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Britain, Germany and Eurozone integration

On her one-day visit to London last March, German Chancellor Angela Merkel had the special honour of addressing both houses of the UK Parliament in the Palace of Westminster’s Royal Gallery. Despite the great anticipation surrounding her speech, she downplayed any notion of satisfying either Eurosceptics seeking concessions on future EU treaty negotiations or Europhiles hoping to counter such efforts. In any case, Prime Minister Cameron will need the support of the German leader in order to have any chance of succeeding in EU reform.

Euro Note Currency, JT - TheEnvironmentalBlog.org, CC BY-NC-ND 2.0

Euro Note Currency, JT – TheEnvironmentalBlog.org, CC BY-NC-ND 2.0

Behind the high-profile displays is a latent political discourse indicative of the changing power dynamics in Europe. Germany is on the rise – a fact which, notwithstanding its historic hesitation, it is beginning to embrace. This is no clearer than in the country’s central role in the EU and the Eurozone. Its resolve has been tested throughout the economic and financial crisis, as it has borne the greatest burden in the Eurozone bailout programmes. Germany has steadfastly supported both the integrity and the membership of the single currency. Yet the bailouts show us that even Germany continues to view European integration through the prism of national interest.

The Eurocrisis was a major test of how far euro countries were willing to support each other in times of great financial need. All of the Eurozone’s assistance programmes, including the permanent European Stability Mechanism, are funded proportionally based on economic size. Germany, as the largest Eurozone economy, pays up the most, holding 27% of the ESM’s shares.

With the status of chief contributor, the German government’s responses have been tempered by lacklustre public support. In February 2012, opposition in Germany to the second Greek bailout was as high as 60%. The prevailing notion has been ‘why should we have to spend our money helping other people fix their own problems?’ – which is in itself testament to the absence of a genuine European community. German politicians may rely on rhetoric of ‘solidarity’ to justify their actions, but this reflects neither reality nor apparent public opinion.

Instead, in recognition of public disaffection with the massive bailouts, Germany insisted on conditionalities – not only on the internal management of the recipients’ economies, but on political integration in the Eurozone. Political union is seen as the only way in which the German government can sufficiently legitimise its actions undertaken in the present political framework.

Further integration is designed to do more than simply increase the responsiveness and accountability of the European Union. The transfer of powers to the European level by euro countries gives Germany more control over the macroeconomic situation of the Eurozone, since it holds the greatest influence over the bloc. Political union appears to satisfy both the purported need to imbue the EU with a stronger democratic character and the German desire to more actively manage the Eurozone so as to ensure its stability. At the same time, it ostensibly justifies ex post facto the intervention of countries such as Germany in the bailout recipients’ finances.

Some steps at increasing integration in the Eurozone have already been realised in the push for fiscal union and the banking union. Germany has made it clear that it wants to incorporate these arrangements into the EU treaties, which is probably the only reason it would agree to treaty change in the near future. Presumably more political integration for the Eurozone, in forms not entirely known, is yet to come.

So, why has Germany continued to stand by the euro throughout the crisis? Beyond the net economic benefit or loss, Germany has key political interests in ensuring the euro’s survival. Its failure could have undermined confidence in the EU, which would have been detrimental to economic, if not political, stability. Germany has very effectively used the development of the European Union to legitimise its own position and return to power, and the collapse of the euro would have undermined this process.

Regardless of whether the euro is an economic or political project, Germany has seen it in its interest to maintain it. That support has come with the expectation of political integration. Needless to say, Eurozone political union will deepen the divide between euro and non-euro countries in the EU.

Britain seems increasingly unlikely to ever join the euro. In so doing, it will remain part of an ever smaller group. Currently, 10 EU Member States remain outside the single currency. That number will at least halve in the years ahead. The UK’s biggest challenge in the EU, absent the all-consuming referendum prospect, is ensuring the rights of non-euro countries as the Union develops. Problems have already come up in financial services regulation and in the division of responsibility between the Eurozone’s European Central Bank and pan-EU agencies like the European Banking Authority.

The UK government has not stood in the way of deeper Eurozone integration. Indeed, it has recognised this as necessary for the euro to survive, which is essential to Britain’s own economic prosperity. Maintaining the European Union’s cohesion will require focus and determination. In general, euro countries have expressed goodwill towards the non-euros. This however will only go so far, as policy needs and political and economic realities take hold.

For Britain, the single market is the heart of the EU. For Germany and the rest of the Eurozone, it’s more often the euro. Squaring this difference may well become the EU’s defining task of the coming decades.

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Shortened link: britainseurope.uk/20140801

How to cite this article:

Salamone, A (2014) ‘Britain, Germany and Eurozone integration’, Britain’s Europe (Ideas on Europe), 1 August 2014, britainseurope.uk/20140801

An earlier version of this article was published on the LSE European Politics and Policy (EUROPP) Blog.



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