Criticism and Analysis of Germany\'s Strategy for Europe according to its interests.. by Stratfor

1. Problems Facing Germany's Designs for Europe
November 15, 2011 | 1529 GMT PRINT Text Resize:
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Summary
The Germans have a new plan for Europe, one that is flawed
and has low chances of success. The very existence of the
European experiment is in severe doubt, and the Germans are
understandably concerned about its future. Consequently, they
are rushing to move their new plan forward; that plan has
already claimed two Southern European governments. The ANDREAS SOLARO/AFP/Getty Images
Italian Prime Minister Mario Monti in Rome on Nov. 14
Germans are attempting to remake the European reality more
to their liking, and perhaps alone among the European states, they have the power to try. What follows is an outline of what the
Germans are attempting to do, and the obstacles that in the end will unravel their efforts.
Analysis
Over the past weekend the German media was rife with proposed solutions to the ongoing European financial crisis. Treaty
changes and new enforcement mechanisms are being discussed within German political parties, with some proposals likely to hit
debate within a few weeks. German Chancellor Angela Merkel even issued some tentative deadlines, with the goal to have full
treaty revision texts ready to submit to national parliaments for ratification by spring 2012.
In the German mind, the European financial crisis could have been avoided if Europe’s integrative processes had been more
deeply developed. There is some credence to this rationale: Fixing a crisis of this magnitude does indeed require a full fiscal union,
and until there is a single governing institution that can regulate the entire eurozone and redistribute resources as necessary,
Europe will at best be lurching from crisis to crisis. The Germans therefore are using the crisis as an opportunity to impose on
Europe a solution to rectify this very problem by moving to create new governments, implementing austerity measures and
obtaining treaty change approvals.
However, Berlin will encounter several obstacles as it pursues this strategy. Just as the tools for managing modern Europe have
proved insufficient to prevent or manage the current crisis, so, too, have the tools for pushing Europe toward a full union.
Parliaments across Northern Europe have already made their displeasure with shelling out resources known, and additional
funding for the bailout programs for the eurozone’s weaker states appears to be off the table. Absent further resources, the
formation of a more integrated Europe — with states willing to sacrifice sovereignty to German leadership — likely is unfeasible,
but that is the challenge Germany currently faces.
The German Strategy

2. From the German perspective, if the Southern European governments cannot implement the necessary austerity measures, then
those governments must be changed. Using such tools as control over the bailout fund and the European Union’s largest market
(Germany), heavy influence over the European Commission, and political pressure, the Germans have already brought about the
fall of former Greek Prime Minister George Papandreou and former Italian Prime Minister Silvio Berlusconi. In their place are to be
technocratic, national unity governments that Germany believes can achieve what elected governments could not.
Another aspect to Germany’s plan is austerity for individual states. For Germany, all eurozone members must adopt constitutional
amendments for the implementation of budgetary controls at the national level — along with pre-approval for European institutions
to intervene should those controls be violated. Collectively, these measures are intended not simply to arrest growing European
debt levels, but to push all eurozone states into budgetary surplus (after interest payments are included) so that Southern Europe’s
debt can be paid down over time.
Equally important for Berlin’s strategy is for all EU states to agree to new treaty changes that streamline a host of decision-making
processes to form a fiscal union. There are several issues to be fixed, and at present the specific ideas to be included in treaty
revisions are only now starting to be discussed. Items on the table include altering the European Central Bank voting structure to
heavily favor larger states, automatically penalizing states that run excessive deficits and/or bringing them before the European
Court of Justice, and allowing the European Commission, the bailout fund and other European structures to intervene directly in
the fiscal processes of struggling European states.
Underscoring all of these tenets of the German plan — the shift in governments, the implementation of austerity and the treaty
change approvals — is an imperative to exclude European publics. Votes on European issues often transform into referendums on
governments, and there are very few European governments at present that enjoy strong public support. Of particular concern is
that any actual referenda would reject not only the integrative steps that might lead Europe out of the crisis, but even reject the ad
hoc solutions that are keeping the European system from blowing apart, such as the Greek bailout program.
Problems with the Strategy
Germany’s strategy faces serious problems. First, all 27 member states must approve any EU treaty revisions. The fastest that any
EU treaty ratification process has ever been concluded is about two years, so the German effort offers very little for dealing with
the immediate danger to the entire European structure. The Germans are hoping they can trade austerity and bridge assistance for
approval, but even if that bridge assistance can buy sufficient time for ratification, the logical end result is still failure. Of the 27 EU
members that have to sign off on any treaty changes, 10 are not members of the eurozone. This includes the United Kingdom and
Denmark, which have expressly negotiated clauses into existing treaties that grant them legal exemption from ever joining the
eurozone. Such “euroskeptic” states likely are enjoying moments of quiet vindication and will need to sign off on any additional
integrative steps.

3. Such a problem would only be encountered if the process ever gets to the point of national ratification. As events of the past week
have already demonstrated, arranging the resignation of the previous government leaders is relatively easy — forming reliable
replacement governments is another matter. European institutions have attempted to get the Greek political leadership in its
entirety to commit in writing to the austerity programs — whether or not those leaders find themselves in charge of the government
in the future. Yet the former opposition, led by New Democracy leader Antonis Samaras, not only refused to make such
commitments but is already lobbying against the very austerity measures that the national unity government was expressly formed
to implement.
Italy’s current political situation is even more curious. Berlusconi has resigned, and Mario Monti has been selected to succeed him
— even though Monti lacks a government. Much can be said about Berlusconi, including but not limited to his well-documented
sexual exploits and his overall performance as a leader — but he is the only person in post-World War II reconstruction Italy who
has ever been able to hold a government together to term. Notably, neither he nor his leading party opposed austerity measures.
So now Monti has to assemble a government that can maneuver around Berlusconi’s People of Freedom party and the anti-
austerity Northern League, which are the largest and third-largest parties in the Parliament, respectively. There is also the largely
overlooked detail that Berlusconi has only resigned from the prime minister’s chair and not from politics. Berlusconi — who is Italy’s
most powerful politician, richest businessman, owner of most major media outlets and the leader of the largest parliamentary bloc
— is unlikely to forget the coalition of forces that edged him out of power.
Even if technocrats such as Monti or new Greek Prime Minister Lucas Papademos can somehow form stable governments, piece
together serious austerity packages or even sign off on German-mandated constitution or treaty revisions, those actions will still
need to be approved by their respective parliaments. Having technocrats in charge might help get reforms in place (the efficacy of
which remains to be seen), but completely circumventing the democratic process is simply not possible.
This is because the “democratic deficit” becomes particularly important once the issue of potential unrest and strikes is taken into
account. Citizens who do not wish to suffer economically, particularly under rules established by outsiders, will challenge
governments — even national unity governments — if those governments are seen as capitulating to the Germans. Technocratic
governments are viable options for very short-term needs if the policies in question have popular support; indeed, there is
considerable public support for a new way of doing things. But these technocratic governments are being implemented expressly
to avoid a popular vote, with the leaders of those governments saying they will need to remain in power far longer than either the
previous government or the previous opposition had envisioned. (Monti now estimates that will be until at least 2013.) A far more
likely outcome of this process is that these governments will radicalize the population, driving wedges between increasingly angry
citizens and elites already widely viewed as disconnected from reality.
But perhaps the biggest flaw in Germany’s developing plan is that it assumes that no one will notice its flaws. Markets trade based
on events of the day, and in the past 48 hours many of the plan’s shortcomings in Greece and Italy have come to the fore. Bond
markets have become ever more distrustful of whatever the latest announcement out of Europe for solving the crisis is. Italian
borrowing costs are at a euro-era high. Germany has found that sort of financial pressure useful in bringing Italy to heel —

4. Berlusconi might not have stepped aside otherwise. But it is a very dangerous tool: Should borrowing rates go too high too quickly,
Italy will have no choice but to default, and its 1.9 trillion euro ($2.6 trillion) debt would crash not only the Italian economy but the
Continental banking sector in a matter of days. And the new German effort does not address the state of the European banking
sector, which is in such disrepair that it could well bring the eurozone down all by itself.
Problems Beyond Italy and Greece
Greece and Italy are not the end of Europe’s problems. Ireland may have proved itself as the bailout state most loyally
implementing austerity both in spirit and in letter, but the Irish tenaciously defend their overall sovereignty. Dublin is not likely to
give way to a national unity government simply to suit German needs, and it is unlikely that the Irish will settle for anything less
than a full national referendum on any EU treaty changes. Additionally, the Irish have vetoed major European treaties in the past,
including the Nice Treaty in 2001.
Spain likewise presents a potential obstacle. National parliamentary elections will be held next week, and a government with a
fresh political mandate is not the sort of government that the Germans will be able to force to adopt potential policy changes. In
some ways, Spain is better positioned than other states in peril. It has shown a greater tolerance for cutting spending, its upcoming
elections are likely to generate a strong majority, the incoming ruling party is making all the right sounds about a technocratic
government, and its overall debt load is only half that of Italy, relative to its economic size. However, its budget deficit is twice
Italy’s and its banking sector is perhaps the most damaged in Europe, second only to Greece. The Spanish will have to do
everything right to avoid triggering their own crisis.
Even Belgium, with a national debt right at 100 percent of gross national product, presents problems for any German plan. While
the pro-European Belgians might be more willing to give a national unity government a try than other states, it has been 517 days
since Belgium had a government at all. Any “unity” government that is forced upon Belgium would be held together by German
willpower, not Belgian.
The outlook is unpleasant. Germany may have the correct notion in pursuing its strategy, but the unlikelihood of achieving its goals
is staggering. The failure of any of these states to rectify their financial crises could trigger a cascade that would bring ruin upon the
entire European structure. The exception to this is Italy, but not because the situation is any less bleak there; rather, Italy is large
enough that it would bring Europe down all by itself.
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