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
Jeremy Corbyn. Photo: Getty
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Jeremy Corbyn: “wholesale” EU immigration has destroyed conditions for British workers

The Labour leader has told Andrew Marr that his party wants to leave the single market.

Mass immigration from the European Union has been used to "destroy" the conditions of British workers, Jeremy Corbyn said today. 

The Labour leader was pressed on his party's attitude to immigration on the Andrew Marr programme. He reiterated his belief that Britain should leave the Single Market, claiming that "the single market is dependent on membership of the EU . . . the two things are inextricably linked."

Corbyn said that Labour would argue for "tarriff-free trade access" instead. However, other countries which enjoy this kind of deal, such as Norway, do so by accepting the "four freedoms" of the single market, which include freedom of movement for people. Labour MP Chuka Umunna has led a parliamentary attempt to keep Britain in the single market, arguing that 66 per cent of Labour members want to stay. The SNP's Nicola Sturgeon said that "Labour's failure to stand up for common sense on single market will make them as culpable as Tories for Brexit disaster".

Laying out the case for leaving the single market, Corbyn used language we have rarely heard from him - blaming immigration for harming the lives of British workers.

The Labour leader said that after leaving the EU, there would still be European workers in Britain and vice versa. He added: "What there wouldn't be is the wholesale importation of underpaid workers from central Europe in order to destroy conditions, particularly in the construction industry." 

Corbyn said he would prevent agencies from advertising jobs in central Europe - asking them to "advertise in the locality first". This idea draws on the "Preston model" adopted by that local authority, of trying to prioritise local suppliers for public sector contracts. The rules of the EU prevent this approach, seeing it as discrimination. 

In the future, foreign workers would "come here on the basis of the jobs available and their skill sets to go with it. What we wouldn't allow is this practice by agencies, who are quite disgraceful they way they do it - recruit a workforce, low paid - and bring them here in order to dismiss an existing workforce in the construction industry, then pay them low wages. It's appalling. And the only people who benefit are the companies."

Corbyn also said that a government led by him "would guarantee the right of EU nationals to remain here, including a right of family reunion" and would hope for a reciprocal arrangement from the EU for British citizens abroad. 

Matt Holehouse, the UK/EU correspondent for MLex, said Corbyn's phrasing was "Ukippy". 

Asked by Andrew Marr if he had sympathy with Eurosceptics - having voted against previous EU treaties such as Maastricht - Corbyn clarified his stance on the EU. He was against a "deregulated free market across Europe", he said, but supported the "social" aspects of the EU, such as workers' rights. However, he did not like its opposition to state subsidy of industry.

On student fees, Corbyn was asked "What did you mean by 'I will deal with it'?". He said "recognised" that graduates faced a huge burden from paying off their fees but did not make a manifesto commitment to forgive the debt from previous years. However, Labour would abolish student debt from the time it was elected. Had it won the 2017 election, students in the 2017/18 intake would not pay fees (or these would be refunded). 

The interview also covered the BBC gender pay gap. Corbyn said that Labour would look at a gender pay audit in every company, and a pay ratio - no one could receive more than 20 times the salary of the lowest paid employee. "The BBC needs to look at itself . . . the pay gap is astronomical," he added. 

He added that he did not think it was "sustainable" for the government to give the DUP £1.5bn and was looking forward to another election.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.