EU recovery fund a blueprint for division, not unity
During the worst clashes between the Greek and German governments amid the euro zone crisis, a German official attempted to dissuade me from insisting on debt relief for Greece with the argument that Germany may be rich, but a majority of its people are poor. On this point, he was right.
A recent study has confirmed that half of Germany’s population owns just 1.5 percent of the country’s wealth, while the top 0.1 percent own 20 percent. And inequality is getting worse. During the last two decades, the real disposable income of the poorest 50 percent has been falling while that of the top 1 percent has been rising fast, along with house and share prices.
It is against this background of high and rising inequality that the mood of the German public must be understood, in particular popular resistance to the idea of a euro zone fiscal union.
German workers, who are increasingly struggling to make ends meet, understandably refuse to endorse the idea of huge amounts of money being constantly channeled to citizens of other countries. The fact that Germany is getting richer overall is irrelevant to them. From experience, they know that any money sent to Italy or Greece will probably come from them, not the top 0.1 percent — not to mention that it will probably end up in the pockets of vile Greek oligarchs or of private German companies that have purchased Greek assets for next to nothing.
As a result, the EU’s recently agreed €750 billion ($884 billion) pandemic recovery fund — dubbed “Next Generation EU” — threatens to deepen divisions across Europe, rather than be the unifying balm of many commentators’ dreams. Setting aside the scheme’s macroeconomic insignificance, it is important to take a fresh look at it from the perspective of a typical German worker languishing among the bottom 50 percent of the country’s wealth distribution.
Her government, a typical German worker is told, will be liable for €100 billion of new debt that the EU will use to help foreigners recover from the pandemic’s economic fallout. “Italians will receive €80 billion from Europe’s Recovery Fund,” she hears. “Spaniards will collect €78 billion, and even the Greeks will pocket €23 billion.” And what will she get? Less than nothing. Because her government is already in fiscal consolidation mode, trying to return its budget to a small surplus by 2021, she can expect only stagnant wages and more austerity for her local hospitals, schools, roads, and other infrastructure.
While she may well feel compassion toward the Italians and Spaniards, who lost so many people to the coronavirus disease, she will never accept repeating this exercise in debt mutualization on behalf of Southern or Eastern Europeans. The solidarity of German workers, toward whom no one shows any solidarity, has its limits — as it should.
It is almost as if the whole thing were designed by a cunning Euroskeptic.
And yet, no sooner had Next Generation EU been approved than it was hailed as Europe’s first move toward fiscal union. Boosters failed to take the pulse of Germany’s majority, a mistake that neither Chancellor Angela Merkel nor her successor is likely to make. If anything, the way debt mutualization was snuck into the financing of Next Generation EU will probably turn out to be a mortal blow to a proper fiscal union.
It’s not hard to understand why. Debt mutualization is, undoubtedly, a necessary (though not sufficient) condition for turning the euro zone into a zone of shared prosperity, in the interests also of German workers. But it needs to be executed properly and to be communicated persuasively. Consider the fiscal union that is the Federal Republic of Germany, before contrasting it to what the European Council just created.
When German capitalism goes into crisis, for whatever reason, the federal government’s budget deficit rises automatically, as benefits flow disproportionately toward the states affected by the greatest rise in unemployment and the steepest drop in state revenues. The beauty of this proper fiscal union is that no German politician must decide which German state gets which transfer.
Imagine the horror if Germany’s Bundestag, or a forum of state minister presidents, had to negotiate how much money each of the richer states, like Bavaria, North Rhine-Westphalia and Baden-Wuerttemberg, would transfer to each of the poorer states, like Thuringia, Saxony-Anhalt and Mecklenburg-Vorpommern. And imagine if, just before the monies were disbursed, the minister president of Bavaria could block the money for Thuringia for up to three months in order to scrutinize its public accounts. German unity would be shattered and the country would be paralyzed.
I have just described the fatal divisiveness that has been baked into Next Generation EU. As I have written elsewhere, it is almost as if the whole thing were designed by a cunning Euroskeptic.
Over the coming years, as Next Generation EU is activated, Germany’s elites will scrutinize Italy’s, Spain’s and Greece’s accounts. That will help divert German workers’ anger at the austerity they (along with Italian, Greek and Spanish workers) are suffering toward their Italian, Spanish and Greek counterparts — who, naturally, will return the animosity. This is no recipe for unifying Europe. It is a blueprint for dividing people whose interests are, in fact, aligned.
Those of us who truly want to unify Europe have a duty to begin by showing solidarity with the half of Germany that owns 1.5 percent of its wealth. Before we even mention Eurobonds, we must first campaign for higher German wages, a ban on share buybacks, and sharply curtailed corporate bonuses. Next, we must demonstrate to our German friends that current EU policies fuel Germany’s wealth inequality, adding to the riches of the 0.1 percent and to the difficulties of the majority. Finally, we must explain to them what a genuine fiscal union means: A transfer of wealth not from Germany to Greece or from the Netherlands to Italy, but from Hamburg, Lombardy and North Athens to Thuringia, Calabria and Thrace.
- Yanis Varoufakis, a former finance minister of Greece, is leader of the MeRA25 party and Professor of Economics at the University of Athens.