One Crisis Too Many: How the Coronavirus Pushed Germany to Shift Course

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BRUSSELS — In her time as chancellor of Germany, Angela Merkel has seen the European Union put to the test by Brexit, a wave of migration, the Greek debt crisis and populism, and still she held to a largely steadfast course.

Then came the coronavirus.

Faced with a tarnishing of her own legacy and a deep recession gutting her own country and its main trading partners, Ms. Merkel this week agreed to break with two longstanding taboos in German policy.

Along with the French president, Emmanuel Macron, Ms. Merkel proposed a 500 billion euro fund to help the European Union member states most ravaged by the virus.

The proposal, which is hardly a done deal, departs from two central elements of German orthodoxy, said Jean Pisani-Ferry, an economist and former French government adviser.

It would allow the transfer of funds from richer countries to those more in need. And it would do so with money borrowed collectively by the European Union as a whole.

It will not be popular in Germany, and it may help populist opponents on the political extremes. But Ms. Merkel, in the twilight of her long political career, has put the interests of the 27-nation union — which embeds Germany into Europe as much as NATO does — before her domestic concerns.

Confronted with a pandemic that has cratered Europe’s economy, Ms. Merkel and Mr. Macron, who have often found themselves at odds over the years, dragged the rusty Franco-German motor out of the garage and got it running again.

The proposal was a clear recognition of the threat presented by the pandemic, whose full economic carnage has yet to be felt. And it was an attempt to overcome the deepening divisions within the European Union — between the frugal north and the devastated south, between Brussels and Central European authoritarian governments — over how to respond.

It also reflected the fact that, with Britain gone, Germany and France — two very different countries that represent Europe’s largest and most powerful economies — now have more room to assert themselves, if they can only find common ground. When they agree, they normally carry the rest of the member states along with them.

“This crisis tells us something about leadership, and how important the Franco-German engine is, and how bad things can go without that,’’ said Nathalie Tocci, an adviser to the European Union and head of Italy’s Institute of International Affairs. “The Franco-German relationship epitomizes ultimately what the E.U. is about, crystallizing the arguments of different sides, and if they agree, it creates a critical mass for the others.’’

The pandemic appears to have paved the way for that to happen.

“It’s been a long time since the French and Germans were able to put forward something substantial,’’ said Mr. Pisani-Ferry, who is now with two think tanks, Bruegel in Brussels and the Peterson Institute for International Economics in Washington. “But the virus is a sudden major shock. The point is not about the past, but about what we do now.’’

On Monday, Ms. Merkel and Mr. Macron proposed borrowing about $545 billion for a common recovery fund. Its repayment would be the financial responsibility of the entire bloc, but it would primarily benefit the poorer south, which has been hit hardest by the virus.

The proposal will be factored into a plan being drawn up by the European Commission, the bloc’s bureaucracy, which is supposed to be finished by May 27.

Caught between poorer southern states hit hardest by the virus, like Italy and Spain, which want European support in terms of grants, and richer northern states that reject collective debt and favor loans instead, the commission had been at an impasse.

Ms. Merkel’s defection from the northern camp, even it is just a “one-off” response to the crisis, as she insisted, may help break the logjam.

There will inevitably be further, angry horse-trading before any proposal is finally agreed upon unanimously by member states, but knowledgeable European diplomats believe the final result is now more likely to emphasize grants instead of loans, with any new European debt to be paid off in common sometime after 2027.

Until the virus concentrated minds, Germany and France belonged to different camps, with two very different styles of leadership that did not click, Ms. Tocci said.

Both Mr. Macron and Ms. Merkel had high hopes for the other — and both have been disappointed, Mr. Macron by Ms. Merkel’s cautious pragmatism and Ms. Merkel by Mr. Macron’s sweeping pronouncements unsupported by deeds.

”They have come together because in their very different ways,” Ms. Tocci said, both Mr. Macron and Ms. Merkel are “modern, rational leaders who have understood how important and damaging this whole thing is.”

Damaging not just for the European Union but for their own countries, which depend on the rest of Europe for trade. With Spain and Italy Europe’s next largest economies, even the richer north cannot survive without the labor and consumers of the south.

“If Europe collapses, it will be a German suicide,’’ a former European legislator, Daniel Cohn-Bendit, told the French daily Libération.

Germany’s finance minister, Olaf Scholz, said Tuesday that the fund would help both Europe over all and Germany in particular.

“When the lockdown phase ends, we need to ensure that Europe recovers,’’ he said in Berlin. “It’s good for the necessary consensus in Europe that Germany and France are making a joint proposal on this issue.’’

Whatever emerges from the European Commission will be followed by tough negotiations, Ms. Tocci said.

“Italy will want more and the Netherlands will want less,’’ she said.

The whole process will most likely finish only under the German presidency of the bloc, which begins on July 1.

Already, Chancellor Sebastian Kurz of Austria has raised objections to the idea of grants rather than loans, saying that he has been in contact with the leaders of Sweden, the Netherlands and Denmark. “Our position remains unchanged,’’ he said.

Mr. Kurz said, “We are ready to help most affected countries with loans.’’ But he said the new seven-year E.U. budget should not be significantly higher than it is now.

A European diplomat said that in his view, while the Dutch agree with Mr. Kurz that debt for grants is unacceptable, they may go along with some grants if they are accompanied by conditions on their use. They may also want to see real efforts by countries like Italy to fix impediments to the working of the single market.

While most attention has been paid to north-south divisions, opposition may also come from member states in Central and Eastern Europe. They appear to have been less affected by the virus, but their smaller economies have been hit hardest by the collapse of consumer demand in the rest of Europe.

Those countries are going to be reluctant, the European diplomat said, to see so much European aid — for which they will in the end have to help pay — skewed to southern countries that are richer than they are.

There are also worries about new impetus toward euroskeptic populism. In countries like Italy, where many voters have felt abandoned by Brussels on both migration and the virus, anti-European sentiment is very high.

At the same time, in northern countries, moves for collective debt to bail out poorer southern countries may feed far-right, anti-European populists like the Alternative for Germany or the Sweden Democrats. They are angry at the idea of subsidizing southerners who, they believe, work less hard and retire much earlier.

Such views are also widespread among center-right politicians who do not consider themselves populists, in countries like Finland, Sweden, the Netherlands and Germany, too.

Anna Wieslander, a Swede who is the Atlantic Council’s director for Northern Europe, praised Ms. Merkel and said she wished that Sweden would show more solidarity with those in Europe hit hardest by the virus.

“We want Merkel to lead, and now she does, and does it for the common good of Europe,’’ Ms. Wieslander said. “Of course, in Germany she won’t win votes for this. But it’s about leadership.’’

Sweden, she said, has gone its own way on the virus and has provided little aid to others.

“We need to get a little bit outside our bubble,’’ Ms. Wieslander said. “These are exceptional times, and you need to make exceptions from your principles. People are suffering.’’