Only a few weeks after Chancellor Merkel of Germany appeared to be on the upswing as she dominated Eurozone policymaking in respect of the crises in Italy, then Spain and Greece, her apparent success seems to have begun to unravel. Her policy for dealing with the crises in those countries, based on fiscal austerity including deep cuts in public spending, have not met a positive response from the affected publics in the Eurozone, with governments falling in those countries. The last of these states Greece, has still not, unlike the other states, been able to assemble a viable government after the outgoing government had agreed to what can be called the European Union-German terms. And in the case of Greece, the party holding the critical balance, now refuses to join any kind of coalition government, apparently preferring to go back to the polls.
On the heels of the disintegration of the Greek government have come decisive defeats for Mrs Merkel’s Christian Democratic Party in two major states of the Federal Republic, Schleswig-Holstein and then North Rhine-Westphalia (which has one-fifth of the country’s population), with victory going in both cases to the major German Social Democratic Party opposition. In large measure, the Social Democrats support the economic policy of their social democratic counterpart in France, where François Hollande, arguing strongly for an expansionist, rather than fiscal austerity, gained a decisive victory against President Sarkozy. Chancellor Merkel had openly supported Sarkozy, given his adherence to her Eurozone economic policies. And as in the case with popular dissatisfaction in periods of economic downturn, minor parties have increased their voter support in both Greece and Germany, as they did in the presidential elections in France.
What these external defeats or disappointments for the Chancellor suggest is a re-evaluation of her Eurozone policy, which she has up to now insisted upon, as having been successful in sustaining the persistent growth of the German economy itself under her leadership. The pressure for re-evaluation has gained immediate significance since Mrs Merkel now has to review the policy consequences for the Eurozone, now that Francois Hollande is assuming the presidency of France, and is no longer merely the candidate of a party, even though a major one, with which, in the European setting, she is neither practically or philosophically aligned.
Signs of a more lenient response to the expansionist or growth policy are already visible. The German Finance Minister Schäuble has expressed the view that a little more emphasis can now be placed on expansion in Germany itself, so creating some degree of demand in the German market for Eurozone exports. In addition, President Barroso of the European Union, a former Prime Minister of Portugal, now like Spain in major economic difficulty, has now felt it possible to express a similar view.
Interestingly the British, though not members of the Eurozone, but well aware of the fiscal austerity policies that have been adopted in Ireland as well as by themselves over the last two years or so, are beginning to become sensitive to the difficulties of the Eurozone countries. There seems to be less of the adoption of a ‘this is not our business’ attitude which they seemed to have, as they stoutly insisted that the Eurozone is a ‘no-zone’ for the United Kingdom.
Business Secretary (Minister) Vince Cable, himself a noted professional economist, now insists that “the problem would affect us if it spread” and could have “a massive impact on our trade – half of our exports go to the Eurozone countries [and] our banks are quite substantially exposed to those countries.” And former EU Trade Commissioner and Labour Party minister Lord Mandelson, and the Labour Party leader Ed Balls, no doubt bolstered by the successes of the social democratic parties on the continent, and of their own party in recent local government elections, have now insisted that “the [British] coalition government must commit with other European governments to a new growth strategy if the Eurozone is to survive.”
So in Britain, the problems of the Eurozone are beginning to be perceived not simply as a consequence of irresponsible polices in major countries like Italy, but also as a consequence of the wider North Atlantic recession (which, incidentally, Germany has partially avoided up to now), to which there is need for an approach by countries of the EU irrespective of their membership of the Eurozone or not. There is, in recent times, less talk of the possibility of a collapse of the Eurozone, as a result of countries like Greece deciding to take their chances on reversion to a national currency.
A consequence is likely to be a little more empathy in Britain for the policies of Germany, and support for an evolution from intense fiscal authority to some element of growth policies. President Hollande, conscious of the terms on which he has won his election, and the turn to social democratic parties on the continent, will feel himself to have a stronger hand in dealing with Mrs Merkel than many thought when he first proposed his growth orientation.
Yet there is also much discussion in Europe for a theme that the Germans have continually stressed. This is that there is still a substantial need for major so-called structural reforms aimed, in particular, at changing the skills content of the European labour force as Germany has attempted to do in recent years. The combined economic, and then political, negative trends for the leaderships of the EU countries, seem to be inducing the beginnings of a new collective discussion among the member states, even in a context in which there are likely to be more political changes, requiring recommitment by new governments to the evolving monetary and economic policies.
And in the context of recent political impulses from her population, Chancellor Merkel will herself have to be calculating the consequences for her Christian Democratic Party of maintaining current policies, as against leaning towards responding to popular sentiment.
