Opinion

Anatole Kaletsky

How EU politics pushed Merkel to lift Germany’s austerity policies

Anatole Kaletsky
Jul 4, 2014 15:27 UTC

German Chancellor Merkel and Luxembourg's Prime Minister Juncker hold a joint news conference after a meeting in Luxembourg

Matteo Renzi, the prime minister of Italy who took the revolving presidency of the European Union this week, seems to be the sort of man that Napoleon was referring to when he reputedly said that the key qualification he sought in recruiting a general was good luck.

Renzi become prime minister without even needing to win an election because Silvio Berlusconi and all other rivals self-destructed. He took power just after Italy passed the lowest ebb of its economic fortunes. In May, he was rewarded for his good fortune by Italy’s voters, who anointed him with a strong democratic mandate in the same European elections that discredited almost all Europe’s other national leaders. Now he is taking the helm in Europe, as an economic recovery is starting and the European Central Bank is swinging decisively in support of growth.

But even a politician as lucky as Renzi could not have counted on his latest and most unexpected windfall: the unintended consequence of last week’s failed campaign by British Prime Minister David Cameron to stop the appointment of Jean-Claude Juncker as head of the European Commission.

Italian PM Renzi talks during a joint news conference with European Commission President Barroso at the end of a meeting at Villa Madama in RomeAnalysis of Cameron’s crushing defeat in the 26-to-2 vote by Europe’s national leaders to appoint Juncker has focused on its implications for British politics and for Britain’s future in the EU. But this event was actually less significant for Britain than for Europe as a whole, specifically for the Italian EU presidency that started on July 1.

For Cameron and Britain, the embarrassment of losing the Juncker battle was more apparent than real. The outcome was predictable once the British press started smearing Juncker with claims about alleged Nazi parentage. From that moment on, Chancellor Angela Merkel was pressured by German public opinion to give Juncker her unconditional support and secure a near-unanimous coalition of Europe’s leaders to head off Cameron’s attacks.

The age of austerity is ending

Anatole Kaletsky
Feb 28, 2013 15:35 UTC

Whisper it softly, but the age of government austerity is ending. It may seem an odd week to say this, what with the U.S. government preparing for indiscriminate budget cuts, a new fiscal crisis apparently brewing in Europe after the Italian election and David Cameron promising to “go further and faster in reducing the deficit” after the downgrade of Britain’s credit. But politics is sometimes a looking-glass world, in which things are the opposite of what they seem.

Discussing the outcome of Friday’s “sequestration” of U.S. government spending is best left to the month ahead, when we see how the public reacts to government cutbacks. But in Italy, Britain and the rest of Europe, this week’s events should help convince politicians and voters that efforts to reduce government borrowing, whether through public spending cuts or through tax hikes, are both politically suicidal and economically counterproductive.

In Italy, and therefore the entire euro zone, this shift is now almost certain. After the clear majority voted for politicians explicitly campaigning against austerity and what they presented as German economic bullying, further budget cuts or labor reforms in Italy are now off the agenda, if only because they would be literally impossible to implement. If Angela Merkel demands further budget cuts, tax hikes or labor reforms as a condition for supporting Italy’s membership of the euro, a majority of voters have given an unequivocal clear answer: Basta, enough is enough. Most Italians would rather leave the euro than accept any further austerity – and if Italy left the euro, total breakup of the single currency would follow with an inevitability that might not apply if the country exiting were Greece, Portugal or even Spain.

The losers in Italy’s election are already clear

Anatole Kaletsky
Feb 21, 2013 18:00 UTC

We don’t yet know the winner of Sunday’s election in Italy, but the losers are already clear. And in this election, who loses may be much more important than who wins.

The obvious loser is Mario Monti, the charming and eloquent economics professor who is widely credited with saving Italy from a Greek-style debt crisis during his one-year term as Italy’s unelected prime minister. Monti could have gone down in history as the most effective and intelligent Italian leader of his generation, had he decided to opt out of this weekend’s election and instead sought appointment as Italy’s president. That is a mainly ceremonial role that can become very important in times of constitutional crisis (which in Italy occur all too often), and Monti could almost certainly have won strong endorsements  from Italian politicians on the left and right.

Instead, Monti surprised everyone by founding a political party and running for Parliament at the head of a center-right grouping. This now looks like a big mistake. According to the last pre-election polls, Monti’s group is running a humiliating fourth, after the Italian Socialist Party, Silvio Berlusconi’s resurrected personal party and stand-up comedian Beppe Grillo’s anarchic Five Star Movement. Worse still for Monti, he seems to have helped his archenemy Berlusconi by splitting the opposition to the scandal-ridden former prime minister. If Monti’s party performs as badly as expected, it will be all too easy for his opponents to present the election as a clear rejection of the painful economic reforms he imposed on his long-suffering countrymen at the behest of the German government and the European Central Bank.

Can the rest of Europe stand up to Germany?

Anatole Kaletsky
Jun 20, 2012 19:02 UTC

As financial markets slide toward disaster, scarcely pausing to celebrate the “success” of the Greek election or the deal to recapitalize Spanish banks, the euro project is finally revealing its fatal flaw. One country poses an existential threat to Europe – and it is not Greece, Italy or Spain. Every serious proposal to resolve the euro crisis since 2009 – haircuts for bank bondholders, more realistic fiscal consolidation targets, jointly guaranteed eurobonds, a pan-European bailout fund, quantitative easing by the European Central Bank – has been vetoed by Germany, and this pattern looks likely to be repeated next week.

Nobody should be surprised that Germany has become the greatest threat to Europe. After all, this has happened twice before since 1914. To state this unmentionable fact is not to impugn Germans with original sin, but merely to note Germany’s unusual geopolitical situation. Germany is too big and powerful to coexist comfortably with its European neighbors in any political structure ruled purely by national interests. Yet it isn’t big and powerful enough to dominate its neighbors decisively, as the U.S. dominates North America or China will dominate the Far East.

Wise German politicians recognized this inherent instability after 1945 and abandoned the realpolitik of national interest in favor of the idealism of European unification. Instead of trying to create a “German Europe” the new national goal was to build a “European Germany.” Unfortunately, this lesson seems to have been forgotten by Angela Merkel. Whatever the intellectual arguments for or against German-imposed austerity or the German-designed fiscal compact, there can be no dispute about their political import. Merkel’s stated goal is now to create a “German Europe,” with every nation living, working and running its government according to German rules.

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