Sunday, October 20, 2013

Merkel's German nationalism and the EU

It sounds internationalist at first glance, German Chancellor Angela "Frau Fritz" Merkel wanting to enhance the authority of the European Commission over the budgets of individual countries. (Mehr Rechte für EU-Kommission: Merkel will europäische Verträge ändern Spiegel Online 19.10.2013)

But for Merkel, who is running the EU according to a milder form of the model by which Leonid Brezhnev and his successors ran the Warsaw Pact, more power to the Commission means more power to her. More specifically, according to this report, it would give her (via the Commission) more power to impose perpetual austerity policies on the EU nations. (I should note that I'm interpreting here what Spiegel reports in more neutral jargon, but I'm confident in my interpretation based on Frau Fritz' history with the EU.)

The problem for Merkel's approach is that the costs to the euro "periphery" countries is enormous, with years more suffering in sight. The European Central Bank (ECB) successfully stabilized the situation against interest rate speculators - the fabled "bond vigilantes" - by using a broad interpretation of the ECB's authority to backstop national bonds that might come under attack.

Frau Fritz frames the problem as a debt crisis in which Germany must teach the inferior nations how to behave by imposing gruesome austerity policies on them. One way to look at it is that absent mechanisms for systematic transfers of wealth within the currency zone to adjust for differential rates of changes in productivity, the periphery countries have to undergo real devaluation, meaning in this case major reductions in wages and living standards until national competitiveness becomes more equalized. Without the trap of the euro currency zone, such adjustments could be made with far less devastating human consequences. Paul Krugman has been following how this dilemma plays out, e.g., Do Currency Regimes Matter? 10/19/2013.

Another aspect of Frau Fritz' approach has been to further institutionalize austerity economics in the EU treaties and bailout terms. The current EU agreements require arbitrary limits on debt as a percentage of GDP as well as equally arbitrary limits on annual budget deficits. In effect, the current EU arrangement outlaw Keynesian economic policies during a depression. Instead, in a recession in which GDP is shrinking, the rules require a country to pursue pro-cyclical policies of cutting government deficits and spending which accelerates the decline.

The periphery countries currently under Frau Fritz' austerity hammer - Cyprus, Greece, Ireland, Italy, Portugal and Spain - have been experiencing that already in the current depression. Given targets of debt as a percentage of GDP, they've cut their government spending, which causes the economy to contract, which makes the debt as a percentage of GDP bigger, which requires they cut government spending even more, and so on, over and over.

And the premise that the periphery countries can pay down the current debt without major debt relief is a conscious fraud, argues Yanis Varoufakis (The US Debt Ceiling Strife from a European perspective 10/17/2013):

In Peripheral countries like Greece, Portugal, Spain, Ireland, even Italy, countries immersed and drowning in un-payable debt, the race has been on for 4 years now to pretend that these insurmountable debts can be repaid even though we all know they cannot. Imagine the Greeks’ bafflement when they hear that the most powerful economy in the world, which has no trouble repaying its debts, is toying with a default when Greece and Europe have struggled so hard to mislead the world that Greece’s debt will be, somehow, repaid. Using default as a weapon with which to wage internal wars seems to Europeans like a very peculiar form of self-inflicted credibility loss.
Italy survived a government crisis just recently that could have led to new elections, which likely would have strengthened the anti-austerity, anti-Merkel parties and increased the pressure to refuse new austerity measures. Now they may be facing another one. (Neue Regierungskrise in Italien 19.10.2013) As Reuters reports, the current Prime Minister Enrico Letta proposed a budget that "seems designed more to offend nobody than to give the euro zone's most chronically sluggish economy a decisive boost." (Letta plays safe with solid but unambitious Italian budget 10/16/2013)

This is no way to fight a depression. But Merkel is not only dogmatically committed to austerity economics. It provides national advantages to Germany's export-oriented economy for the non-German part of the eurozone to have weak economies indefinitely while they implement internal devaluation. The value of the euro is based on the strength of the currency zone economy as a whole, which means that the euro is a cheaper currency for Germany than a separate German currency would be. This is fine by Angie. And the Social Democratic Party (SPD) with whom she's currently negotiating a new coalition government is not going to make any kind of real challenge to that policy, much to to their shame - and almost certainly to their future decline as a competitive party.

Markus Wehner's commentary in the 20.20.2013 Frankfurter Allgemeine Zeitung on the coalition negotiations is title, Die Schwarze Witwe lieben lernen ("Learning to Live With the Black Widow"). Angie previously had the SPD as a junior coalition partner in 2005-9, after which the SPD's voting percentage took a dive. Wehner quotes an unnamed "SPD man" as having observed that the fall of 11% points in the SPD's vote share in 2009 normally happens only in the case of a country going bankrupt or in a civil war. Frau Fritz' junior partner in the outgoing government is the Free Democratic Party (FPD), which in September's election didn't even get enough votes nationally to be represented in the Bundestag.

As Wehner points out, in a different tone than I'm summarizing it, is that the current SPD leadership is so pitiful that they have taken up an explanation for the 2009 election debacle that Frau Fritz herself offered publicly. It wasn't Angie's fault or her policies, it was the SPD's fault! Because, well, whatever, we should just go into another Grand Coalition headed by Merkel. This is really sad to see. One of the main arguments he cites is essentially a circular one: we allowed Merkel to punk us in the previous Grand Coalition, so there's no reason to not go into another one! Actually a circle closes, and I'm not sure that argument does. But the SPD leaders obviously aren't trying very hard to remind themselves or anyone else what a political disaster the first Angie The Great Coalition was for the SPD.

Alexis Tsipras, head of the left SYRIZA grouping that is currently the most popular party in Greece, is reminding Germany of a debt it owes Greece from an earlier and even uglier outbreak of German nationalism, the Second World War. Germany occupied Greece and dealt out a lot of suffering a death. (Eberhard Rondholz, Blutspur durch Hellas Zeit Online 08.03.2001) One of the German's methods of plundering Greece was to force the Greek central bank to loan them money. And despite the coercion involved, they were formally set up as loans, loans which the German government never repaid or otherwise resolved. Zeit Online provides an estimate sourced to unspecified Greek politicians that the debt would be worth €40 billion (around $54 billion). (Griechenlands Linke verlangt Rückzahlung deutscher Schulden 14.09.2013) This is separate from any reparations issue, something that has also been raised by Greeks justifiably angry over German behavior in the euro crisis. (Georgios Christidis, Secret Athens Report: Berlin Owes Greece Billions in WWII Reparations Spiegel International 04/08/2013; By Suzanne Daley, As Germans Push Austerity, Greeks Press Nazi-Era Claims New York Times 10/05/2013)

From Daley's report:

Prime Minister Antonis Samaras's government has compiled an 80-page report on reparations and a huge, never-repaid loan the nation was forced to make under Nazi occupation from 1941 to 1945.

Mr. Samaras has sent the report to Greece’s Legal Council of State, the agency that would build a legal case or handle settlement negotiations. But whether the government will press the issue with Germany remains unclear.

Some political analysts are doubtful that Athens will be willing to take on the Germans, who have provided more to the country’s bailout package than any other European nation.

Others, however, believe that the claims — particularly over the forced loan — could be an important bargaining chip in the months ahead as Greece and its creditors are expected to discuss ways to ease its enormous debt burden. Few here think it was an accident that details of the report were leaked to the Greek newspaper Real News on Sept. 22, the day that Germans went to the polls to hand a victory to Germany’s tough-talking chancellor, Angela Merkel.

"I can see a situation where it is politically difficult for the Germans to ease the terms for us," said one high-ranking Greek official, who did not want his name used because he was not authorized to speak on the issue. "So instead, they agree to pay back the occupation loan. Maybe it is easier to sell that to the German public."
Greece could also effectively achieve a debt haircut by refinancing its debt at much longer terms. (Mark Schieritz, Die Kosten des griechischen Schuldenschnitts Die Zeit Herdentrieb 09.10.2013) But Frau Fritz is unlikely to allow such a thing. (Update: But even if Frau Fritz allows such an approach, it doesn't solve the debt problem; it's not the same as a straightforward writedown of the debt.)

The SPD held a Party convention on Sunday (Oct. 20), which easily gave the leadership approval to continue with their negotiations to once again become a junior partner in a coalition with Frau Fritz. Hannelore Kraft, the Minister-President (Governor) of North Rhine-Westphalia state, was previously the most prominent public opponent of a Grand Coalition with Merkel's Christian Democrats (CDU), but she's on board with it now. There is a membership vote after the coalition deal is made that could throw in some new complications. But it will be pretty much a "done deal" - literally - by that time.

Both sides have to put up a pretense of hard negotiating in forming the coalition. Veit Medick and Philipp Wittrock, Coalition Face-Off: Tough Negotiations Lie Ahead Spiegel International 18.10.2013) But the fact that the SPD didn't even pretend to try to organize a majority coalition with the Greens and the Left Party means the SPD leaders have already decided to be toadies for Merkel the next four years, no matter what the needs of their clients or their ostensible partner nations in the EU or the eurozone.

The new Angie the Great Coalition would be a neoliberal wet dream. The conservatives and the social-democrats unite behind Merkel's nationalistic austerity policies and pretend that the whole EU project isn't already on the rocks. Columnist Ralph Bollmann in the conservative Frankfurter Allgemeine Zzeitung practically drools over how much fun it will be to watch the Sozis be willing patsies for Frau Fritz in a new Grand Coalition. (Was will die SPD in der Regierung? FAZ 20.10.2013)

What is stunning is that the perilous state of the EU is playing at best a minor role in the negotiations. The two sides in the coalition negotiations are arguing over ministerial posts, of course, and over tax increases, a national minimum wage (a worthy enough cause for sure, and, no, Germany doesn't currently have one) and numerous transactional-type issues. But the threatened collapse of the "European project" is evidently regarded by the leader of Merkel's CDU and the SPD with 1914 levels of arrogance, indifference and nationalist recklessness.

The SPD also seem untroubled by the prospects of the neoliberal Trans-Atlantic Free Trade Agreement (TAFTA) currently being negotiated between the EU and the US under high levels of secrecy. Well, in secrecy from the public and legislators, anyway. As we've known for a while now, the NSA is intercepting the EU's internal communications on their negotiating positions. So why not let the public in on it?

The anti-TAFTA group Seattle to Brussels Network (S2B) has issued a new report on the risks and problems of TAFTA A Brave New Transatlantic Partnership (October 2013).

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