In the aftermath of the 2009 financial crisis that almost destroyed the euro, Germany set the terms for recovery. Chancellor Angela Merkel and her then conservative finance minister Wolfgang Schäuble insisted that heavily indebted EU countries radically restructure their economies in return for loans and financial assistance. Fierce austerity measures were the order of the day.
Germany took flak for spearheading draconian measures. But Merkel and Schäuble believed such policies would save the euro and reform inefficient economies, regardless of the social costs. Greece, Ireland, and Spain did, in fact, recover. Still, Berlin gained a reputation as a bully rather than a partner.
The coronavirus pandemic has changed all that.
In a remarkable ideological shift, Merkel and Finance Minister Olaf Scholz have thrown caution to the wind. The purse strings, tightly closed since Merkel became chancellor in November 2005, have been opened. Balanced budgets—known as schwarze Null, or black zero—have been discarded. Scholz pushed through a €130 billion ($153 billion) fiscal stimulus package and €150 billion ($177 billion) of new borrowing. With Merkel’s support, Scholz and his French counterpart, Bruno le Maire, agreed to a package of €500 billion ($589 billion) for the eurozone countries—with the European Commission playing a major role in an even larger new recovery instrument. The latter will boost the EU budget with new financing raised on the financial markets for 2021 to 2024.
Berlin has given the green light to more economic integration of the eurozone.
Germany’s shift—abandoning balanced budgets and ceding more powers to the EU—cannot be underestimated. Berlin has given the green light to more economic integration of the eurozone group of countries and begun completing unfinished business from the euro’s introduction in 1999.
After long opposing a common deposit insurance scheme, Berlin has smoothed the path to a banking and capital markets union that will encourage cross-border private investment in the EU and expand the bloc’s economic strength.
If there is no severe second wave of the pandemic—a big if—Germany will have put in place building blocks that will speed up Europe’s economic recovery. Much also depends on the global economy and tensions between China and the United States. As for political integration, that’s for another day.
Germany will have put in place building blocks that will speed up Europe’s economic recovery.
In the meantime, as Germany steps into the EU’s rotating presidency for the second half of 2020, Merkel and Scholz will tackle climate change and China. The time when Beijing could snap up German and European strategic assets is over.
Germany is shaping Europe’s post-pandemic world through solidarity, providing cushions to preserve social and political stability. If such policies withstand the coronavirus, Germany will have initiated a transformative change in Europe’s direction.
- Judy Dempsey