Since the financial crisis and since the UK’s Brexit vote at the very latest, the EU and the Eurozone have been faced with fundamental changes. As much as there is agreement in Europe over the need for reform, so also there is little consensus over the precise course that Europe should take to achieve this.
The core problems are both political and economic in nature. While the EU as a supranational entity is having a hard time developing an identity-forming shared spirit, critics find fault above all with the formation of the subsidiarity principle and the lack of democracy among the EU institutions. Economically, the Eurozone is particularly afflicted by the fact that, right from the start, the convergence criteria were not observed and transgressions not consistently penalised. This has culminated in a meanwhile pronounced economic divergence and a system that favours misconduct. But the differing mobility levels of the economic factors labour and capital are also compounding the current financial difficulties.
To ensure lasting success for the Eurozone, it is vital that the countries of the Eurozone converge structurally. For this to happen, the now weaker countries – with correspondingly higher unemployment – have to improve their structural conditions. This will not be possible without political risks, with the motivation of the governments in question correspondingly low as they focus on retaining power. The governments are only prepared to tackle these tasks if faced with high political pressure.
Knowledge of what needs to be done to bring the Eurozone back to the road to success is nothing new – as are the reasons why only very slow progress is being made here. Nor does it come as a surprise to find the ideas – depending on the observer’s particular perspective – lying between the two poles of a fully-fledged liability union on the one hand and notions of a looser confederation without mutual responsibility on the other.
I believe that a possibility also exists of bringing the two poles together. The Germany – France relation is particularly crucial for the attainment of this. If the two countries were to work together closely and achieve a structural alignment, this should greatly heighten the pressure on the other countries of the Eurozone. Even Italy would probably be unable to elude this pressure. For if a strong France-Germany axis existed, the Eurozone would be able to cope with a fair number of upheavals, even an economic and political collapse of Italy. This would strip the countries in question of a large part of their negotiating leeway, and thereby greatly boost the readiness to latch onto the development of these two countries.
However, this will most likely prove difficult to realise politically. Germany would have to make concessions. France would have to press ahead with its reform process, particularly on the labour market. Germany would have to consent to a European Finance Minister with a clearly-defined budget and responsibilities or a largely politically independent „European IMF“.
Negotiations on such a project would have to commence after the general election. The French President has already signalled his readiness to embark on this course on several occasions. First positive signals can also already be heard from Germany.
The Eurozone should therefore now initially enter a phase of greater burden sharing. But this could also lay the foundation for longer term stability in the Eurozone if the consent towards structural reforms in France continues.
The risk of this strategy is clear. If there is a change in the political climate and the will to achieve closer cooperation between Germany and France weakens again after a while, or the reform efforts fail, the danger exists that the newly-created structures of burden mutualisation would lead to a gradual collapse of the Eurozone. The attraction of structures that make it possible to live beyond one’s means and fail to do one’s political and structural homework is very great and would probably also be exploited in the absence of necessary political pressure.