Schäuble: Europe’s Last Man Standing

While the Greek drama has been prolonged into yet another round of cash-for-reform proposals, according to European and global news headlines, the future of the European project is seen under threat by Germany, the de facto leader of Europe.

(See TG’s recent coverage of Greece here)

The ugly German appears to have re-emerged and his face looks like that of Germany’s finance minister, Wolfgang Schäuble. Like no other politician, not even Angela Merkel, he is seen as the main villain of the plot that has been framed by some on the left as a coup against a democratically elected Greek government.

Yanis Varoufakis, the former Greek finance minister accused Schäuble of executing a plan to establish a eurozone budget commissioner to supervise national budgets according to strict fiscal rules. In order to do so, Greece had to be pushed out, Varoufakis concluded.

As an outsider, you might ask yourself: What is so bad about emphasizing a solid fiscal and economic performance as the German government does?

There are several layers to the current German-bashing, the role of Wolfgang Schäuble and the accusations of Yanis Varoufakis.

Decoding the plot

First of all, Varoufakis is of course right. Schäuble did want Greece to exit the Euro after the lackluster reform implementations of the past Greek governments and the constant obstruction by the newly elected Syriza-led coalition. The German finance minister knows his Winston Churchill (and his dictum about never letting a good crisis go to waste.)

But does that make Schäuble a bad European – or even an anti-European? It is quite the opposite.

Far from being a nationalist, Wolfgang Schäuble is a dedicated pro-European, probably even a European federalist. Some of Schäuble’s critics call him “neoliberal” – something that couldn’t be further from the truth.

A true follower of “Ordnungspolitik,” the German style of rule-based macroeconomic policymaking, Schäuble believes in the consensual design and implementation of rules that guide and bind both politics as well as the economy.

This provides a broad framework in which market participants can then make decisions freely without further interference from the state as long as the rules are observed.

This approach to economic management revolves more around political economy than pure economics, which is why North American economists do not get it – like Paul Krugman eloquently and obsessively in the New York Times.

Politics vs. Economics

This particular German form of economic management is also profoundly at odds with France’s very state-centered ideas of how a national economy should be structured.

The core idea of France is to believe in the primacy of politics over all matters in society. Although not as strong as it used to be, French dirigisme (state control of economic and social matters) is still alive and kicking.

The French state still owns sizable amounts of shares in major French companies such as GDF Suez (the utility company), Thales (the defense contractor), Air France-KLM, Renault (the carmaker), Areva (the nuclear power group) and France Telecom.

This contrasts sharply from the German notion of the primacy of politics – which restricts it to setting carefully calibrated rules to markets, politics and society.

Economic policy issues aside, it is safe to describe Germany and the Germans as unwilling to lead – that is – unwilling to step forward too much on the greater world stage. Especially if this costs something, be it money, dead soldiers or reputation.

This is not to say that Germans are not willing to care. It is quite the contrary. But everything that makes Germany look like the “indispensible nation” in Europe sends shivers down the country’s own(!) spine.

Germany, of all European countries, is probably the most post-national, yet most inward looking of them all.

A defensive Germany

This then is the German paradox: A country that has considerable power but shies away from using it. This customary reticence has produced a German political elite that, in comparison with their French or British counterparts, is rather defensive and at times even clumsy when it comes to EU politics.

Wolfgang Schäuble’s idea of a rule-bound fiscal union for Europe gives up national sovereignty over national budgets and accepts the reality of economic globalization. This is vehemently at odds with the French idea of organizing Europe as a bulwark against globalization.

All of this is why probably the most significant clash over Greece is not between creditors and debtors, as is so often assumed. The real clash is between the competing views of France and Germany over the future of Europe and the Eurozone.

At the heart of the Greek crisis is a struggle between different versions of how Europe should work. Should Europe work on a purely governmental level, where politics reigns and decisions are backed by national self-interest? That is the core of the French vision.

Or should Europe be based on some rule-setting mechanisms that bind governments collectively and thus restrict their sovereign rights to some degree? That is the German vision.

The changed meaning of democracy

What is most curious is that, in the current international debate, it is the first version that gets all the cheers for how “democratic” it is – even though the French vision at its core is actually very statist.

What is not yet properly understood at this juncture is that democracy in the post-national world differs from democracy in the nation state era. That is what European federalists understand and try to translate and preserve.

They rely on commonly agreed rules to prevent a politically inspired free-for-all at decisive moments. They also understand that one cannot have more integration without clear rules and responsibilities.

The French approach is the opposite of that – more integration without clear rules. Under the guise of “solidarity,” the assignment of any cost is left deliberately blurred and in the hands of a purely political process.

You may like Wolfgang Schäuble for what he has done and probably still intends to do — or you may loathe him for it. But people may come to appreciate that he is Europe’s last man standing.