Reluctant Angela Merkel must choose between Europe and austerity

Either way one of our sacred cows has to be slain.

Sport has a lovely habit of imitating life. After causing a huge upset by beating an impressive looking Russia, the Greek team, the lowest ranked team in the tournament, last night faced favourites Germany in the quarter finals of the European Championships. The action was as equal on the football field as it is in the economic one. The Germans won comfortably even though it’s a fair bet that most fans were rooting for the underdog. Against the backdrop of a continent in crisis, it's difficult to guess which country most enjoyed their sporting success.

The eurozone crisis is rapidly becoming as damaging to Germany’s political image and international status as it has been to the Greek economy. The dogged and formidable Angela Merkel has found herself playing the role of the pantomime villain. The latest issue of this magazine described Angela Merkel as “Europe’s most dangerous leader” while successive summits at EU and G8 level have seen her politically isolated and singled out as the one leader able to solve the eurozone crisis. How can it be that hard-working, competitive and austere Germany deserves to be lampooned as the chief roadblock to reform and potential wrecker of the euro?

This is arguably the first time since the creation of what has become the EU that Germany finds itself alone in controlling the continent’s destiny. It is a very uncomfortable and unwanted position because despite being Europe’s strongest economy by some distance, Germany has rarely sought to dominate European politics, often keen to acquiesce to France. A case in point was during the ill-fated second round of accessions to the euro. The German government did not want Greece, which even in 2002 had a debt to GDP burden over 100 per cent, far above the 60 per cent limit spelt out in the Stability and Growth Pact, to be allowed to join. French President Jacques Chirac insisted that the ‘cradle of democracy’ had to join the club.

This week saw the latest round of subtle Germany-bashing in the European Parliament. At the end of last year the European Commission published a green paper on the introduction of stability bonds – the slightly Orwellian name now used to describe joint liability eurobonds. It is well known that the Commission is keen to prepare legislation, while a clear majority of MEPs are also in favour. But a few countries, including Germany and Finland - another country with a AAA credit rating – remain strongly opposed.

After listening to socialists, liberals, greens and several of his own conservatives backing a report on eurobonds drafted by French liberal Sylvie Goulard, Werner Langen, the leader of Merkel’s CDU group of MEPs, dismissed it out of hand, insisting that all the proposals on the table, including the European Redemption Fund put together by the German council of economic experts, would require treaty change. In fact, the accuracy of this legal interpretation is far from clear but, in any case, his robust stance was largely for effect. Deep down, he and his party leader can see which way the wind is blowing.

There are two articles of faith shared by all of Germany’s significant political parties – a belief in European integration, and a commitment to balanced budgets and strict monetary policy. The first is the result of the wars which blighted Europe and saw Germany divided for over 40 years, the second, the product of hyperinflation and economic collapse in the 1920s seared into the national conscience.

Indeed, this has been borne out in every edition of Newsnight featuring a German politician during the crisis. They cannot comprehend why countries should choose to live beyond their means, and because austerity works in Germany, they cannot understand why it can’t work for the rest of Europe. It is like asking Labour politicians to renounce the NHS.

Merkel’s biggest mistake – though she is not alone in this among EU leaders - has been her refusal to tell the truth to the German people about the euro. As Europe’s largest exporting nation, Germany has, by a distance, been the biggest beneficiary from the single currency. At the European Central Bank in Frankfurt, interest rates and inflation have been tailored to suit the economies of Germany and the rest of the ‘virtuous north’. The euro has helped make the German labour market more competitive.

However, Merkel has refused to admit this, instead falling back onto the facile argument that countries are in difficulty because of rampant overspending and economic mismanagement. In the Greek case, it is true. For the likes of Spain and Ireland, who ran balanced budgets for much of the last decade before being pole-axed by the huge losses of private banks, this charge is offensive and plain wrong.

The tragedy for Germany is that it now finds itself in a no-win situation. To German eyes the euro represents arguably the single most iconic triumph of European integration. But the reality is that if the European Central Bank and the eurozone bail-out fund, the European Financial Stability Facility, are not allowed to buy government debt as a lender of last resort, and the terms of fiscal consolidation programmes are not relaxed, then the euro will collapse within months.

The frustration for others is that it has been blindingly obvious for over two years that austerity alone would do little other than plunge the weakest countries back into recession and drive the single currency closer to rupture.

For most of the last two years the blame for the debt crisis has been centred solely on the apparently profligate countries in the South Mediterranean. Now it seems to have shifted almost entirely upon Germany’s shoulders. The truth is that both are complicit in turning what should have been just a localised insolvency of Greece and parts of the European banking sector, into a seemingly existential battle for the future of Europe.

A friend of mine told me last autumn that the succession of emergency EU summits, each time aimed at ‘saving the euro’, was like watching the world’s slowest strip-tease. Each time political reality has forced Merkel to give up a bit more, from a temporary, now permanent bail-out fund, to the ECB buying up stockpiles of government debt. This is why joint issued project bonds to fund infrastructure programmes are being established and, in the medium-term will be joined by a common eurozone debt market. Indeed, I would expect a variant of the German Redemption Fund to have been agreed by the end of this year. Why? Because although the German government doesn’t like the idea, it dislikes it less than the alternatives.

Everybody knows how this saga ends – either Merkel will back down or the euro falls apart. Ultimately, it is up to Germany, and to Angela Merkel, what path to choose. Will it be Europe or austerity? Either way, at least one of the country’s sacred cows will have to be slain.


Flags fly in front of the European Parliament in Strasbourg. Photograph: Getty Images
Photo: Getty
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The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

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