The Meseberg Declaration – don’t hold your breath waiting

France and Germany signed an agreement last week (June 19, 2018) – the so-called Meseberg Declaration – which saw Europhiles shouting out that Germany has finally bowed to pressure from Emmanuel Macron and agreed to reforms of the Eurozone. Commentators applauded the ‘momentum’ that the ‘Declaration’ introduced to the European integration debate, although they admitted the shifts were slower than a snail might achieve on a bad day. Soon after the ‘Declaration’ was released the revolt of the so-called Hanseatic League of nations broadened as three more Member States joined the rebellion. The 12 rebel states (see below) have told France and Germany in no uncertain terms that many of the key propositions in the Meseberg document – particularly to create a Eurozone budget capacity – will not be acceptable. The ridiculous part of this is that the Germans have only signalled European-level budget changes that would actually cut the current fiscal capacity. So not only are the Europhiles wrong on the importance and substance of the ‘Meseberg Declaration’, but the 12 rebel states have signalled that many elements of the minimal agreement that the French and German came to last week are unacceptable. This is the EU reform process we are talking about. Don’t hold your breath waiting for anything to happen.

The Financial Times journalist Martin Sandbu (declared Europhile) was rather ebullient about the ‘Declaration’. In his column (June 21, 2018) – The Franco-German engine shifts into gear – claimed that the ‘Declaration’ has revived the integration discussion, which “has long been stalled”.

He did qualify the article’s title by suggesting that the “gear” was “a low one”.

But among all the “fuzzy language” and the lack of “important detail”, he still claimed it was a politically important step, notwithstanding that “The scale of the reforms Ms Merkel agreed to is far less ambitious than the French leader envisaged.”

The Bruegel group, which can often be confused with the EU cheer squad, reiterated Sandbu’s assessment that the ‘Declaration’ represented “Momentum” (Source).

Like watching paint dry or grass grow! That sort of momentum. Although perhaps the analogy is flawed because at least the paint dries and the grass grows.

What will come out of this bit of political posturing, that Merkel obviously engaged in to divert the headlines from the revolt within her own political coalition with the CDU, is another matter.

Not much of substance is my assessment. But then we are talking about the EU.

First, there were a lot of motherhood statements in the ‘Declaration’. All of which have been stated countless times before in many declarations and communiques.

Second, the agreement really only stated what we knew already. Germany will not go as far as Macron is proposing.

That France and Germany agreed to incorporate the European Stability Mechanism (ESM) into EU law (rather than retain it as an intergovernmental agreement).

The agreement said that:

Conditionality remains an underlying principle of the ESM treaty and all ESM instruments …

Think Greece.

They agreed on maintaining a “credit line” but “such support would need to involve conditionality”.

They also agreed to “establishing a Eurozone budget within the framework of the European Union to promote competitiveness, convergence and stabilization in the euro area, starting in 2021.”

It would be funded by “both national contributions, allocation of tax revenues and European resources” and any spending allocations from it would “come in substitution of national spending”.

So it is not conceived to be a federal fiscal capacity of the type that we see in effective federations.

German Finance Minister Olaf ‘Wolfgang Schäuble’ Scholz has already made it clear on the scale he would envisage for the Eurozone ‘budget’.

In his first fiscal statement to the Bundestag as Finance Minister on May 15, 2018 he said:

I have the impression that we can also make a difference with 1 percent of the economic output of the world’s largest trading bloc.

I considered that in detail in this blog post – Die schwarze Null continues to haunt Europe (May 21, 2018).

Sholz’s commitment, which Germany’s Meseberg agreement was based on, is a smokescreen.

As I showed in the blog post cited above, the 2017 EU Budget allocated €157.86 billion. Scholz’s 1 per cent rule would in 2017 terms amount to €153,264.68 million.

That is, Germany is proposing a smaller EU ‘budget’ going forward, which makes all his concilitory statements about Emmanuel Macron look pretty false, given the latter clearly wants to expand the EU allocation.

In his Financial Times article (cited above), Martin Sandbu said that:

… even a mooted 1 per cent of eurozone gross domestic product would represent little more than a rounding error in terms of its capacity to have impact in response to cyclical downturns.

Quite.

Scholz has also already indicated that Germany’s position on the ESM is that it can become EU law at some future date that is currently unspecified – but in reality beyond the term of the current German Parliament.

The Germans have also flatly rejected any proposals from Macron (and the European Commission) for the introduction of Eurobonds as part of an ESM capacity. That proposal is dead and wasn’t included in the ‘Declaration’.

So even though it signed the Meseberg Declaration, Germany does not intend to support any changes that might create a federal fiscal capacity for Europe.

The ‘Declaration’ also noted that the two nations would consider the “issue of a European Unemployment Stabilization Fund … without transfers” at the European Council meeting in December 2018.

The operative qualification is “without transfers”.

I considered that issue in detail in this blog post – European-wide unemployment insurance proposals – more bunk! (June 18, 2018).

Any such scheme to garner German approval would be basically a waste of time.

There was no progress on the deeply flawed banking union. Germany will never agree to any notion of a common deposit insurance scheme and so it didn’t appear in the ‘Declaration’.

But then further reality checks have emerged in the past week.

Merkel and Macron had their summit in the German city of Meseberg to prepare for the upcoming European Council meeting in Brussels on June 28-29, 2018.

The document is intended to condition discussions at that Summit on what the EU can do next to address its spirally ineffectiveness.

And good luck with that given the rising and widening rebellion from Germany and France’s Eurozone partners.

In this blog post – Europhile reform dreamers wake up – there will be no ‘far-reaching’ reforms (March 12, 2018) – I discussed the – Joint Statement – released by 8 Finance Ministers from the smaller Northern EU Member States on March 6, 2018.

The statement released by the finance ministers of Finland, Denmark, Estonia, Ireland, Latvia, Lithuania, the Netherlands and Sweden aired their views on how the Eurozone (EMU) might develop.

It made clear that these characters are firmly locked into the austerity mindset and any claims that a new Macron-Merkel partnership will take the EMU into more progressive territory should be viewed as blind hope rather than bedded down in any realistic understanding of what is likely or possible.

The ‘Joint Statement’ was released to coincide with the announcement that the GroKo had been formed in Germany and was intended to let everyone involved know that the status quo was to be preserved no matter what the SPD or Emmanuel Macron might think.

As it happened the ‘Northern’ finance ministers did not have any reason to fear the elevation of Olaf ‘Wolfgang Schäuble’ Scholz to the position of German Finance Minister.

His middle name says it all.

The ‘Northern’ finance ministers stated clearly that:

1. Any future decisions had to be “based on strong shared values” and be “inclusive”. In other words, any deal between Germany and France would be rejected.

2. There should be no major changes to the European-level fiscal architecture – but more cutting of pensions, government spending generally, privatisation, etc. at the Member State level.

3. “Further deepening of the EMU should stress real value-added, not far-reaching transfers of competence to the European level. For that reason the discussion on the deepening of the EMU should find a consensus on ‘need to haves’, instead of focussing on ‘nice to haves'”

4. While being “committed to the process of completing the Banking Union” they all rejected any idea of a federal fiscal capacity that would make that ‘union’ work properly.

5. No federal fiscal capacity to be created as the ESM is reestablished under EU law.

But it seems that the original 8 finance ministers has grown to 12 with Austria, Belgium, Luxembourg and Malta joining the other so-called “Hanseatic League” of nations in pushing a “fiscally conservative”, “national responsibility” line in relation to dealing with economic crisis.

They have reaffirmed their outright opposition to any plans to diminish the austerity bias and to create a federal fiscal capacity that could redistribute spending to nations in difficulties.

This time the Dutch Finance Minister Wopke Hoekstra was leading the charge by corralling the other 11 governments to sign an E-mail letter he sent to Mário Centeno, the President of the Eurogroup and Portugal’s Finance Minister, in advance of this week’s Council Summit.

That E-mail clearly aimed “to stop a Franco-German plan to establish a eurozone budget ahead of a key EU summit to discuss the matter” (Source).

The ’12 Member States’ told Centeno that they could not support any plan to create a specific Eurozone budget and cited “moral hazard risk” and unacceptable intrusion by the EU into “national tax matters”.

The letter said there was “wide divergence” on the necessity of creating a Eurozone budget (Source).

Hoekstra went as far as saying that “There was clearly no consensus on starting to explore options”. So the 12 were even suggesting they didn’t want the Franco-German proposals discussed.

That divergence spilled over at last Thursday’s (June 21, 2018) Eurogroup meeting in Luxembourg with Centeno noting in his official statements post-meeting that “there are still a range of views in the room” (Source).

Centeno responded yesterday (June 25, 2018), with this – Letter by Eurogroup President Mário Centeno to European Council President Donald Tusk ahead of the Euro Summit of 29 June 2018.

He wrote that:

… differences of views remain on the need for and possible features of a Eurozone budget …

Subject to guidance from the leaders, the Eurogroup stands ready to discuss the recent proposals on a possible euro area budget ….

The sentiments of the ’12 Member States’ are also rehearsed within Germany where (Source):

Chancellor Angela Merkel’s opponents from left and right have contested the recently signed agreement between France and Germany for the creation of a budget for the euro area in 2021.

So even if the Germans could get the ’12 Member States’ who are in rebellion to concede, the German government will struggle to resolve the matters within the Bundestag.

Conclusion

More of the same really. The core matters that have to be resolved will not be resolved.

And the core matters themselves – such as a Eurozone-wide fiscal capacity – are so poorly conceived by those that might support the change (for example, France and Germany) that even if the other Member States could be persuaded to agree, nothing much of substance would be achieved.

Such is the quagmire that the European Union has become.

That is enough for today!

(c) Copyright 2018 William Mitchell. All Rights Reserved.