With Hollande in Power, Can Germany's Social Democrats Force Merkel to Discard Austerity?
Two months and three weeks after Adolf Hitler became chancellor at the end of January 1933, German democracy committed suicide. The parliament (then called the Reichstag) passed a law transferring its powers to the government, constitutionally legitimizing the Nazi dictatorship already being put into place. The political parties voted to dissolve themselves—with the exception of the Social Democrats, whose refusal to support the law sent many of them to join the Communists already in the concentration camps.
Their political heirs in the present German Bundestag face a choice almost as momentous. Last year the German government of Chancellor Angela Merkel—composed of Christian Democrats, who are divided on the holy status of the market, and market-devoted Free Democrats—persuaded twenty-five of twenty-seven members of the European Union to accept a major alteration in the EU’s fiscal Stability and Growth Pact of 1997. The original pact had required the member states to balance their budgets, inscribing in the governance of the EU the intellectual wet dream that obsesses our own Republicans: a constitutional prohibition on expansionary economic policies, no matter what the situation. What is new in the pact are severe penalties for ignoring its central provisions (no government expenditure that pushes deficits beyond 3 percent of gross national product, and no national debt accumulation greater than 60 percent of GNP). France and Germany had ignored those limits in the past, but Merkel and former French President Nicolas Sarkozy agreed to a joint performance as apostles of economic virtue.
The measure is as intellectually preposterous as it is politically and economically self-defeating. Unemployment in Germany is lower, and tax revenues higher, than in most of the rest of the EU. There are many reasons for that, including long-term collaboration of state, capital and the trade unions. But Germany’s economic health has also depended on a European market for German capital goods. If the other European nations cannot stimulate their economies, Germany will lose customers. The Chinese demand for Audis, BMWs and Mercedes is not inexhaustible.
German success is being paid for by the declining standard of living of the German working class. Many are working part-time or temporarily, and in any case are being underpaid as social benefits and expenditures (including education and health) are cut. That has led to a revival of support for the Social Democrats and their allies, the Greens. In Germany’s largest state, North Rhine–Westphalia (which includes the large cities of Cologne and Düsseldorf and the industrial Ruhr Valley), a Social Democratic–Green coalition government just increased its majority dramatically. As a result of recent state elections, Merkel has lost her majority in the second German legislative chamber, in which states are directly represented. There will be national elections in 2013, and already the victorious NRW governor, Hannelore Kraft, is being talked about as a candidate for chancellor.
Meanwhile, Merkel and her subdued if not battered party have another electoral victor to deal with: the new president of France, François Hollande. The German chancellor does not have a very impressive record of electoral prognostication. She was demonstratively inhospitable to Barack Obama when he came to Berlin as a presidential candidate in 2008, and refused to see Hollande while making clear her preference for the return of Sarkozy. Hollande is highly intelligent, and to show that he bears no grudges, he flew to Berlin to visit with Merkel on the very day of his inauguration. He may bear no grudges, but he does have clear convictions about the economy—and very close connections to the German Social Democrats. As former general secretary of the French Socialist Party, Hollande has come to know them over a long period of time. In fact, I recall talking with him at a meeting of European socialist parties in Berlin, where he seemed quite at home. Hollande, indeed, called for expansion of investment in the entire EU, and a modification of the stability pact, as one of his major electoral planks. He rightly declared, upon being elected ten days ago, that his victory was a clear signal to the rest of Europe that France intended to mobilize those who seek economic expansion and social justice in the European Union.
The question is whether Germany’s Social Democrats will have the fortitude to defy Merkel’s appeal to the most vulgar of German instincts: xenophobia (foreigners are profligate and need iron discipline) and pfennig-pinching (serious economic policy should hurt). The three Social Democratic leaders—party chairman Sigmar Gabriel, former finance minister Peer Steinbrück and former foreign minister and present parliamentary leader Frank-Walter Steinmeier—are each contending to be candidates for chancellor. One problem, not small, is that each has decisively lost elections. That accounts for the public’s and the party’s interest in their new heroine, Kraft (whose name, translated, is Strong).
That is for the future. The present problem is whether the Social Democrats will use their newfound political opportunity to force Merkel to accept a serious expansionary program in the EU. Hollande’s election was an encouragement to them and to the German trade unions. However, the opinions of editorialists, journalists and most academic economists are dictated by the most short-sighted segments of German capital. It remains to be seen if the Social Democrats and the unions, with support from the Greens, can mount an enduring popular mobilization against such institutional supports for austerity. The most intelligent figure in Merkel’s cabinet, Finance Minister Wolfgang Schäuble, is trying to get ahead of the crowd—by calling, to the indignation of many of his party’s supporters in business—for wide-scale wage increases in Germany. That is a reminder that the Christian Democrats were for a long time bearers of social Christian doctrines of solidarity. Merkel, who has never let rigid adherence to principle stand in the way of a tactical advantage, may also have a sudden accession of familial piety. Her father was a Protestant pastor in Communist Germany who sympathized with that regime’s ideas of a just society.
Moreover, in the rest of Europe the forces of austerity are stumbling. Prime Minister David Cameron and the British Conservatives had severe reverses in recent local elections, the Greek exponents of social savagery cannot form a government and the Spanish conservative government has been repudiated in state elections. Italian Prime Minister Mario Monti has shown that he is not a servant of EU bureaucrats and the bankers. Indeed, as a Christian Democrat (and former European Commissioner), Monti pursued an alliance with the unions to reform Italian capitalism, and he was regarded as an ally by the former Italian Communist Party. He is a clear candidate to join Hollande and the German Social Democrats in the party of expansion.
Hollande and Merkel, after their meeting, declared that they wanted Greece to remain in the European Union and to keep the euro. Suppose the next Greek government agrees, but insists on much greater financial support, which could come in the form of eurobonds from the European Central Bank? Merkel has so far opposed this, but experienced politicians are skilled at finding circumlocutions to cover their reversals. If she remains obdurate, the Social Democrats can force her to call new elections over a year ahead of time. Either way, One Europe is a reality. French and Greek voters have influenced the balance of politics in Germany.