Finansnyheder

Germany is replaying Britain’s Brexit debate

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By the early 1990s in Britain, verbal insults hurled at the EU had become commonplace. Margaret Thatcher warned of a European superstate. It became normal to associate Brussels with stifling bureaucracy. And people imagined a gravy train full of idle European parliamentarians shuttling between Brussels and Strasbourg. This is how Brexit started.

I see something similar going on in Germany — although the process is at an early stage. The target is not the EU, but the European Central Bank and the eurozone. The language has already got out of control.

German media habitually refer to negative interest rates as penalty rates — a fine levied by the ECB to punish German savers. Tagesthemen, Germany’s top evening news programme, casually reported last week that the ECB was planning to use German taxpayers’ money to fund its asset purchase programme. Die Welt refers to the “expropriation” of the German saver — a phrase with alarming historical connotations. Even liberal newspapers, like the weekly Die Zeit, accept the view that the ECB is the cause of low interest rates.

There are clear parallels with the early history of Brexit. Outwardly, it appeared that the UK had a wonderful deal in the EU: it was in the customs union and the single market, but not in the eurozone and the Schengen passport-free travel area. It secured policy opt-outs in a number of areas. And former prime minister David Cameron was able to wring further concessions from the EU before the referendum.

Today, Germany is widely seen as the main beneficiary of the euro. Like the British, the Germans have little cause for complaint.

This may be objectively true. But it is not the way things are seen inside Germany, where there is a sense that the monetary union is not working as it should. There have been hysterical debates about imbalances in the Target2 payment system and negative interest rates. What these show is that Germans are uneasy about being locked into a monetary union with countries whose leaders they do not trust.

Not all of that unease is irrational. Germany has large savings surpluses, which it invests abroad. But it does not benefit from them. A recent study found that German returns on foreign investments are the lowest among all G7 countries. The assets Germans are investing in — like car plants in China — are heavily correlated with the domestic economy. Nor do the investments protect Germany against demographic risks. It invests in countries with similar demographic profiles. So when it rains, it pours.

Germany will soon be confronting a confluence of threats. It has been living for a long time off the inventions of the late 19th century. The champions of German industry have been the superstars of the analogue age. But now they face an uncertain future.

For example, none of them is a leader in battery technology — the technological core of the next generation of cars. Germany has some research capacity in artificial intelligence, but nothing on the scale of the US or China. Germany still has some of the best educated engineers in the world, but is lacking in cutting-edge scientists and research. Obsession with fiscal consolidation has caused public sector under-investment, even in areas such as renewable energy.

It is impossible to predict how Germany will confront the dual threat of a fundamental technology shift and a monetary union plagued by imbalances. The best solution would be to fix the problem by doing whatever it takes to make the monetary union sustainable; ending the obsession with fiscal surpluses; and increasing investment in science, technology, and military infrastructure. But that would be a triumph of hope over experience. Germany is moving in exactly the opposite direction.

One could have made a similar argument for the UK: that it is best to confront geopolitical and technological uncertainties inside the EU, and not become over-reliant on the US. Unfortunately, the Remain campaign failed to make this case, allowing Leavers to frame the debate.

The same is happening in Germany, where it is the Eurosceptics who speak with greater clarity. Few dare challenge the consensus on fiscal policy — or say a nice word about Mario Draghi, the ECB president. The most radical fiscal proposal I know of comes from the Green party, which wants to insert a sustainable investment clause into the balanced budget constitutional law. But that is tinkering at the edges.

Pro-Europeans should remember how the battle was lost in the UK — through cowardice and bad strategy. The case for European monetary integration has yet to be made in Germany. But it needs to be made, with confidence and with not a hint of Projekt Angst.

munchau@eurointelligence.com



Via Financial Times

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