Merkel, the hara-kiri of national sovereignties and the birth of European Economic Government

, by Joan Marc Simon

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Merkel, the hara-kiri of national sovereignties and the birth of European Economic Government
Euro symbol in Frankfurt, Germany Source :

The front-page of today’s Spanish newspapers (4-2-11) joined the country’s main political actors in cheering the words of Merkel: “Spain is going in the right direction with the reforms”. I almost fall off the chair: A foreign leader coming to Spain –a sovereign nation-state, at least on paper- and telling the democratically elected leaders what they have to do. And everybody finds it normal!

This is the most serious intromission into Spanish sovereignty in my living memory and the Spanish media and actors welcome it as good news. I’m not going to do a qualitative analysis of the reforms that Merkel has imposed on Spain -and other countries- but rather on the fact that a sovereign country is managing to force other sovereign countries to do what it thinks to be right. In the past this could be achieved only with the use of military force. What has changed?

Many will argue that what Merkel is doing is necessary for the common interest; that we need to encompass fiscal policies in the euro-group in order to bring macroeconomic stability to the euro-area so that the euro can continue to exist. They might be right but the method she is using is questionable; what power does Germany have –other than being the big brother and creditor of the euro-zone- to impose fiscal policies to other sovereign states? According to the EU treaties the monetary policy is European and managed by the ECB but the fiscal policies remain a national competency. This has been questioned by many since the Maastricht treaty and time has proven that we can’t have a common monetary policy and 17 different fiscal policies. Instead, the Growth and Stability pact was supposed to regulate the fiscal convergence of the union and any attempt to advance towards a European Government was sabotaged by one or another country on the ground of national sovereignty. Well, the events of last months show that national fiscal sovereignty is gone… to Germany. Germany decides the measures and evaluates its implementation and, whether we like it or not, it didn’t ask for permission to do so.

Legally speaking the guardian of the treaties is the European Commission and if the G&S pact was infringed it is the role of the EC to intervene. The problem is that nobody obeys. The current crisis has shown the real power of the “European executive” when is the time to “execute”. The only one who –on paper- should be going from capital to capital telling others what to do and evaluating if countries are doing the homework should be the EC president, J.M. Barroso. But he just can’t. When things got tough the commission has been pushed aside and the show has been handed by those who really have the power, i.e. Germany and, in a lesser extent, France.

Once again, I’m not saying that the measures that Germany is imposing on the rest of Europe are wrong but I do find surprising that the biggest takeover of national sovereignty by a European member state since World War Two goes unnoticed. During the last decades the big obstacle that has stopped the EU from moving forward has been the unwillingness of the member states to share more sovereignty, notably in budgetary and fiscal matters, yet they have no problem ceding this sovereignty to another EU country when it is necessary... This doesn’t make sense. If the citizens of say Spain care about Spanish sovereignty they should react when the government –and the opposition- they elected place a foreign government at the wheel of the national economy. Or is it that no such a thing as “national economy” exists anymore?

I’m one of those who believe that the concept of national sovereignties belongs to the past and that we need to shape supranational democratic structures that distribute sovereignty in different layers but I also know that not too many people share these views, especially in Spain. Yet when the time comes to defend this national sovereignty all the Spanish nationalists see no problem in letting the German government decide on behalf of our democratically elected politicians. Is it that people just got used not to have any say on anything and accept the reforms from abroad as an apocalyptic punishment? How can we justify this from a democratic point of view?

I have no doubt on the good-faith of the German government in its current role of playing the European government. Their motivation to intervene in other European economies is driven by the fear of losing the credibility of the common currency, losing the European market of consumers of German products and risking the pay-back of German loans and investments in case of bankruptcy. After all, Germany is only defending its own national interests by intervening into others sovereignties. But even if the German motivation is sensible the method can’t be acceptable as modus operandi for the EU.

I think it is too early to draw economic lessons of this crisis but we have seen enough to draw the political lessons; those are:
-  Like it or not, the EU needs a common fiscal policy. Nobody can continue to oppose it on the ground of national sovereignty because the crisis has shown that such a thing doesn’t exist anymore, currently the German government decides on the national fiscal policies of most states in the euro-zone.
-  We need an European Economic Government, because in the absence of it the European Economic Government of the euro-zone is Germany which some might argue that it is not that bad but it certainly goes against the democratic principles of the EU,
-  In order to legitimise the European Economic Government and give it the necessary strength to make credible interventions in crisis situations it is necessary that the presidency of the European Commission gets the mandate from the European people. And that can only be done with European-wide elections to elect the president of the EC. Only like this can the future the president of the EC do what Merkel is currently doing.

Arguably these and other political reforms will have to wait until the house is put back in order and this means that until that happens Ms Merkel will continue to be Ms Europe and the German government the de-facto European Economic Government. But once the macroeconomic situation is back on track these political reforms are indispensable for the future of the EU.

If when it comes to fiscal policies the euro-zone countries continue to be attached to their national sovereignties there are only two options; the end of the euro –caused by the imbalances between monetary and fiscal policy- or the end of European democracy with the logical revival of nationalist tensions between European states.

The only desirable way forward is to give the EU the tools to act in a credible and democratic way. The time when Germany was willing to give away power and money to the EU is over. Germany has learnt the hard way that the European partners were not reliable and in the absence of the right governance tools it had no choice but to intervene and impose fiscal discipline to other sovereign states. The weak “common trust” that existed before the crisis has evaporated and the current model of German control on the national fiscal policies is not acceptable. The only way forward is to have a democratic and capable European Economic Government.

Democratic so that in the future all the euro-zone states can together take the decisions that this time Berlin had to take on its own. And “capable” so that it has the means to generate the necessary trust and checks-and-balances to prevent situations in which some member states report false budget data or spend EU money in highways going to villas of some politicians.

Sadly, I’m quite sure that the day we have such a plan on the table the same national media and political actors that today cheered the intromission of Ms Merkel into national affairs they will jump and scream against “Brussels” trying to take over the indivisible and intransferable national sovereignty –that they lost long ago-. But as Proudhon said “When deeds speak, words are nothing”.

Image : Euro symbol in Frankfurt, Germany - Source :

Your comments
  • On 10 February 2011 at 10:38, by Niklas Replying to: Merkel, the hara-kiri of national sovereignties and the birth of European Economic Government

    Dear Joan,

    please tell me how Merkel is actually intervening in the sovereignty of the other states in terms of fiscal policy? Germany can put forward political demands, since it has a legitimate interest, that the Eurozone will not collapse and that a second bankruptcy will be avoided, but that does not mean that the political decisions of Spain in terms of Fiscal Policy are being made in Berlin or that the Parliament in Madrid is being pretermitted? The only one, at highest, who is questioning the Spanish capacity to act and dictating the politics are the financial markets mainly to own mistakes and bad economic policy.Indeed a Economic Government will mean that Germany has to listen more to the needs of the smaller Member States, which will probably good, but its misleading to draw a picture of a new German Reich or something, how differentiated your article may be. So the argument for the Economic Government is not that otherwise Germany would be in control of everything, but that the only way to gain back political capacity back is to put forward reforms and to gain back competitiveness probably in a pre-decided manner. Even though I believe it is time for such a step, I rather see the problem of politicians who have the illusion of controlling macroeconomic structures.

    Best, Niklas

  • On 10 February 2011 at 12:57, by Nick Panayotopoulos Replying to: Merkel, the hara-kiri of national sovereignties and the birth of European Economic Government

    1) “Sovereignty” needs to be re-defined, in terms and factors that are relevant in the 21st century. Eg borrowing from foreigners undermines S., especially when the “real” investors are foreign governments/states (eg the Chinese Communist Party). S. also depends on an entity’s level of self-sufficiency in eg staple foods, energy and other basic elements that can keep it running in times of internal, regional or global crisis (eg the 2008 global staple foods & oil prices crises). In that respect one can start talking of the Sovereignty of the EU as more achievable in our global and volatile era than than of its individual members.

    2) IMO Germany and its influence on Euro monetary policy (ie fixation with low inflation that led to high interest rates that led to an expensive Euro that led to suffocation of some many Euro firms & products by Chinese, US as well as UK and German ones in large part of the previous decade) is as responsible as anyone for the 2010-... Euro crisis. Except maybe for the NK, other Euroozone economies did not have much experience in producing exportable goods with high value/price ratio. But how many such “German” products can the EU and world markets absorb (and at what prices), should all Eurozone17 becomes “German” (in economic modelling terms).

    3) The EC cannot take the lead as the author suggests, because the UK is part of the EU and would block economic governance rules to be included in the EU legal framework (even only for EZ members). Hence a Schengen like, outside the EU framework pact becomes the only solution, partly because of the UK! Why is Germany the one leading it? Among other reasons, because the 27 and even the 17 have not yet learned how to work as a team or delegate to such as the EC, etc.

    Hence, full of oxymora and Catch22s as always, in this historic period for the history and future of Europe, Germany and France, 2 of the 6 founding members of the EEC & 2 other original communities, had to take the lead, tactfully or not. Not the best way possible, IMO, but necessary under the circumstances. Could/can 17 sit down and elaborate a plan, w/o a draft from 1-2 of them first? In theory of team dynamics, it is possible, in practice though, very hard. Let’s see what additions and amendments the 15 propose on March 11 (at the 1st Euro Summit)!


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