How EU politics pushed Merkel to lift Germany’s austerity policies

[The fight between Britain's David Cameron and Germany's Angela Merkel over whether Jean-Claude Junker would become the next head of the European Commission put Italy's Matteo Renzi in a position where it could wring concessions from Merkel over the austerity policy she has pushed so hard down their throats for the last five years -- “a shift to more growth-friendly economic policies was a condition for Italy’s support for the next commission president.”. Also, for future reference, the head of the EC now is well aware that he owes his job to Renzi. *RON*]

By Anatole Kaletsky, Reuters, July 4, 2014

German Chancellor Angela Merkel (L) and Luxembourg’s Prime Minister Jean-Claude Juncker, who is also Chairman of the Eurogroup, hold a joint news conference after a meeting in Luxembourg, March 9, 2010. REUTERS/Sebastien Pirlet
Matteo Renzi, the prime minister of Italy who took the revolving presidency of the European Union this week, seems to be the sort of man that Napoleon was referring to when he reputedly said that the key qualification he sought in recruiting a general was good luck.

Renzi become prime minister without even needing to win an election because Silvio Berlusconi and all other rivals self-destructed. He took power just after Italy passed the lowest ebb of its economic fortunes. In May, he was rewarded for his good fortune by Italy’s voters, who anointed him with a strong democratic mandate in the same European elections that discredited almost all Europe’s other national leaders. Now he is taking the helm in Europe, as an economic recovery is starting and the European Central Bank is swinging decisively in support of growth.

But even a politician as lucky as Renzi could not have counted on his latest and most unexpected windfall: the unintended consequence of last week’s failed campaign by British Prime Minister David Cameron to stop the appointment of Jean-Claude Juncker as head of the European Commission.

Italian Prime Minister Matteo Renzi talks during a joint news conference with European Commission President Jose Manuel Barroso at the end of a meeting at Villa Madama in Rome, July 4, 2014. REUTERS/Remo Casilli
Analysis of Cameron’s crushing defeat in the 26-to-2 vote by Europe’s national leaders to appoint Juncker has focused on its implications for British politics and for Britain’s future in the EU. But this event was actually less significant for Britain than for Europe as a whole, specifically for the Italian EU presidency that started on July 1.

For Cameron and Britain, the embarrassment of losing the Juncker battle was more apparent than real. The outcome was predictable once the British press started smearing Juncker with claims about alleged Nazi parentage. From that moment on, Chancellor Angela Merkel was pressured by German public opinion to give Juncker her unconditional support and secure a near-unanimous coalition of Europe’s leaders to head off Cameron’s attacks.

Cameron’s opposition to Juncker thus became largely a matter for domestic political consumption. Taking a lonely stand against a man described in the British media as an “old-fashioned euro-federalist and anti-democratic backroom dealer” will do Cameron no harm in domestic politics, as demonstrated by favorable opinion polls. As for the referendum on Britain’s EU membership planned for late 2017, whose result Cameron claimed would be jeopardized by Juncker’s appointment, voters will have long forgotten this obscure bureaucratic row.

For the rest of Europe, however, Cameron’s campaign against Juncker will have real impact, particularly on economic policy. It will be surprisingly benign, largely because of Renzi’s leadership. By challenging Germany so aggressively over the commission presidency, Cameron forced Merkel to seek maximum support from other EU leaders, especially from Renzi. This was partly because Italy was taking over the revolving EU presidency but also because Renzi was the one European leader whose party’s performance in the European elections conferred democratic legitimacy comparable to Merkel’s.

With Merkel unexpectedly transformed by Britain’s anti-Juncker campaign into a supplicant for Italian support — instead of the domineering bully of previous EU summits — Renzi saw a rare opportunity to strike a bargain over EU economic policies with Germany from a position of relative strength. He created a coalition with France, Spain and other opponents of German-imposed fiscal austerity and then offered Merkel a deal: a firm coalition to back Juncker in exchange for an easing of the fiscal austerity imposed on Italy and France during the euro crisis.

Britain’s Prime Minister David Cameron holds a news conference during an European Union leaders summit in Brussels, June 27, 2014. REUTERS/Pascal Rossignol
Renzi was explicit with Merkel in laying down his quid pro quo. As Italy’s Sandro Gozi, Italian secretary of state for European affairs, said at a news briefing, “a shift to more growth-friendly economic policies was a condition for Italy’s support for the next commission president.”

Indeed, the Renzi-Merkel deal was translated into a formal vote simultaneous with Juncker’s election. It committed the EU to “flexibility” in the interpretation of the EU’s budget rules, a “growth-friendly” and “differentiated” approach to fiscal consolidation and “the possibility of temporary deviations” from agreed budget goals if there has been “implementation of major structural reforms.”

In other words, the struggle over Juncker’s election created the conditions for a redirection of the EU’s economic policies from the German-inspired demands for fiscal austerity toward focusing on economic growth.

Of course, Merkel could break this agreement, as she reneged on the deal she struck with Mario Monti in 2012 on German support for a pan-European banking union. This time, however, the prospects are better because enforcement of the EU fiscal rules is up to the commission — and Juncker now owes Italy a big favor.

Moreover, Juncker, as the consummate EU deal-maker, understands the importance of trading favours better than anyone in Brussels. He can be expected to find ways of delivering on his promises.

The commission presidency is no longer as important as it was in the EU’s early days, when Juncker’s job was the closest approximation to a “president of Europe.” In the past 20 years, and especially since the 2007 Lisbon Treaty, the proliferation of EU bureaucracies and institutions has reached the point where there are no fewer than six “presidents of Europe.” In addition to the commission president, there is a president of the European Council (Belgian’s Herman von Rompuy); a president of the European Parliament (Germany’s Martin Schulz); a president of the Euro-group (Holland’s Jeroen Dijsselbloem), and, of course, the president of the European Central Bank (Mario Draghi). Then, just for good measure, there is a separate and impersonal “national presidency,” which revolves every six months between the governments of the EU’s 28 member states and which Italy took over this week.

Juncker, therefore, has been elected as Europe’s head civil servant, not its head of state. In U.S. terms, he is less the president than the White House chief of staff.

Nonetheless, if anyone can win German acquiescence when the commission’s bean-counters decide to turn a blind eye to overshooting budgets in Italy or France, a consummate back-room dealer like Juncker is the man to do it.

And Juncker will not forget that he owes his job to Renzi.


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