Jens Weidmann, President of Deutsche Bundesbank speaks on Rebalancing Europe, 2012. Wikicommons/Magnus Manske. Some rights reserved.In a recent paper, Guido Montani – professor of international political economy at the
University of Pavia and former secretary general and president of the European
Federalist Movement – takes a look at the recent clash between Greece and its
creditors, and what this means for the future of European integration and of
the monetary union (EMU) in particular.
Exportnationalismus
In the first part of the
paper Montani analyses the current state of play in Europe. He does so without
attempting to downplay the seriousness of the situation or to sugarcoat the
facts. On the contrary, he states in no unclear terms that ‘the dramatic Eurosummit
of 12-13 July
2015 marked a turning point in the history of European integration’: by
threatening to expel Greece from the monetary union, ‘core Europe’ –
essentially Germany and its economic satellites, led by German finance minister
Wolfgang Schäuble – broke the original pact for the EMU. ‘Monetary union is no
longer seen as irreversible, and neither is the EU’, Montani correctly assesses.
‘If Greece, and other overspenders, can be pushed out of the euro area,
monetary union becomes similar to a system of fixed exchanged rates: the only
difference is that it is more difficult and expensive to get out’.
Moreover,
Montani seems to share Yanis Varoufakis’ view that Grexit was part
of a wider strategy, aimed at radically restructuring the EMU into a smaller
union of fiscally-tight, export-led core economies – Kerneuropa – by forcibly ejecting those countries deemed
structurally unfit (such as Greece), in turn disciplining those governments
that might be tempted to challenge the existing/new rules (such as in Italy or
France).
Montani
then goes on to explain how this reflects Germany’s rise as the hegemonic (or
rather semi-hegemonic) power within the Union, acknowledging (with some
reserves) that ‘there is a new German question in Europe’. Montani’s analysis
of this issue is mostly based on the one put forward by Hans Kundnani in his
book The Paradox of German Power. The
crucial concept at the basis of Kundnani’s analysis – which in turn is drawn
from the classic work of German historian Ludwig Dehio – is that of
semi-hegemony:
The unified Germany was too big for a balance of
power in Europe and too small for hegemony. The German historian Ludwig Dehio
would later aptly identify Germany’s problematic position in continental Europe
during the Kaiserreich as one of ‘semi-hegemony’: it was not powerful
enough to be perceived as a threat by other powers. Thus its size and central
location in Europe – the so-called Mittellage – made it inherently
destabilising. This, in essence, was what became known as the ‘German
question’.
Kundnani argues that Germany’s economic success in the first decade of
the euro, during which it went from a current account deficit to a huge surplus
– largely as a result of two factors: the restructuring of German manufacturing
by way of outsourcing to the Eastern länder and Eastern European countries,
leading to the creation of a German transnational value chain; and Germany’s
policy of internal devaluation (wage restraint) – also had the effect of
dramatically altering the perception of the German identity, leading to what
Kundnani dubs ‘Exportnationalismus’:
essentially, a new form of ‘economic nationalism’ based on the supposed
superiority of the German hyper-mercantilist economic model (Modell Deutschland).
Kundnani’s general conclusion – shared by Montani, though with a major caveat, which I will return to
later – is that Germany can now be viewed as a geo-economic semi-hegemonic
power:
With the transformation of Europe since the end of
the Cold War, Germany returned to the Mittellage in a geographic sense…
Germany has not created stability… but instability in Europe. Germany’s
rhetoric focuses on stability: it talks about a ‘stability union’ and is proud
of its Stabilitätskultur, or ‘stability culture’. But its definition of
the concept is extremely narrow: when Germany talks about stability it means
price stability and nothing else. In fact, in attempting to export its
‘stability culture’, Germany has in a broader sense created instability.
Ordoliberalism
As a result, Kundnani argues, ‘Germany has returned to the position of
semi-hegemony that Ludwig Dehio described – except in geo-economic form’. In
the subsequent section of the paper, Montani goes on to discuss the dominant
economic doctrine in Germany, deeply rooted in the country’s major political
parties and public opinion: ordoliberalism (also known as a social market
economy). He writes:
A
crucial aspect of ordoliberalism is its rejection of macroeconomic policies to
manage effective demand, as supported by Keynesian economists. If
the social market economy is well regulated, with effective competition rules,
with a central bank independent from the government and capable of fulfilling
the goal of price stability, with a system of social relations complying with
the rule that wages increase pari passu with productivity, the social
and political goal of full employment can easily be reached. This approach is
therefore similar to that of the modern neo-classical school of supply-side
economics [my bold].
Montani than looks at how the doctrine of ordoliberalism, championed by
Germany, deeply influenced both the EMU’s original architecture – the strict
limits imposed on government deficits/debts by the Stability and Growth Pact (SGP), further tightened
in recent years by the so-called Fiscal Compact; the principle of the independence of the
ECB from national governments and European institutions; the no-bailout clause,
etc. – as well as the eurozone’s response to the crisis. In general, Montani
argues, Germany’s attitude vis-à-vis crisis-stricken countries such as Greece
‘reveals the ordoliberal conception of the EMU’ as ‘nothing but a gold
standard… a monetary agreement for the stability of prices and exchange rates,
and nothing more’.
Finally, Montani notes that the ordoliberal views of the German monetary
and political establishment (and especially of the Bundesbank, considered to be
the temple of ordoliberal orthodoxy) haven’t softened over time. On the
contrary, they have gotten more entrenched. On this point, he quotes the
President of the Bundesbank, Jens Weidmann:
It was a long-held belief, above all in Germany,
that in the long run monetary union would, out of necessity as it were,
culminate in political union. Addressing the Bundestag in November 1991, Helmut
Kohl remarked that ‘the idea of sustaining economic and monetary union over
time without political union is a fallacy’. I believe, however, that monetary
union can also function without political union. The Maastricht framework,
which was adjusted in the light of the crisis, offers a sensible foundation for
this in principle.
Montani also notes that ‘this view seems to be fully shared by the
finance minister Wolfgang Schäuble’.
To recap, in the first part of the paper Montani concedes the following:
a)
that Germany and the other self-appointed members of Kerneuropa (‘core Europe’) no longer see
the monetary union as irreversible, and actually view the expulsion of
non-compliant countries as a feasible political choice for the building for a
two-speed Europe centred around a ‘core EMU’ restructured along even stricter
ordoliberal lines;
b)
that since the introduction of the euro Germany has emerged once again
as a geo-economic semi-hegemonic power with a strong belief in the supposed
superiority of its economic model (‘Exportnationalismus’),
and that this process has dramatically accelerated since the outbreak of the
crisis, leading to the resurgence of ‘a new German question in Europe’;
c)
that ordoliberalism – an economic doctrine similar to that of the modern
neo-classical school of supply-side economics, and based on the radical
rejection of Keynesian macroeconomic policies – is deeply engrained in
Germany’s major political parties and public opinion;
d)
that Germany’s current monetary and political establishment (or a
significant part of it) – along with that of the other core economies –
believes that monetary union can function just fine without political union –
all it needs is tighter rules and strict punishment for non-compliance.
In light of this, one would expect the second part of the paper to be
dedicated to an equally lucid analysis of the implications of these worrying
developments for the prospects of European integration, especially considering
Montani’s federalist vocation. Instead, what we get is little more than the
same old shopping list of reforms needed to ‘complete the EMU’ and ‘build a
supranational federal union’: a federal budget, a central fiscal authority with
real spending power, a supranational economic policy aimed at keeping the
balance of payments of the euro area in equilibrium, a public bonds market
based on federal bonds, a reform of the role of the ECB, a democratic European
government, etc.
King Canute and a very
different tide
I found this very disappointing. What I take issue with are not the
proposals per se – which I generally agree with – but rather the complete lack
of political strategy. Montani offers no insight whatsoever into how we are
supposed to achieve these noble objectives, especially in view of the fact that
the current European trend – so accurately described by the author in the first
part of the paper – appears to be moving in the exact opposite direction. Instead, he seems to rest all his hopes
on a pseudo-materialistic faith in the fact that sooner or later – if we simply
keep stating our case – the ordoliberals will come to their senses and ‘accept that
Europe’s aggregate demand must be managed to ensure growth, full employment and
social cohesion in the European economy’ and that ‘all the member states of the
euro have a common interest in abandoning a decision-making system that causes
national rivalries among them’. What I take issue with are not the proposals… but rather the complete lack of political strategy.
Unfortunately, seventy years of federalist thinking prove the contrary:
in the political realm, simply stating over and over again that something – in
this case a European democratic federation – is possible and desirable
does not make it more likely. Moreover,
underpinning Montani’s entire analysis is the assumption that ‘without the EU and the euro area, Germany would be nothing but an old,
declining European power’, which is dubious to say the least.
The problem is that while an approach that favours idealism over
pragmatism may be justified in ‘normal’ times – i.e. times of economic growth
and relatively low unemployment –, since progress appears, often deceivingly,
to be moving forward (though maybe not at the speed or in the direction we
desire), or at the very least not to be moving backwards, it is debatable
whether that same approach can be justified in times of economic and political
turmoil, such as we one that we find ourselves in today, in which the clocks of
history are clearly starting to turn backwards (with nationalism and xenophobia
on the rise again).
The EU is a great case in point: while a generalised pro-European
sentiment was common before the crisis – thus providing a fertile terrain in
which to sow the seeds of European federalism – the opposite is true today. In
today’s Europe, the old ‘enlightened’ approach – making impassioned appeals
based on reason and logic, like Montani does in his paper – simply isn’t going
to cut it. As mentioned, we face a situation in which the general tide appears
to be moving in the exact opposite
direction of the federalist cause – and where an exogenous shock, such as a
breakup of the EU/EMU, risks relegating the very notion of European federalism
to the dustbin of history. Surely such a dramatic situation warrants a change
of strategy?
Take a deep breath and
regroup for something worthwhile?
Federalists today have a political obligation to think in strategic terms: is it in the interest
of the democratic federalist cause to support the current process of
authoritarian, centralised, top-down ‘federalism’ championed by Germany and the
European establishment? Is it realistic to assume that ‘it is possible… to strike a compromise between ordoliberal and Keynesian economics’ in
the near future, as Montani does? Do we really think that Germany’s deeply
engrained ordoliberal political-economic culture can be swayed? If so, how do
we go about changing it? Who should we direct our appeals to, the German
political elites or its workers and citizens? More in general, can a global
superpower like Germany really be tamed through reason and logic? Or should we
acknowledge that restraining Germany’s power requires other member states
taking a more active role on the European stage? These are questions that
federalists cannot avoid asking themselves any more. Should we acknowledge that restraining Germany’s power requires other member states taking a more active role on the European stage?
Changing perspective entirely, maybe the problem
isn’t that federalists aren’t pragmatic enough but that they are not utopian enough? Another thing that
struck me about Montani’s case was how, well, uninspiring it was. To give ‘the
federal government’ more spending power Montani proposes to increase the EU
budget from 1 per cent of the EU’s GDP to… 2-2.5 per cent of GDP or little
more. Really?
That’s not much a cause to fight for, to be
honest. In a way, Montani’s brand of federalism succeeds in being at once too
idealistic to be taken seriously by the European political establishment – as
we all know the EU budget has been steadily shrinking since the start of the crisis – and too pragmatic to inspire European citizens. If we are to speak of
federalism, we might as well aim high and demand (as
argued by Philip
Arestis and Malcolm Sawyer) an
effective fiscal union with tax-raising powers at the EMU level in the order of
at least 10 per cent of the EMU’s GDP; fiscal transfers from richer to poorer
countries; a federal authority with the capacity to engage in deficit spending;
the support of the ECB in the operation of fiscal policy; etc.
Personally, I believe that we should simply
acknowledge that the political conditions are not ripe – and will not be for
quite some time – for a move towards a fully-fledged fiscal and
political union, and that it would be in the long-term interest of the
federalist cause to take a step back in the integration process by demanding
greater flexibility at the national level, as
advocated by Philippe Legrain, thus slowly recreating the
conditions for moving towards a true solidarity-based and
democratic fiscal and political union.
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