The Populist Tail Wagging the German Dog
Despite a growing chorus calling for reform of the eurozone and the European Union, the chances for meaningful change are diminishing. The main obstacle is Germany, whose economic interests lie not just with the status quo, but also with some of the populist governments that EU reformers must rebuff if they are to succeed.
WARSAW – Initially, the big losers in Germany’s federal election in September were a Frenchman and a Luxembourger: French President Emmanuel Macron and European Commission President Jean-Claude Juncker. Each has his own plan for reforming the European Union, and both envision deeper integration, starting with the eurozone.
For his part, Juncker has called on all non-euro member states to adopt the single currency, and has even proposed a roadmap for them to do so. Macron, meanwhile, has called for a more deeply integrated eurozone with a common budget, which would be funded, in part, by an EU-wide financial transactions tax (currently only France and the United Kingdom levy an FTT). He has also called for the appointment of a eurozone finance minister, and for measures to harmonize corporate taxes and minimum wages across member states.
Both Juncker and Macron’s plans would require German cooperation. Germany, however, has little enthusiasm for EU-level economic reforms, because it benefits from the status quo. A common monetary policy in the absence of a common fiscal policy creates an imbalance that works decidedly in Germany’s favor. Because Germany, the eurozone’s largest economy, shares a currency with poorer member states, it enjoys an artificial boost to export competitiveness.