Federal chancellor Angela Merkel has broken her silence after all and presented her reform proposal for strengthening the Eurozone. Long did she hesitate and dither – after all the heads of government of the EMU will be meeting at the end of this month in order to negotiate a new architecture for the euro. Merkel will no longer be able to shape the debate at will, as quite a few months ago President Macron already started banging the drum for his ideas of a Europe based on solidarity and a deeper financial community. Merkel is now caught between two stools: She has to strike a balance between domestic political sentiments and European policy concerns. On the one hand, she must not antagonise both her coalition partner and the rank and file of the conservative party. Above all, with a view to the Bavarian State elections this autumn the CSU (the Bavarian conservatives) will insist on a tough tack taken toward countries on the EMU’s periphery, who, they believe, act irresponsibly in fiscal terms. On the other hand, Merkel is trying to properly support her European allies. Given the latest developments in Italy, she will no doubt wish to take the opportunity to signal goodwill to the new government in Rome while at the same time taking the wind out of the sails of its populist demands.
Against this backdrop, no one could expect some major, creative proposal from the federal chancellor as regards a Euro reform. Indeed, she is pursuing a strategy of the smallest common denominator and confining herself to taking up a few of Macron’s ideas and watering them down. She thus puts forward an EMU investment budget in the low double-digit billions destined to strengthen the innovative abilities of the EMU member states and combat economic heterogeneity within Euroland. Moreover, she wants to transform the ESM into a European Monetary Fund – whereby loans will only be granted under certain conditions and the Bundestag would retain a veto right.
As expected, the federal government is positioning itself for a compromise that in the final instance is supposed to give everyone something but will not, however, ensure the future of the euro. Merkel’s latest agenda again champions creating politically dependent institutions that are unlikely to be up to the task of eliminating the known problems in the Eurozone, meaning the great economic divergence between the Eurozone member states and the existing false incentives to act irresponsibly on the budgetary front. At present it is at least not conceivable how the reform proposals from Berlin, Paris and Brussels will manage to prevent or avert potential crises, for example the threatening dilemma with Italy – without endangering the future of the euro.