. I don’t think that the characterization of France and Italy is entirely fair, but I see that some elements, notably a more pragmatic and flexible approach to the crisis, can be perceived as a direct challenge to the German insistence on strict adherence to rules. Many Christian Democrats thus seem to fear that bailing out Greece means continuing to muddle through. In other words, by choosing Schäuble, they challenge Merkel’s crisis management. The seemingly growing ranks of German anti-bailout lawmakers perceive Greece as a trap that will prevent the monetary union from growing closer together. If that were true, it would indeed be a bad outcome. But let’s not accept this as a forgone conclusion.

Putting Grexit on the table has already had a chilling effect on many European partners. Since the irreversibility of the monetary union has been openly challenged by one of its founding members, a return to the status quo ante will not be possible. Some degree of further integration needs to take place to shield the euro from future attacks. Some observers argue that if leaders are still not willing to move toward true political and fiscal union, they should at least complete the rickety banking union, and finally cut the ties between banks and their sovereigns.

Whatever shape the next steps toward a more perfect union take, it would be helpful if national politicians accepted that the monetary union can only survive if transfers of sovereignty from all its member states to the center are symmetric. The history of the European Union may have started as a protection against the danger of a resurgent Germany in the 1950s and, to a certain degree, when it was decided to adopt a common currency in the early 1990s. But continuing to perceive Europe and the monetary union as a zero-sum game, based on a balance of power mentality is a trap. It will only fuel political fragmentation, especially if Germany’s economic and political predominance on the continent continues well into the next decade and if the challenges to Europe’s place in the world arising from outside the European Union become even bigger than they already are today.

Finally, let’s note that the new European Commission is trying to prove that it can act politically on behalf of all European citizens, not as a cold and distant institution made up of technocrats, but as a partner to its citizens as well as the governments of its member states. It therefore deserves a bit more credit from those in search of easy scapegoats outside of their own borders. Furthermore, the evolution of the ECB since its inception proves that acting on behalf of all members is not impossible. Today’s ECB really is the result of a symmetric transfer of power. Reviewing its young history could inspire Europe’s leaders if they decided to finally make the necessary quantum leap toward greater integration.