The Macron Dilemma-Why Merkel Must Act on Paris’ Eurozone Reform Proposals

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A DER SPIEGEL Editorial by Michael Sauga

Germany has been sitting on eurozone-reform proposals from French President Emmanuel Macron for months. If Berlin doesn’t act soon, a historical opportunity may go to waste. And that could spell doom for the common currency.

It wasn’t that long ago that Emmanuel Macron and Angela Merkel looked like the new dream couple of European politics. The French president gushed of a “very close relationship.” And the German chancellor said she was pleased about prospects for “extremely promising cooperation.” Last summer, it looked like the two most important Europeans might breathe new life into the Continent.

Eight months later, however, what Merkel described as the “magic of the new beginning,” is no longer particularly palpable. Their joint appearances come across as forced and tense and the German government has provided no response to Macron’s proposals for reforming the eurozone. Instead of countering with her own ideas, Merkel is buying time and, by doing so, creating the risk that a historic opportunity will be missed — that of a joint relaunch of the currency union together with the French president. One that matches solidarity with solidity, the very principles that are necessary for the common currency to exist in the first place.

The problems start with the fact that German politicians haven’t yet even deigned to take a close look at Macron’s ideas. On the one hand, it is undisputed that the currency union is in urgent need of repair. The budget and debt rules have become so watered down and obfuscated that no one understands them or adheres to them any longer. The eurozone lacks the instruments necessary for responding to economic crises early on. And when the European Union wants to create new investment programs, European Commission President Jean-Claude Juncker is forced to go door-to-door, tediously begging national governments for the necessary funds.

More Confusion than Clarity

On the other hand, even Macron’s most ardent supporters are fully aware that the concrete proposals he has made are poorly suited for ending the euro’s woes. On the contrary: The installation of a European finance minister as Macron is calling for would probably create more confusion in Brussels than clarity because no one would know whether such a minister would be reporting to the European institutions or to national governments.

No less questionable is the idea of providing the eurozone with its own vast budget. Just financing the plan would require either the application of massive savings measures or raising taxes on a grand scale. The one idea is just as unrealistic as the other, so it’s little surprise that there is virtually no support for the proposal outside France.

Thus, it is all the more important that the German government sit down and work out a more realistic plan together with Macron. But that seems to be more than the leaders of the parties involved in Merkel’s coalition government are capable of right now. Because when it comes to the issue of the euro, sentiment tends to trump sobriety.

Some, like former SPD leader Martin Schulz, see Macron’s proposals as a path to the rapid creation of a United States of Europe. Others, like the Christian Social Union, the Bavarian sister party to Merkel’s Christian Democrats, are turning to euro-skepticism to campaign against the French president. The party hopes that doing so will allow it to poach voters away from the right-wing populist Alternative for Germany (AfD) party in the upcoming state vote in Bavaria. One of the great absurdities of the currency debate in Germany is that EU proponents often do as much damage to the project as its skeptics.

Compromises Have Long Been in Sight

And it’s not as if there aren’t reasonable ideas for reform — they’ve been on the table for some time now. A group of German and French economists presented a plan for simpler and more practical fiscal rules several months ago. And it was former German Finance Minister Wolfgang Schäuble who created the plan to further develop the eurozone bailout fund known as the European Stability Mechanism and turn it into a European Monetary Fund that could also administer preventative economic stimulus packages. During negotiations for the next EU budget period that begin in Brussels next week, Europe’s politicians could chart an important course by channeling part of the wastefully high agricultural expenditures into a massive new investment budget.

Compromises have long been in sight, but Chancellor Merkel seems to be flirting with the idea of sitting out the debate long enough for it to resolve itself. In Brussels, meanwhile, observers are warning that if a plan with the backing of a majority of eurozone members isn’t presented by summer, the idea will likely fall by the wayside during the approaching campaign ahead of European elections in 2019.

The chancellor’s formula has always been that it’s better not to make any decisions than to take risky ones. And she’s often found success with that approach. But this time, it’s the wrong one. Because it could mean that Europe misses the opportunity to push through vital reforms.

If that happens, experts predict, the common currency won’t survive the next financial crisis.

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