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A closer look at Merkel’s mistakes

Submitted by on 20 Dec 2018 – 11:29

Angela Merkel may well be a very skilled politician, but does that also make her a good politician? Pieter Cleppe from Open Europe think tank takes a closer look at the actual policies she delivered reveals that is not the case.

First of all, there were her chaotic migration policies, where she basically abdicated responsibility in the midst of the refugee crisis in August, 2015 by deciding to suspend the so-called Dublin rules.

Those rules force asylum seekers to apply for asylum in the first safe country of arrival. This didn’t cause the crisis, which had been raging for months, but it signified defeat. This was part of an overall failure by European countries to police the EU’s external border and organise orderly asylum procedures for people mostly coming from Turkey which, despite great challenges, manages to provide shelter to refugees.

It all made already complex integration challenges even harder and also led to more crime. Worst of all, terror groups abused the chaos. Merkel was at the centre of this pan-European policy failure.

Her attempts to divert attention from her own mistakes by pushing to outvote Central and Eastern European countries on the question of mandatory spreading of refugees in the passport-free Schengenzone – an impossible endeavour, when people can travel freely– moreover, helped to sour relations with these vulnerable democracies which were welcomed to the West after they escaped the Soviet yoke.

Also, when it comes to economic reform, she doesn’t deserve a lot of credit, despite the good economic performance of Germany during her time in power. The key reasons for this were welfare reforms introduced by her predecessor, Gerhard Schroeder, in 2003. By 2005, when Merkel entered office, Germany’s “unit labour cost competitiveness” had been restored. Her decision to introduce a federal minimum wage was actually a step backward and may well price the most vulnerable out of the labour market in the future.

Her energy policies, which include the phasing out of nuclear power, are very problematic as well. These are estimated to cost €1.1 trillion by 2050 and have already hit German consumers and industry hard. They are meant to reduce CO2 emissions but Germany is missing both its national and EU targets here nevertheless, also because of the increased reliance on “dirty”coal. In the absence of nuclear power, this source of energy provides the backup power needed when the wind doesn’t blow and the sun doesn’t shine.

Merkel also played a very questionable role in the eurocrisis, breaking the sacred ban on eurozone transfers that had been inserted in the EU Treaty in return for Germany giving up its stable national currency.

This has hurt support for the EU and caused a lot of anger. Those having to pay for the bailouts weren’t happy and neither were those having to accept the conditions linked to the transfers, sometimes even in the form of so-called “Troikas” – teams of foreign officials sent to supervise national policy.

Until today, she continues to push for more transfers and new bureaucracies, in a bid to stabilize the euro. She has been arguing for a eurozone budget and for the creation of a “European Monetary Fund”. These are the wrong kind of solutions. Since 2010, this approach has been tested and the eurozone is still a very shaky construct. Budgetary supervision from Brussels largely fails to force countries to reduce debt.

One approach that has not yet been tried is to create a sovereign insolvency mechanism, whereby eurozone countries that default on their debt would continue to be allowed to use the euro, while financial institutions based in these countries would lose their preferential access to the cheap money provision by the European Central Bank.

Some non-EU countries, like Montenegro, currently already have such a status. It permits a certain degree of monetary stability while avoiding the easy money dynamic and epic build-up of debt levels that we’ve witnessed in the eurozone. A lot of that debt was private debt, but it had been issued by banks enjoying cheap financing from the ECB.

What happened with the creation of the euro was that banks no longer had to obtain funding from their national central bank, but could in many cases obtain much cheaper funding from the ECB. That easy money wasn’t a blessing. It led to unsustainable public investment, most notoriously in Greece, but also to unsustainable private investment, for example in the Spanish and Irish real estate sectors. When the bubbles had busted, to save the euro, politicians like Merkel preferred to kick the can down the road and decided to organise bailouts.

During the eurocrisis, Merkel went for the easy option: enable more debt to cope with a debt crisis. “Emergency loans” were issued, but loans with artificially low interest rates are of course transfers. The fact that her own Finance Minister, Wolfgang Schäuble, disagreed with her in 2015, when he preferred to consider excluding Greece from the eurozone, shows that other, more sustainable, choices were available.

If one day we witness a eurozone break-up that is much more painful than would have been the case if politicians like Merkel hadn’t allowed the continuing build-up of debt, then it will be clear who is to blame.

The migration chaos and mishandled eurozone crisis have further tarnished the EU’s reputation in the eyes of an already sceptical British public. Merkel played a role in both and also when former UK Prime Minister David Cameron made a last-ditch attempt to reform the EU, so to decrease the chances of Brexit, Merkel wasn’t very constructive either. She ruled out changes to the EU Treaty early on, which made any extensive reform of the EU virtually impossible.

Her latest intervention to support the creation of an EU army, which is bound to undermine NATO and confuse the West’s security infrastructure, is yet more proof it’s time for her to leave office.

The opinions expressed in this article are the author’s own and do not reflect the view of Government Gazette.