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Will Mr Nobody crash Europe?

Published in Business Spectator (Melbourne), 15 November 2011
http://www.businessspectator.com.au/bs.nsf/Article/Germany-euro-debt-crisis-bailout-referendum-EU-Mer-pd20111114-NL4XX?opendocument

For German politicians, Christmas presents will be handed out a week early this year. On December 17 the results of a referendum of Free Democrat Party members on the European Stability Mechanism will be announced. Dependent on the outcome are Angela Merkel’s chancellorship, the future of her coalition partner – and incidentally, the fate of Europe.

There has been no shortage of bizarre twists and turns in the history of the euro crisis so far. But if German backbench MP Frank Schäffler gets his way the complex edifice of European bailout packages could collapse like a house of cards.

Schäffler, a member of the Free Democratic Party, is an unlikely revolutionary. Softly spoken, immaculately dressed, and lately sporting thick-rimmed glasses, the party’s former finance spokesman looks like the quintessential insurance salesman. Indeed, that is what he was before becoming an MP in 2005.

Outward appearance in Schäffler’s case is deceptive, though. Over the past two years he has emerged as Germany’s most rebellious European Union critic. For this he had to defy the party line time and again. As part of Merkel’s centre-right coalition government the FDP has supported, however grudgingly, all measures to transfer money to Europe’s rescue attempts.

For Schäffler, a convinced free market liberal in the tradition of Friedrich August von Hayek, these policies are anathema. He complained about the decline of democratic decision-making in Europe; he castigated the ongoing breaches of European treaties; he insisted that risk and liability belong together in the market economy.

With these positions, Schäffler was clearly too liberal for the theoretically liberal FDP, and so he voted against every single euro package that went through the Bundestag, no matter how hard his honourable friends tried to convince him otherwise. Had it remained this way, his parliamentary colleagues would have continued to see him as an annoying but harmless panjandrum. But after Schäffler’s latest coup they cannot afford to ignore him any longer.

Hidden deep in the statutes of the FDP, Schäffler found a way to bolster his position. If he managed to get 5 per cent of all party members to sign the call for a referendum, the party would be forced to let the entire membership decide on policies towards future euro rescue plans. Schäffler, a social media-savvy campaigner, compiled the more than 3,000 signatures within a couple of weeks. There were even reports that people quickly joined the FDP just so they could participate in his anti-bailout vote.

There is widespread unease about extending Germany’s commitment to the European Financial Stability Facility and later the European Stability Mechanism. Opinion polls show large majorities of the public rejecting precisely those measures that regularly pass parliament virtually unchallenged (with the exception of Schäffler and a few other MPs). So it is not difficult to imagine the FDP leadership’s horror when they realised that they were now bound to ask ordinary FDP members what they thought of Germany’s signing up to the ESM.

The FDP had no other chance but to take Schäffler seriously. Liberal party officials and government ministers now have to explain to liberal party folk all over Germany why the arch-liberal Schäffler is wrong on Europe. When even foreign secretary Guido Westerwelle has to make room in his diary for a debate with the rebel MP deep in the province of Eastern Westphalia, it is obvious that the FDP is alarmed. And yet, if reports from some of these party internal debates are to be believed, it looks as if Schäffler could narrowly win the referendum.

Should that actually be the result just before Christmas, the implications would be enormous. First of all, it would threaten the FDP itself. Since its spectacular electoral success at the last general election in 2009 – at which it scored a record 14.6 per cent of the vote – it has plunged to just around 3 per cent in the polls. The main reason for its existence-threatening decline was its inability to implement the party’s liberal program against an increasingly social-democratic Chancellor Merkel. If Schäffler forced the FDP onto a more pronounced liberal platform he may well enhance the FDP’s long-term electoral prospects.

The price his party would have to pay would be to finish the coalition with Merkel. Indeed, it is inconceivable that an FDP rejecting the euro bailout packages could remain part of Germany’s government. But without the FDP, Merkel would instantly lose her parliamentary majority and may be forced to hold a snap election. She cannot count on much support from the opposition Social Democrats with whom she had governed before. At the last election following the grand coalition the SPD had suffered a heavy defeat for which many social democrats still blame Merkel.

In case of Schäffler’s success at the referendum, Germany may thus be plunged into political chaos over the Christmas break. This could potentially paralyse policy-making at a time when the euro crisis is finally spiralling out of control.

The long-term political implications could be even more severe. The other German parties are no doubt watching the FDP referendum closely. They know that similar referenda in their own parties would arguably produce the same result. Perhaps it is just a matter of time until one of Germany’s established parties performs a U-turn on Europe to benefit from the growing anti-EU sentiment.

For the time being, Schäffler can be satisfied not just with the course of the referendum but also with the intellectual support he receives. Hans-Olaf Henkel, former chief executive of IBM Europe and a former president of the Federation of German Industry, published an open letter to FDP members asking them to sign Schäffler’s petition. Last week, a group of 47 prominent economics professors also called on party members to back Schäffler. The economists, among them the president of the renowned IFO research institute Hans-Werner Sinn, wrote that Schäffler’s line of argumentation was both “proficient and responsible”.

When Germany’s political Boxing Day comes on December 17, there could be some hidden surprises among the presents which may spoil a few politicians’ Christmas breaks. A hitherto obscure German backbencher now threatens to thwart the EU’s plans to save the euro.

But who knows: Perhaps the Euro will have collapsed before the results of Schäffler’s referendum can be announced?

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