BERLIN: “Confront, then compromise” could well become Germany's mantra for successful European Union negotiations. Germany is willing to bail out member states in exchange for tougher fiscal austerity and a suspension of voting rights, but Chancellor Angela Merkel's demand for permanent crisis-resolution mechanisms, together with changes to the Lisbon Treaty, and her open warning to speculators who may be jeopardizing eurozone stability, has had wide consequences. Within Germany, Merkel's demands have calmed the electorate, which was unhappy with the Greek bail-out. They have also silenced the Social Democrat-led opposition, which has no better alternative to offer the country. Moreover, the Chancellor's vehemence has reminded the EU as to who really holds the cards within the Union, while at the same time providing a reasonable solution for crisis management. When the economic crisis opened up the Pandora's Box of the EU's fiscal woes, Germany stepped up to the mark and helped to bail out Greece. Far from appearing a paragon of political solidarity, however, the German government's support for Greece was marked by reluctance and reprimands, which quickly sparked fears of a member state exiting the eurozone. The Greek debt crisis underlined the important lesson that negotiation is central to the EU's existence. Germany, moreover, has emerged from the whole episode acutely aware of its role in negotiating solutions to pan-European problems. The German government's anger with Greece reflected the public mood and Chancellor Angela Merkel's own pressing need to cut the country's budget deficit by reforming social security, pensions, education, and banking. That tough fiscal challenge is made even harder by pressure from the Free Democrats, her liberal partners in the country's coalition government, who want to provide tax relief as well. Merkel, a Christian Democrat, has managed so far to engineer a parliamentary consensus among the coalition partners. But her core problem remains that of promoting domestic economic expansion and achieving accord on a self-sustaining European strategy. Merkel and the German social-market economy are, in effect, at a crossroads. Will the country continue along its well-trodden path of price stability, or must it take a more free market route? Germany is, of course, no advocate of an Anglo-Saxon growth model that requires monetary expansion and inflation. Yet the government and the Mittelstand, the small and medium-sized enterprises that form the backbone of the German economy, were encouraged by the strong export-driven recovery the country enjoyed in the early part of this year. Now, Merkel must consider whether export-led recovery can cure the country's longer-term economic ills. The problem is that what really ails the German economy is low domestic consumption and investment, which still need to be addressed. For Europe, the stakes over the Greek debt crisis could hardly have been higher. It took a €110 billion rescue package to curtail capital outflows and restore market confidence in the eurozone, and even the bigger member states were left gasping for credit. Germany's response to the crisis was more than financial; it was symbolic of the Merkel government's recognition of the prohibitive cost of a country exiting the eurozone. Germany was also acknowledging the fundamental interdependence of markets in EU member states, and the threats posed in such circumstances by excessive institutional gaps. Most interestingly of all, perhaps, Germany was forcibly reminded that no solution is possible in the EU without negotiation with the other member countries. Indeed, the EU is in essence a negotiating system. Germany was not unaware that Greece and Portugal had serious fiscal difficulties before they entered the eurozone, but, through a process of negotiation, their entry was made possible. And, despite German-French disagreement over EU economic governance, negotiations have now paved the way for a unified EU stance, which has provided for the weaker “olive belt” economies of southern Europe, calmed the financial markets, and, one hopes, set the tone for coordinated and controlled growth. Twenty years of reunification have taught some hard truths in Germany. And now adversity may be teaching not only Germany, but also the entire EU, some valuable lessons as well — that negotiation is better than bitter disputes, that help is most effective when it arrives early, and that implementing a much-needed strategy is better than trying to circumvent a problem. Michael Bolle is Director of the Berlin-based Jean Monnet Centre of Excellence in European Integration. Cordelia Friesendorf is a research fellow at the Jean Monnet Centre. This commentary is published by Daily News Egypt in collaboration with Project Syndicate/Europe's World, (www.project-syndicate.org and www.europesworld.org).
