Starkly divided opinion in the EU's biggest economy could be as big a threat to the euro as Greek debt
As speculation about a Greek exit from the eurozone continues, Germany is pushing ahead with plans for a new treaty that will transform the European Union.
According to this week's Spiegel, Angela Merkel wants European leaders to agree by the end of the year to hold a constitutional convention in order to fashion a new legal basis for the EU – even though most other member states are opposed to the idea of another tortuous and risky treaty negotiation so soon after the failed European constitution and the Lisbon treaty. The plan could dramatically reshape the EU in Germany's image – or lead to it falling apart.
On Friday Merkel rejected Greece's plea for more time to implement austerity measures while affirming that she still wanted it to remain in the euro. There had been some signs that German anger about Greece had dissipated – Bild published a surprisingly positive interview with the Greek prime minister, Antonis Samaras, last week – but at the same time confidence is growing that a Greek exit from the euro could be contained. Figures such as Volker Kauder, the parliamentary leader of the Christian Democrats, and Philipp Rösler, vice-chancellor and leader of the Free Democrats, the junior partner in Merkel's coalition government, have said they no longer fear a Greek exit.
However, the debate in Germany is now moving beyond Greece towards the question of political union. During the two and a half years since the euro crisis began, Germany's approach has been to seek to impose its own economic preferences on the eurozone. It insisted that all eurozone countries agree to enact an equivalent of the constitutional amendment it passed in 2009, which required it to maintain balanced budgets. Many, including Guardian leader writers, have seen in Germany's approach a kind of economic imperialism. But Germany seems to be coming to the conclusion that it is no longer enough to try to remake the eurozone in Germany's image in economic terms; it must do so in political terms as well.
Although Germany has often been accused of doing too little too late for the eurozone periphery, many Germans think they have already done too much too soon. They perceive a creeping mutualisation of debt, in which they are assuming liability without control – in other words, throwing astronomical sums of money into a bottomless pit without being able to enforce austerity measures or to stop eurozone leaders such as François Hollande from taking steps to change the retirement age, for instance, from 62 to 60. As a result, there has been increasing anger in Germany at the bailouts. (The German constitutional court is expected to rule on the constitutionality of the European Stability Mechanism, the eurozone's €500bn rescue fund, on 12 September.)
Many Germans see the idea of a more extensive and permanent form of debt mutualisation – for instance in the form of eurobonds – as the creation of a "debt union" in which they and other surplus countries would assume unlimited liability for deficit countries' debt while giving up what leverage they have to enforce structural reform. Germany's constitutional court has already ruled that open-ended debt mutualisation of this kind would violate the Basic Law – the federal republic's constitution.
The European summit in June, at which Hollande, along with Italian and Spanish prime ministers Mario Monti and Mariano Rajoy, forced Merkel to allow the ESM to directly bail out troubled eurozone banks, was a turning point in German attitudes to the euro crisis.
In much of the rest of the eurozone – and the world – it was seen as a breakthrough. The summit was, as one economist put it, "the first to agree measures that address the core of the crisis: inflated government borrowing costs that weaken public finances and ultimately make sovereign insolvency self-fulfilling; and a vicious cycle in which worries about bank and sovereign solvency feed on and amplify each other".
In Germany, however, the summit – which took place on the day that Italy knocked Germany out of Euro 2012 – was widely seen as a defeat. From a German perspective, Merkel had given in to demands from the eurozone periphery for even more of their money while weakening the strict conditionality on which Germany had always insisted. It was, according to the Spiegel, "the night Merkel lost". Against this background, there are now calls for a referendum – the buzzword of the summer in Germany – to replace the Basic Law with a new constitution.
Supporters of "more Europe", such as Jürgen Habermas, would use the process to argue for changes that could overcome the limitations set by the courts on debt mutualisation. Their opponents would see it as a chance to block further European integration.
Even with Merkel's plan to accelerate the timetable for a new treaty, there is a big question mark over whether an as yet undefined form of political union can be agreed quickly enough to save the euro. Just as Germany has sought to impose its economic preferences on the rest of the eurozone, it is now also likely to seek to impose its political preferences, based on the lessons it has drawn from its own history. In other words, it will seek to reshape Europe as a larger version of its own federal system, which has a relatively weak executive constrained by strict rules and a strong parliament and judiciary.
However, even if it is successful in doing this, it is by no means clear that the German people would vote in favour of accepting full liability for eurozone debt. Influential figures such as economist Otmar Issing are opposed to political union, and some polls suggest a majority of Germans are opposed to further integration and even want Germany to leave the euro altogether.
What some in Germany see as a way to enable "more Europe" may turn out to be the catalyst for the disintegration of the EU.
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