Good German politics - Michael Heinrich

Michael Heinrich on Germany's dominant role in Europe, and its global ambitions.

Submitted by Angelus Novus on October 23, 2015

What criticisms hasn't Wolfgang Schäuble had to listen to since the successful extortion of Alexis Tsipras and his government? That he's damaged democracy in Europe, that he's harmed Germany's reputation abroad, and yes, that above all he has done damage to "the European idea." The man's only purpose in the world seems to be to inflict harm upon everything that is beautiful and noble. Consequentially, an online petition demands his resignation. But what if Schäuble isn't simply obstinate, mean, and anti-social? What if he merely conducts good German politics?

Quite a few things have changed in German politics. That's become particularly clear not only with regard to Greece. For decades, the German economy has profited more from the EU (and previously from the EEC) than the economy of any other country. And by means of its tax revenues, the German government has also tidily benefited from it. Regardless of whichever party was allowed to appoint the chancellor of the nation, Germany's European policy settled upon consensus. Its role as the biggest net contributor to the community was accepted without complaint. That which was paid into the EU was hardly worth mentioning compared to the benefit derived from it. With regard to the SYRIZA government, a demonstrative break was made with this politics of consensus. Although there were considerable reservations on the part of numerous member states, Merkel and Schäuble imposed an uncompromising stance within the eurozone: they were not going to be satisfied with anything less than a total capitulation by the Greek government. Not only has Germany broken with the politics of consensus; the break is also intended to be highly visible to all: as a warning.

Democracy is all well and good. Without free elections, a country cannot become a member of the EU. But one cannot conclude from this that a freely elected government, which takes over a highly indebted state, can also pursue the policies that it regards as correct. Merkel and Schäuble demanded "reforms", that is to say, they demanded even more of the impoverishment program which in the last five years has led to an almost 30 percent decline of Greek domestic product. Mario Draghi has, as head of the ECB, made sure that Greek banks had no possibilities for refinancing. But without refinancing, any bank would go bankrupt in the shortest period of time. The Greek government only had the choice between either quickly issuing a parallel currency, which would have led to a chaotic de facto exit from the euro, or to sign on to everything that was presented to it. Schäuble has not damaged European democracy (when and where has this fantastic, unscathed democracy ever existed?); rather, he merely made clear how democracy functions in a Europe characterized by the euro and German dominance.

But wasn't it exactly this that damaged the "European idea"? The notion that the EEC and EU liberated the western part of Europe from nationalism after the Second World War is repeatedly loudly asserted. It's even believed by many leftists, who therefore shrink away from any fundamental critique of the EU, since they don't want to play into nationalism. But a brief look at history shows a different picture. What provided for peace in Europe was on the one hand the Cold War - there was no room anymore for intra-western conflicts between Germany and France - and on the other hand the nuclear threat: a war between the blocs would have led to an atomic inferno. Peace in Europe was not the consequence, but rather the precondition for the founding of the EEC in the year 1957.

This founding had both a political and an economic dimension. Politically, the Federal Republic of Germany - 12 years after the defeat of German fascism and without having to have made any reparations for the war of aggression and the numerous crimes committed in its course - was once again as a member of the EEC a fully-fledged part of the "western world." For the West, this was the successful integration of the Federal Republic, which a few years before had received from Stalin the offer of full reunification in exchange for neutrality. Economically, after the Federal Republic had already had a large portion of its debt forgiven in the London Debt Agreement of 1953, with the period for the repayment of the rest being extended over the next 50 years, the EEC created the large market that rapidly growing German industry desperately needed. France and Italy hoped that the EEC would provide the opportunity for their economic development to catch up, and France in particular hoped for support for its large and ailing agricultural sector.

In a favorable economic environment, everyone profited from the EEC, but by far the greatest profiteer was the Federal Republic of Germany. This was also the case for the introduction of the euro, but the gaps increased. Whereas southern Europe only profited a little bit, the unified currency zone not only cleared away the intra-European hindrances to German capital; even beyond the EU the euro, which tends to be weaker than the D-Mark, created not inconsiderable advantages for German exports, and in the long-term it can threaten the dollar as the sole global currency. However, German governments were no longer prepared to share the enormous advantages resulting from the euro with the weaker countries. The latter were supposed to struggle on their own with the currency, which was much too strong for them; some kind of "transfer union" was not an option for Germany. The euro does not suffer from any kind of frequently bemoaned "structural defect" that its blind engineers have somehow overlooked and to which they now don't want to admit. The structure of the euro was intentional, not only by the German government, but also by other governments which regarded their own countries as strong and saw in the euro a welcome disciplinary instrument even domestically. The weaker countries consented, since they hoped that everything wouldn't be so bad, but primarily because the alternative of remaining outside appeared far more uncomfortable.

This new politics, focused primarily upon the advantages of the stronger countries, was executed with complete brutality against Greece. The point was not primarily to bleed Greece to the last drop, even if icing on the cake like the takeover of Greek airports by the Frankfurt-based airport company Fraport is welcome and politically supported; in the Memorandum that the Greek government had to sign on to in August 2015, the privatization of airports was explicitly listed as a particularly urgent point. It's also clear to Merkel and Schäuble that the small Greek economy, constantly weakened by new orgies of austerity, will never be capable of substantially paying back the enormous levels of debt. Either a haircut will have to come along at some point (or an enormous extension of the lifespan of the loans with minimal interest at the same time, which is de facto the same thing), or the so-called rescue programs - new, higher loans, in order to pay back the older ones including interest - become a permanent institution. This most obvious notion, which has even reached the talk shows, has on the part of the institutions only been mentioned openly by IMF head Christine Lagarde.

Contrary to the commonly accepted opinion, the German state has paid almost nothing for Greece. The various "aid packages" are loans, for which Greece has to pay interest. It was the private banks that had originally lent money to the Greek state who were "rescued." By means of the "aid packages", these loans were taken over by the ECB and ESM (European Stability Mechanism, or the "rescue fund"). If a Greek default does not diminish the profits of banks, but rather must be paid for out of tax revenues, then we have Merkel and Schäuble to thank for that, since they forced through this type of bank rescue in the years since 2010.

It is rather certain that the policies of Merkel and Schäuble will become costly for the German state. Either a haircut will come along, or at least some of the guarantees which have up to now reached a volume of over 80 billion euro will come due. To that extent, but only to that extent, are German popular opinion and its political representatives correct. Nonetheless, Merkel and Schäuble are pursuing good German policies, both economically and politically.

Economically the German state and German capital are the gigantic winners of the euro crisis. In light of the weak euro, the German export economy is flourishing as never before and the rate of unemployment is at its lowest since the beginning of the 1990s. The German state has strongly growing tax revenues - and it barely has to pay interest on its debts, since German state bonds are regarded as safe and are much sought-after. As a bonus, there is also a brain drain from the crisis countries: numerous well-educated young people are coming to Germany who are willing to work for little money, so that the deficits of the German educational system no longer carry as much weight. But let's limit ourselves to interest savings: according to recently published calculations of the Halle Institute for Economic Research, since 2010 they are at about 100 billion euro and thus already higher than the total amount of German guarantees. And these interest savings aren't stopping. Even if tomorrow the German state were to have to pay "normal" rates of interest, i.e. interest rates deviating only a little bit from the European average, as was the case before the crisis, the low-interest bonds issued in recent years would still exist. But it's not to be expected that interest rates will normalize tomorrow. One can indeed predict that the German state in the next five years will have the same level of interest savings, and probably even considerably more. The billions in guarantees that will become due at some point can be easily absorbed, since they are a fraction of the profits on crisis that have already been reaped.

Politically, the results of the policies of Merkel and Schäuble are also visible. The eurozone was committed to German austerity policies, to which the Red-Green government of 1998-2005 had already made a powerful contribution. During the crisis, incidentally, these austerity policies were not applied domestically within Germany. Instead, there were cash-for-clunkers programs and an extension of short-time allowances. There was broad domestic support for Merkel's policies, which is not unimportant for her hard stance vis-à-vis the outside world. But the eurozone will be trimmed according to the wishes of the German government. And a left government, which, as the referendum of July 5th 2015 demonstrated, can also assemble the support of a broad majority of the population, will be forced to its knees in record time. Normally, it takes 15 or 20 years for a small, more-or-less radical party to come to government - as the junior partner in a coalition. Time enough for it to drive out its radical wing; see, for example, the German Green Party (even if its radicalism had always been limited). In times of crisis, all of that can proceed much more quickly: SYRIZA, which in 2009 was a small left party with 4.6 percent of the votes, led the government six years later. Things weren't supposed to go that fast in democratic Europe. Only parties that acted "responsibly" were supposed to have the chance to govern. By forcing SYRIZA to its knees, the German government made clear to the rest of the EU: there might be alternatives, and you can vote for them, but they won't have a chance.

Keynesian economists and socially-minded people are up in arms against this politics. They fear that not only the Greek economy, but also Germany's image and therefore the German position in Europe and the world will be terribly damaged. But this politics in no way arises from Schäuble's stubbornness or his lack of knowledge of elementary economic interrelations. Rather, this politics has its own power-political logic. With the collapse of the Soviet Union, the East-West conflict that papered over all the other conflicts disappeared. The USA is the only remaining superpower, but its global political dominance has declined. With the wars in Afghanistan and Iraq, it was made clear that the USA could annihilate any other army of the world, but that military success in no way guaranteed it would be able to determine the post-war order without restrictions. In the first decade of the new century, the hour of the mid-sized powers had come. Brazil and Latin America as a whole have been pursuing policies that are more independent of the USA than has been the case in decades. China has become a global player, economically and politically. Russia has not been able to build upon the superpower status of the Soviet Union, but its position as a mid-sized power cannot be underestimated. And in Western Europe? Germany has long-since established itself as the leading power politically and economically, which is increasingly developing global political ambitions. The point of departure for this being not the worldwide military interventions in which Germany has started to participate, but rather the euro and control of the eurozone. For a large part of German capital, as well as the export-oriented sectors of European capital, the eurozone is no longer big enough. It is merely the base from which the worldwide export offensive emanates. But in order for this to work, the eurozone has to be arranged according to the German model.

This means not only a stable currency, but also limiting the welfare state to a minimal level of subsistence and dismantling legal protections for workers. Global competition is tough, and the profits of capital can't already be restricted "at home." That is precisely the intention behind the politics forced by Merkel and Schäuble. And nothing else is meant by the declared goal to make the EU "the most competitive economic space in the world." The fact that Merkel and Schäuble were able to impose their program is not only due to Germany's superiority or the brutality with which it proceeds. Their program overlaps with the interests of those fractions of capital in other EU countries that are fit for the world market and wish to link up with Germany's aggressive export strategy. What Germany has been able to achieve in the last few decades within the EU, namely creating advantages for German export capital by means of wage restraints and austerity, is now supposed to be organized at the next level. With a eurozone dominated by the German government, a strong bastion for this global competitive struggle is being erected.

It cannot be predicted whether this politics, which is rather aggressive domestically (austerity) as well as abroad (export offensive) will have long-term success. In any case, at a global level it will be confronted by much stronger opponents than it was at the European level. However, the fissures of this politics forced by the German government can also be seen at the European level. For one thing, increasing nationalist movements in individual EU countries are receiving a boost from the politics of German dictates. For another, Great Britain has considerably different geopolitical and economic interests than the other EU member states. Politically, Great Britain is much more strongly connected to the USA than any other European country, which is demonstrated not least by the fact that it belongs to the espionage alliance of the "Five Eyes" (USA, UK, Canada, Australia, and New Zealand), who not only spy on each other, but with each other on the rest of the world. Economically it is not British industry, but rather primarily the financial center London which is profitable and politically influential, and which does not wish to submit to EU control or the euro regime. To that extent it's not surprising that German policies strengthen the camp of British EU opponents.

In the case of good German politics, the SPD also does not want to remain on the sidelines. Sigmar Gabriel tries to obscure who calls the shots in the governing coalition by means of especially loud shouting. On the occasion of the Greek referendum, he played the role via the tabloid Bild of a particularly great scourge of the Greeks. Frequently, however, the man is just embarrassing. This became clear as Schäuble pulled a "temporary Grexit" out of his hat, thus demonstrating that in order to force the Greek government into submission, he was prepared to indulge in risky policies; nobody can really estimate the consequences of a Grexit not only for Greece, but also for the euro. In response to questions from journalists, Gabriel boastfully declared that of course he had been consulted about this. When discontent grew rapidly in the SPD, he added that it had merely been an idea that he had heard about once.

The changed situation under which German politics occurs today first becomes really clear when one looks beyond European politics. Let's look at just two examples. For four weeks in June and July, postal workers went on strike, not primarily for higher wages, but for the dissolution of newly founded subsidiaries of the Deutsche Post in which the same work is performed for wages that are 20 percent lower. This wage reduction was justified in terms of maintaining "competitiveness." But the Deutsche Post enjoys pre-tax profits of over 3 billion euro and is the market leader. The strike ended, at least in terms of the main demand for the dissolution of the newly founded subsidiaries, in complete defeat. In Germany, too, capital has become considerably more aggressive and is successful as a result.

Second example: the TTIP, the free trade agreement between the EU and the USA. The dismantling of tariffs is the least of problems. More important is the alignment of environmental protection and consumer standards, which will most certainly decline in both the USA and the EU. Most important, however, are the arbitration panels. Originally introduced in order to protect foreign investors against expropriation without compensation by states with dubious legal systems, the focus is no longer upon investments already made, but rather expected profits limited by state actions. Just as Greece now has to submit all important draft laws to Brussels for approval before forwarding them to parliament, in the future in the case of all important proposed legislation the costs of compensation demands by international corporations will have to be calculated. TISA, the agreement on the international trade in services which is currently being negotiated, and CETA, the free trade agreement between the EU and Canada, the negotiation of which is largely finished, involve points such as bans upon ever again making firms publicly owned once they've been privatized. Bye bye, recommunalisation. With TTIP, CETA, and TISA, the position of capital vis-à-vis any future government, regardless of its composition, will have been enormously strengthened. Again, this is not a structural defect, but exactly what is desired. But that's not all. After the liberalization of world trade hasn't proceeded so rapidly via the WTO, regional free trade agreements such as the TTIP, or the pacific free trade agreement TPP (Trans-Pacific Partnership) that the USA is negotiating with its pacific neighbors, have increased in importance. The point of all these agreements is to formulate standards that will become the basis for future agreements with China, India, and other states that the USA will conclude in the future.

Particularly in Germany, a broad opposition to TTIP has formed, which also stretches into broad swathes of the SPD. Perhaps it is here that Sigmar Gabriel will achieve his historical moment. Initially, he attempted to play down the criticisms of TTIP. He commented upon an early petition against TTIP by noting that here, something was being protested that did not yet exist. A terrific Gabriel joke: once TTIP exists, protests will be useless. When the critique within the SPD could no longer be ignored, Gabriel suddenly expressed doubts about "private" arbitration panels, which caused a sigh of relief among many SPD members. Even Gabriel appeared to be on the right side. With the trade panels that he has proposed, nothing will have been fundamentally changed, but precisely such cosmetic alterations will be used by Gabriel as a justification against members of his own party for his own support for TTIP despite still lingering doubts, since a failure of TTIP would be much worse. And the members and representatives of the SPD, who fear nothing more than rebelling against their own leadership - that weakens the party - will dutifully follow their chairman.

The population can elect the government that it would like to have, but the room for maneuver of such a government is increasingly limited vis-à-vis capital. This is "market-conforming democracy." As Merkel said in 2011, we live in a democracy and therefore "we will find ways to shape parliamentary decision-making so that it conforms to the market." Parliamentary decision making as a necessary evil that has to be trimmed correspondingly: that's not a slip by Merkel. That is the state of democracy in global competitive capitalism. The EU institutions, and in particular the yielding of national influence upon monetary policy through the introduction of the euro are important building blocks for "market-conforming democracy" at the European level. Large sections of the left in Germany have a hard time making a fundamental critique of the EU. They are afraid of being characterized as right-wing or nationalist.

But that is a false dichotomy. The EU and the euro are not institutions that are "actually" good which merely suffer from a "democratic deficit" and are unfortunately dominated by politicians who still follow destructive "neoliberal" policies, thus damaging the wonderful "European idea" of international understanding and Friede, Freude, Eierkuchen. Already the Maastricht Treaty, which makes "financial stability" (a low rate of inflation and limits to debt) the top priority and remains silent about tax and social welfare systems, forces states into a situation in which they advertise their low taxes on income, capital gains, and property in order to attract capital investment while on the other hand having no other choice than to cut social benefits as a result of declining tax revenues and a "too high" level of indebtedness. That is not a defect of the euro; that is the logic of the euro, which was exactly desired by the governments that implemented it. Whereas the "multi-level system" of the EU gives stronger countries more influence, but also includes possibilities for smaller countries to block decisions, the situation has changed dramatically with the introduction of the euro. What was already hinted at in the case of Cyprus was made abundantly clear in the case of Greece: a weak, indebted country has no chance if the strongest powers (or even just the strongest power) act in cooperation with the ECB, regardless of majorities. And because everyone knows that now, the other countries will do everything in order to ensure that they don't end up in a situation like Greece.

The assumption by a large part of the left in Germany, that it's better to fight for progressive changes within the EU than outside of it, is definitely no longer valid since the introduction of the euro, at least for small, economically weaker countries. The conditions for the SYRIZA government would have been considerably better outside of the EU. But a "Grexit" at the current point in time would have incalculable consequences, and the wheel of history cannot be turned back without further ado. But further candidates for membership should consider the matter very carefully. The euro, which in many countries with weak currencies stands for strength, stability, low interest rates, and a low rate of inflation, could prove to be a poisoned chalice.

Michael Heinrich teaches economics at the University of Applied Sciences (Hochschule für Technik und Wirtschaft) in Berlin. He is the author of An Introduction to the Three Volumes of Karl Marx's Capital. This article was originally published in German in Prokla number 180, September 2015.