Published in Business Spectator (Melbourne), 5 October 2011
http://www.businessspectator.com.au/bs.nsf/Article/Greek-debt-crisis-bailout-euro-Germany-EFSF-vote-pd20111004-MB5YM?OpenDocument
Germany is not a particularly difficult country to understand – provided you speak some German. Sadly most international economics commentators don’t. This explains why they read too much into last week’s vote in the German parliament to extend the European Financial Stability Facility bailout fund – just as they read too much into the verdict of the German constitutional court a few weeks earlier (Wet ink on a euro death notice, September 13).
The Bundestag’s vote should not have surprised anyone. Even large parts of the opposition had announced they would support the package, and yet it was treated as breaking news in the English speaking world. More than that, the story was interpreted as ‘good news’, as if Chancellor Angela Merkel had just cut the Gordian knot.
Although that would have been a nice metaphor for the Greek debt crisis, another ancient expression much better captures what really happened in Berlin last Thursday: it was a pyrrhic victory. The EFSF extension is too small to make a difference and it comes too late to calm the markets. But the debate made it abundantly clear that Germany is not prepared to go any further in saving the euro – neither through fiscal nor monetary measures.
Merkel was spared the humiliation of losing the support of her own coalition in the EFSF vote. In the end, only fifteen parliamentarians from the parties forming her government voted against the package. However, this was due to exerting enormous pressure on MPs. Merkel may have also benefitted from an embarrassing level of ignorance about the package. Many lawmakers simply did not know what they were voting on.
The nervousness within Merkel’s government was on display in the way dissenters within its own camp were treated. Wolfgang Bosbach, the usually impeccably loyal home affairs spokesperson of Merkel’s Christian Democratic Union party, had announced to vote against the EFSF on conscience grounds. Passing on the costs of saving other countries to taxpayers and future generations was something that he felt was morally wrong.
Bosbach’s stubbornness was met with undisguised anger. After a caucus meeting, Merkel’s chancellery minister Ronald Pofalla lost his temper and yelled at his baffled colleague “I can’t stand the sight of your stupid face anymore”. When Bosbach tried to explain that he was just exerting his constitutional rights as an elected member of parliament, Pofalla screamed “You’re making everyone crazy with your shit”.
Merkel’s camp was frightened of a debate on the merits of their euro policies. The Chancellor herself only spoke once on the issue. Not in parliament to be sure, but in an hour-long interview on national TV, in which the presenter remained so tame that Merkel got away with a stream of uninterrupted motherhood statements. She could even claim unchallenged that there was no euro crisis but only a sovereign debt crisis. No serious explanation of her policies was needed in a program which made Soviet-style propaganda look rebellious.
In parliament, Merkel remained silent on the biggest item on the Bundestag’s agenda this year. In any Westminster parliament it would be unthinkable for the head of government to have nothing to say on a key issue of politics. In Germany, it is apparently appropriate for the chancellor to sit back on the government’s bench and let others discuss the pros and cons of her policies. Well actually, that’s not true either, because there was not meant to be a discussion in parliament.
If Merkel had had her way, not a single dissenting voice on the EFSF would have been heard in the Bundestag – apart from the few forlorn post-communists, who used it as an opportunity to reiterate why capitalism has failed.
Sure, there were dissenters within the ranks of the coalition but the parties did not nominate them to speak in the debate. So it was left to the president of the Bundestag, Norbert Lammert, to intervene and allocate two of the critics five minutes each. Not a bad decision, considering that 80 per cent of the public were against the EFSF extension so it would have looked strange if none of this scepticism had been voiced in the House.
But even those ten short minutes of dissent were too much for Merkel and her allies to bear. They complained bitterly about Lammert’s decision to enable this rump of a debate. He was told off and formally overruled by a House committee. Thus in future parliamentary sittings no time will be given to opposing voices. From now on, the floor belongs exclusively to the apparatchiks of all parties. After Merkel’s Christian Democratic Union had given up being Christian sometime ago, it has given up the pretence of being democratic. And it’s united only because it gags internal critics.
The most startling source of Merkel’s temporary success was, however, revealed after the vote. A TV crew had asked MPs some basic question about the nature of the EFSF right before the crucial sitting of the Bundestag. They wanted to know how much money Germany will guarantee under the extension (€211 billion), which countries had received money under the scheme so far (Ireland and Portugal; Greece received assistance separately), and whether banks could be bailed out under the extended EFSF (yes).
Amazingly, the majority of parliamentarians could not answer these simple questions correctly. Some believed that only Greece had received money. Others thought that so far the EFSF had not been used at all. Almost none could tell the total amount of German guarantees. ‘A few billion, I guess?’ was a typical answer. And of course only a minority knew that the EFSF could also provide bank bailouts.
When the report was broadcast on national TV last Thursday it caused a public outrage and was widely reported in the media. This was the biggest sum of money a German parliament had ever committed to a cause – and MPs had no idea what they had just done.
Considering all these circumstances, how likely is it that any German chancellor would dare to, say, double Germany’s guarantees under the EFSF? Or for that matter, allow the leveraging of the EFSF via the European Central Bank? So far internal critics could be silenced, MPs fooled and public debates stifled. But all this has only made Germany’s public opinion on Europe even more hostile to any further euro rescue engagement.
This will come back to haunt Merkel again in the future when she needs support for her measures. Her own position is not nearly as solid as last week’s majority in a hapless parliament suggests. And international commentators would be well advised to calm their excitement. The vote last week has made an extended German engagement for the euro less likely, not more.
Merkel won last week’s debate by making a mockery out of democracy, but she lost leeway for any further bailout packages. Meanwhile, the German public has reached the end of its tether with politicians, Greece and the euro.
