Occupied with reelection, Merkel will be hard pressed to dictate E.U. economic policy at the Pittsburgh Summit
09/24/2009
German Chancellor Angela Merkel has been successful in scaling back bank bonuses at home. In Pittsburgh, she has yet to convince fellow G-20 members, including her own neighbors, to adopt similar policies. Unless Merkel can build consensus on fiscal reforms with fellow European Union (E.U.) giants, especially France, and strike a balance between higher unemployment or rising inflation, this disagreement within the E.U. will be evident in Pittsburgh. To win credibility, Merkel will draw on her recent success in brokering the sale of Opel, the European arm of General Motors (G.M.), which will give her confidence during negotiations on the economic policies of the Group of 20. However, with federal elections looming, it is unclear how committed Merkel will be to complicated – and potentially unpopular – policy proposals emanating from G-20 talks. Risks of unemployment versus inflation will certainly be discussed. Above all, Merkel needs German participation in the E.U. delegation to be effective in order to avoid any surprises at the voting booth.
In an attempt to mitigate the economic crisis and reform the global financial system, Germany and France met in Brussels in late August to chart a new course for the European Union. Agenda items included checking the power of national banks in denying credit to customers and controlling bonuses in underperforming financial institutions. According to Die Welt, the goal of this meeting was to establish regulations in order to prevent managers of failing banks from obtaining million dollar bonuses. “No bank will be allowed to be so big, that it can blackmail the government,” said Angela Merkel in the Sueddeutsche Zeitung. The Munich-based newspaper also said that the salaries of bank managers will be more strongly attached to performance, but not directly administered by the government.
These discussions continued in early September when the finance ministers of France, Germany, and Britain met in London. It remains to be seen, however, if the Europeans can reach a consensus on moving out from the fiscal quagmire. “[The economic crisis] has reminded us all of the different historical experiences that the members of the E.U. have had in the past, and how it affects their current policies,” says Dr. Alberta Sbragia, a leading scholar on the E.U. and a professor at the University of Pittsburgh. “[T]he E.U. has always moved by having a crisis, having disagreements, and having a resolution, you might say, to move forward on some big project that will bring them together,” she adds. How the E.U. decides to approach reforming the global financial system and whether or not they are able to agree on a plan at the Pittsburgh Summit, is still a puzzle for analysts.
Differences in national economic policies among the Europeans are pervasive. Germany and Britain, says Der Spiegel, are struggling over whether or not to continue providing stimulus and federal monetary assistance to bolster their economies. The Germans fear to subsidize their economy due to a historical aversion towards inflation. “Germans are very, very afraid of inflation,” says Dr. Alberta Sbragia. “This is part of their historical memory. They have an analysis of what brought Hitler to power that puts a great deal of emphasis on the inflation that arose after World War I, [therefore] the German population is very, very nervous about anything that would lead to inflation further down the road.” Britain, on the other hand, is more concerned with rising unemployment. “Angela Merkel has been much more skeptical of the kind of stimulus that Gordon Brown has pursued,” says Sbragia. Where Great Britain and France have traditionally used Keynesian economic strategies, Germany has turned to monetary policy in order to cope with economic downturns, refusing to inflate its currency in managing economic difficulties and preferring to risk increased unemployment. Sbragia adds that Germany, due to the way its welfare functions, has “quite a bit of stimulus embedded in the system. [S]ome of the criticisms that have been made about the German lack of a stimulus are really not quite accurate, because the German welfare state kicks in, you might say, automatically as unemployment rises.”
More is at stake than just internal cleavages within the E.U. Germany must navigate international disputes as well, with thousands of German manufacturing jobs at risk. Alarm over the fate of Opel, the German subsidiary of General Motors, which the American carmaker had been trying to sell since the beginning of 2009, has passed. In an article entitled “Car Crash,” Der Spiegel analyzed Merkel’s (mis)handling of the Opel deal and the tensions it created between the United States and Germany. Although the German government has provided substantial federal assistance to keep Opel running until the end of this year, the fate of Opel and the job security of its 25,000 German employees, up until September 10, were unresolved.
Merkel and members of her Cabinet had supported a plan involving Magna, a Canadian-Austrian car parts supplier, and a group of Russian investors including the car manufacturer Gaz. This plan went through. Magna and the Russian investors acquired Opel’s assets, despite G.M.’s reluctance to deal with a Russian company with strong ties to the government and to risk transferring American technology to Russia. Nonetheless, the U.S. government decided that it could not jeopardize the well-being of G.M. by holding onto a failing foreign branch. Merkel placed herself in a difficult situation by assuring Russian President Dmitry Medvedev that she would support the Magna deal. Now, says Der Spiegel, her gambit against the U.S. government’s control over the fate of domestic German laborers has paid off. She continues to be the front-runner for the Chancellorship in German federal elections on September 27th.
While the upcoming G-20 Summit is certainly an important event for the Republic of Germany, recent improving economic conditions in the E.U. and domestic elections have temporarily shifted the attention of the German public away from Pittsburgh. Federal elections, which are front and center in the German media, occur just two days after the meeting in Pittsburgh. “There is as good as NO public discussion of the pending summit. That is not surprising. …Germany is in the midst of a very difficult election cycle,” notes Dr. Randall Halle, the Klaus W. Jonas Professor of German Film and Cultural Studies at the University of Pittsburgh. This penchant towards domestic politics over international economic negotiations is unlikely to change. “Neither of the governing parties [Christian Democratic Union (CDU) and Social Democratic Party (SPD)] is interested in criticizing the latest governmental cycle. Parties are rather reserved about making prognoses about the economic direction of Germany,” states Halle. Any admission of mistakes in handling the financial crisis by either party would spell a governmental failure in directing the country’s monetary policy and would probably hurt that party’s chances of reelection. “I think,” says Halle, “the G-20 summit is, from the German perspective, rather unfortunately timed and will not lead to much for Germany. It will be more of a photo op.”
Alleged photo ops aside, Germany needs to show that it can contribute to cohesion among the powerful European economies, regardless of what is happening at home. The average German voter may just start paying attention.
John Pino,is a first-year student majoring in Security and Intelligence Studies & Joel Kent is a second-year student majoring in Global Political Economy
