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Wolfgang at the door
“Nothing will be quite the same again,” Greek Finance Minister Euclid Tsakalotos wrote on the European Union flag given to his German counterpart Wolfgang Schaeuble on October 9, as the latter attended his 113th and last Eurogroup.
Schaeuble has undoubtedly left his mark on this unofficial eurozone body and on the single currency as a whole. Some will argue that as the euro, still in its infancy, entered uncharted and choppy waters almost a decade ago, he provided a steady hand on the tiller, ensuring that an adequate bailout mechanism was created and that everyone subsequently abided by the rules.
Those defending him will also point out that he operated within narrow political confines as there was no appetite within Germany, and other eurozone member states, for those whose economies were in a healthy state to take on the burden of others who had run into problems. Why should the Germans, who had implemented the challenging Hartz reforms provide outright solidarity, rather than interest-bearing loans, to the Greeks, who had failed to do their “homework” in the previous years? Schaeuble, it is argued, did the most he could and managed to keep the German public largely onside during the tricky management of the euro crisis.
These, and Germany’s continued economic success during such a bleak time for the euro area, are the main reasons that Schaeuble is seen by some as having navigated his way successfully through the eight years which he has spent in charge of his country’s Finance Ministry and as the most dominant player within the Eurogroup.
Yet, if we are to evaluate Schaeuble’s services to the single currency and Europe in general, these three factors are also the ones over which he can be criticised most and which challenge the idea that he has performed the role of a great European or that he will leave a lasting positive legacy as far as the single currency is concerned.
With regards to the political limitations he faced in Germany, one has to ask whether these were a convenient excuse or an actual barrier. After all, if a major economic crisis is not the time to be bold in decision-making and to shape public opinion, when is? At one point, Schaeuble had an approval rating of 74 percent and satisfaction with the government he served in reached an all-time high of 57 percent. There was never an impression that the German finance minister was prepared to use this political capital and reverence in which he was held by many to introduce radical and necessary changes in the eurozone. Instead, the lack of political support or the obstacle of Germany’s constitutional court were regularly used as conversation stoppers.
“In that parliamentary term , the German Bundestag passed a law based on rulings of the constitutional court which, to a certain extent, constrained the finance minister’s ability to make decisions in the Eurogroup that were too romantic, pro-European, too integrative,” he told the Financial Times in a recent interview.
He always seemed content with just creating a basic crisis management mechanism that would keep the cost to Germany as low as possible and place the burden and responsibility for change solely on the countries affected. Was this really the steady hand that it is made out to be, or was it, rather, a helping hand for his own country and his political goals? It is very difficult to square the idea of Schaeuble as a Europeanist when one contrasts the fortunes of his country with other members of the euro area over the last years.
Since 2010, Greece, Portugal, Spain, Ireland and Cyprus have been through difficult adjustments that have taken a great toll on their economies and societies. At the same time, the eurozone has, until recently, lagged in economic terms and recovered much more slowly than the US did after experiencing its massive financial crisis. During this period, though, Germany’s economy flourished and its borrowing costs fell to record lows.
It has been repeatedly pointed out during the last eight years that uncertainty in other parts of the euro area have (inadvertently) worked in Germany’s favour. In 2013, it was reported that Berlin had saved more than 40 billion euros through lower interest rates on its government debt, while a study by the Halle Institute for Economic Research (IWH) in 2015 estimated that the savings between 2010 and 2015 came to around 100 billion euros.
Meanwhile, the euro exchange rate during recent years was much lower than it would have been if Germany had its own currency, again leading to benefits for the country’s export-oriented economy. When he was campaigning to become French President, Emmanuel Macron raised this issue and argued that the misfiring of the eurozone was of “good use to Germany.” “The euro is a weak Deutsche Mark,” he said during a speech in Berlin in January. “The status quo is synonymous, in 10 years’ time, with the dismantling of the euro.”
Macron has dialled back from this claim since then, which is only natural as he tries to find ways in which France and Germany can agree on reform of the euro area. However, the point remains: the euro and the policies within the eurozone have been largely geared towards benefiting Germany and helping it increase its exports and current account surplus, which is the world’s largest.
Furthermore, there has been little recognition on Schaeuble’s part that the European Central Bank’s intervention in the euro crisis, starting with Mario Draghi’s “whatever it takes” in 2012 and continuing with the use of monetary tools, primarily the QE programme, since then that have provided the liquidity that kept the euro afloat and intact, even if it did have a negative impact for German savers.
“In Germany our experience is that sticking to the rules builds up trust,” Schaeuble told the FT. “That’s the reason that domestic demand, consumption and investments are higher in Germany than in other European countries.”
And when it was argued that demanding sharp fiscal adjustment in other eurozone countries amid sparse liquidity was not conducive to healing these economies and providing politicians and citizens with the breathing space needed to see this change through, Schaeuble’s response was to point to the exit door.
Twice during his time as finance minister, he proposed that Greece – at least temporarily – should leave the single currency. Never was there an acceptance that the pace of adjustment or intensity of austerity measures should be reduced. “Keep up or get out” seemed to be the message throughout the last eight years.
“The financial policy we implemented was a predictable, reliable finance policy that built up trust and generated growth. And I would argue with anyone — even more strongly now after eight years — that this policy generates more sustainable growth than any other,” he told the FT.
Schaeuble leaves his post still not having accepted that whatever the problems going into the euro crisis, and the responsibilities of the politicians in each of those member states for them, the solutions that were provided since 2010 often made matters worse, putting a heavy and unnecessary strain on those countries’ economies and societies. The effects of this approach will be felt for many years after Schaeuble’s long and remarkable political career has come to an end. When seen from the countries that have been most affected, his hand on the eurozone’s tiller was far from steady.
The outgoing finance minister had a chance to give his legacy a more positive final twist now that the discussion about reforming the eurozone, driven by Macron’s proposals, has begun. Schaeuble has said that he likes the French president’s “vigorous initiatives” to make the euro more stable.
However, there are already concerns that Macron’s ideas, such as for an enhanced eurozone budget to boost investment, not just tackle crises, will either be watered down or blocked by Germany. The way the efforts to create a banking union that everyone accepts is vital for the single currency have suffered over the last few years, when the German Finance Ministry has repeatedly tried to water down plans since they were first unveiled in July 2012, underlines how difficult the process could be.
In fact, Schaeuble’s parting gift to the eurozone appears to be the proposal that a common budget in the form proposed by Macron should be rejected.
“A macroeconomic stabilisation function e.g. through a new fiscal capacity or unemployment insurance is economically not necessary for a stable monetary union,” suggested a German Finance Ministry non-paper circulated in Brussels this week. “Countercyclical public spending is never in time and a eurozone-wide unemployment insurance would have to deal with very different income levels in the euro area.”
The ministry, instead, proposed incentives for structural reforms and warned against any kind of debt mutualisation, which has been a Schaeuble constant for the last eight years. He also proposes that the next step in eurozone integration should be the transformation of the European Stability Mechanism into Europe’s version of the International Monetary Fund. It seems strange for someone who says he is interested in the stability of the eurozone to bequeath it an organisation whose purpose appears to be to address cases of extreme instability, rather than to prevent such conditions arising.
The German finance minister has not deserved the vitriol that has been directed at him by some. He has not been driven by spite but by ideological limitations and national self-interest. This means, though, that he fell well short of being the statesman-like figure that some portray him as. Any praise, therefore, should be offset against these serious shortcomings.
What was the inspiration for Tsakalotos’s message on the EU flag given to Schaeuble as a parting gift in Brussels on Monday? The Greek finance minister did not elaborate. Coincidentally, though, the words he wrote appear in a song by Genesis called “Anything Now”.
Should this have been the source of Tsakalotos’s inscription, one suspects he might have wanted more space on the flag to add a few more of the song’s lyrics: Everything is in its place / I know my limitations / I don’t want to change a thing / I know that I can live with them / Why should I care?