Schauble “Going Rogue”

by Henry Farrell on October 3, 2011

I’m not going to be able to blog my opinions on the latest iteration of the eurozone crisis in any detail, thanks to an exceptionally busy week (comprehensive orals to be supervised, reports to be written, grant applications to be reformulated, papers to be presented and book workshops to be sat in upon). Semi-organized versions of my thoughts can be found here and here; John Quiggin and I have another short piece that will likely be coming out soon. But fwiw I was distinctly heartened by the news today that “Wolfgang Schäuble”: and “Alain Juppé”: are both floating the idea of real fiscal integration and accompanying democratic reforms of the EU. This has plausibly been orchestrated. If they are right to think that this could be pulled off, it would finally create an intersecting set in the “Paul Krugman Eurovenn”: I’m still not optimistic – but I’m now prepared to up the odds to a 35% chance that Europe could actually get out of this alive. I’ve always suspected that Schäuble was “playing a complex game”: – he’s now putting his cards on the table. Unsurprisingly, this is giving rise to howls of indignation from conservative and euroskeptical Germans – this _Spiegel_ “piece”:,1518,789661,00.html (in translation) gives some flavor.

bq. FDP parliamentarians have long been convinced that the finance minister is not playing with an open hand, and that he would prefer to force them out of the coalition. But there has also been an increasing amount of discontent over Schäuble among the ranks of the CDU/CSU parliamentary group. … Many conservative parliamentarians, regardless of their position on the common currency, feel as if they are being treated with contempt. … Many German politicians are also insinuating that he has a hidden agenda. They fear that one of the last fully committed supporters of the European project is taking advantage of the crisis to advance his dream of a United States of Europe … heedlessly allowed himself to be drawn into a dangerous debate over whether the EFSF could get a banking license and leverage its assets to borrow even more money from the European Central Bank (ECB). Most of his German predecessors in office would have rejected such notions with indignation and referred to Germany’s traumatic experiences during the 20th century … In addition to being imprudent, Schäuble’s comments showed bad timing. … discovered that Schäuble was using a torrent of words and statements in an attempt to conceal what he is really planning and thinking. … Schäuble’s political style is also characterized by a good deal of posturing. … Schäuble had merely demonstrated another tactic from his bag of tricks as a seasoned politician.

That he’s arousing such vehement opposition (and nasty articles in prominent German news magazines) suggests that he may have a better chance of pulling this off than I would have thought yesterday. Fingers crossed …



Pete 10.03.11 at 6:26 pm

“real fiscal integration and accompanying democratic reforms of the EU”

Surely these are in direct conflict with one another? I wouldn’t be confident that the voters would support a transfer union.


steve from virginia 10.03.11 at 6:30 pm

It would be nice of the Europeans would come to their senses and elevate their level of crises to that of the United States or China.

Spending the weekend looking at tapes of World War One on YouTube does not offer much hope for European sense or sensibility.

Let’s just say for the point of conversation that the Euros get their fiscal act together and restructure their finance sector(s). What then? Will the Euros get their energy act together and cut resource waste, which is driving all the crises, everywhere in the world?

That may be a bridge too far …


Johann Tor 10.03.11 at 7:15 pm

I understand that this is not really a substantive post, but I think that it is a bit misleading to just throw this in, that since this is a proposal that arouses opposition, it must have legs. Schäuble is a career politician, very experienced, who understands his standing and can gauge his reach more or less accurately. He knows that reform at the EZ level is a way out and he is now making noises to calculate the electoral impact of a successful or a failed attempt at reform. Spiegel plays along, underlines his personal stake in the resolution of the crisis and helps crystallize the issue for the german electorate. I suppose it is another step towards an open discussion about the merits of a ‘more perfect union’ at the level of national electorates. However, I cannot see such a discussion being concluded at a time when we will still think that we are caught up in the present crisis.


Tim Worstall 10.03.11 at 7:58 pm

“but I’m now prepared to up the odds to a 35% chance that Europe could actually get out of this alive.”

I’d say that the probability of Europe getting out of this “alive” is 100%. The continent, the mixture of nations and peoples that make it up is, absent the dinosaur wiping out asteroid, going to survive.

You mean, of course, “Europe” as the current political arrangement of the European Union. Remote and unaccountable bureaucrats telling 500 million people what to do.

Whether this specific political arrangement of running a continent is going to survive is more arguable than whether “Europe” will do so.

The bureaucrats of course equate 2 with 1. If “we” were not here, it would be like the asteroid.

I will admit to being slightly puzzled as to why a specialist in political systems believes them.


William Timberman 10.03.11 at 8:07 pm

It’s notable, I think, that the Andreas Vobßkuhle, the President of the German Federal Constitutional Court which recently ruled against increasing the scope of Germany’s contribution to European bailouts beyond the EFSF without at least the approval of the Budget Committee, has now, like Schäuble, dropped the other shoe.

In a speech on German Unity Day, he repeatedly made the point that the way to a strengthened European financial structure is through a strengthened European political structure based on democratic principles. He and the court had been widely criticized, as was Schäuble, for getting in the way of the Eurocrats who were trying, with however little success, to get on top of an unprecedented situation. I wonder what his critics think now.

One guess is that the Eurocentric critics of the last two weeks are feeling somewhat more mollified. Another is that since yesterday, he’ll be accosted by a whole new swarm of critics who are once again alarmed at a possible loss of German sovereignty.


rf 10.03.11 at 8:50 pm

“but I’m now prepared to up the odds to a 35% chance that Europe could actually get out of this alive”

What do you mean by this? (Not picking holes but genuinely curious)


Henry 10.03.11 at 9:27 pm

Tim – if you want to put that spin on it, that’s your business, but it’s a somewhat odd criticism of a post which is specifically about how more democratization of Europe would be a good thing. When I say “Europe” I mean “Europe as a political space.” As opposed to the Europe that e.g. Friedrich Hayek and Margaret Thatcher wanted, which was precisely about remote and unaccountable bureaucrats running a Single Market (that they were supposed to be _pro-market_ bureaucrats actually does not make them any more accountable).

Johann – fair enough on my laziness – I will briefly say that the probability that real political change will happen during quiet times (when no-one sees any point to investing capital in politically costly decisions) seems to me no greater than the chance of change during crisis.

Pete – there is a question of whether or not voters would actually want a more fiscally integrated Europe. I think that it is plausible they would, if they had a chance to work out the likely alternatives (which would be nearly as economically unpleasant for Germany, with a wildly dmark or mini-euro, as for Greece).

rf – I simply mean that I cannot see any politically sustainable EU surviving either if it continues to try to limp along with half-measures until the whole thing collapses, or if it tries instead to narrow down to a Eurocore. Neither is a recipe for sustainable European politics – which is presumably why (at last – perhaps too late, perhaps not) politicians seem to be concentrating their minds a bit.

William – if I had had time the last couple of weeks, I would have written a post called “In Praise of the German Constitutional Court.” Most pro-Europe people view it as being – at best – a pain in the arse – but even if I don’t agree with bits of the Lisbon ruling (e.g. the idea that you have to have equal representation across all countries can be taken too far), I think that in general it has been a force for sanity and good sense. The debate between anti-democratic ECB/Bundesbank hardliners (the boot of anti-inflationary policy stamping on your head forever) and anti-democratic Europhiles (the people must have common economic policies! Even if they have no direct way to express their voice on these policies!) is a grim one – and even if Karlsruhe is making the path to European integration harder it is making it harder in the right ways (by forcing pro-Europe people to actually have a _politics_ rather than a sneaking and discreditable hope that creeping integration will do all the political hard work for them).


William Timberman 10.03.11 at 10:05 pm

Henry @ 7

On the subject of the Bundesverfassungsgericht, I couldn’t agree more. This is the way things must go, it they’re to go at all. Wiser heads in Europe understand this, I think, but I also think that the people who are filled with mistrust have ample historical grounds for their concerns. The only bridge over these troubled waters has to be more transparency in the way governments explain what they’re up to and why, not less.

I could be very wrong, but I think that the leadership of the ruling coalition in Germany is doing its best to move in that direction. Whether its best is good enough remains to be seen. In any event, I wish them well, largely because I think that Europe holds out more hope for the lovers of democracy at the moment than the U.S. does, even though that hope is, undoubtedly, more fragile than we’d like.


zamfir 10.04.11 at 5:51 am

Isn’t time a big issue here? Let’s assume there is a possible transparent and democratically supported process that will lead to a more powerful, democratically controlled European-level decision making system. Is there any chance that such a process will be quick enough to aid in this crisis?

It seems to m le that the best hope for now is a messy, possibly undemocratic resolvement of the current crisis, but in a way that creates as little precedent and limitations for the future as possible.


Alex 10.04.11 at 8:20 am

The only problem here is that whatever [copy-paste my standard half a stick of euro-y here*] they come up with is still absolutely unacceptable if it maintains the deflationary structural biases + open slather financial structure that got us into this shit.

*I recall that some tabloid hack confessed that he kept a text file with a half-a-stick of “sexy” he could copy into kiss and tell stories, just changing the names and key parameters as required. A lot of European politicians seem to do the same with “euro-y”


bert 10.04.11 at 10:23 am

Henry, what exactly is Schäuble’s deep game?
The “more Europe” solution includes a transfer union. It’s an inevitable consequence of eurozone imbalances. And it’s something he’s been stridently against. He wants to tighten the Maastricht straitjacket, which will prevent national fiscal policy from adjusting to imbalances. (Obviously, national monetary policy can’t adjust.)
Schäuble makes a desert and calls it Europe: follow him and you end up with perpetual austerity and crippled growth, with Germany rubbing along selling cars and capital goods in emerging markets with the help of an artificially undervalued exchange rate.


Johann Tor 10.04.11 at 10:40 am

Henry –
I take the point that crises can precipitate change. However, I think that the particular change we are contemplating will not come about as particularly a response to the crisis in the eurozone as it is now described. Consider that, politically speaking, this crisis is primarily couched in terms of profligate countries, irresponsible or self – serving lending institutions, and the wisdom (or fairness) of a particular german wage policy. On the face of it, it stretches credulity to suggest that federalization would be a solution. When you confront an electorate with a complex problem, you (rightly) try to impress the seriousness of the situation, but then it seems counterproductive to suggest that it would help if the democratic process of resolving it would be changed. My thought was that it will take a lot of talking, and a lot of time in general, to work out a political understanding of what were the political failures that could be held to account for the crisis, so that alternatives can be tabled. Right now emphasis is understandably placed on proposing solutions, and this of course shapes the political understanding of the crisis, but I believe there is a limit to how fast you can synchronize problem and solution for political purposes.
Of course the continuing failure to resolve the crisis could be sold as a failure of the present structure available to respond to crises, therefore precipitating some further federalization. But notice that the present generation of politicians have no incentive to declare their own ineptitude. Also that any coming politician would have to crystallize for political purposes the functions of present institutions and the structure of stakes they represent and suggest convincing alternatives. FWIW I doubt if any political party now active in any european country is prepared to go into such trouble.


otto 10.04.11 at 11:38 am

What are the “accompanying democratic reforms” that are being suggested? Some EU-wide majoritarian way of changing the ECB’s mandate? or what, exactly?


Henry 10.04.11 at 12:22 pm

bq. It’s an inevitable consequence of eurozone imbalances. And it’s something he’s been stridently against.

Bert – take a look at the hyperlink from “playing a complex game” above.

Otto – still vague – John Quiggin and I have more to say on what we would like to see (and I have a Democracy article from last year pushing for ECB oversight).


Martin Ranger 10.04.11 at 3:03 pm

From what I remember, and I might remember this wrongly, the Euro was viewed as a step to further European integration, even though that was never quite made explicit. I am sure Schauble was aware of this at the time. This being the EU, however, the integration necessary to make the Euro work never happened. The question now is whether the crisis will force the the politicians to implement the reforms necessary, or whether there will be one failed attempt after another to muddle through. Given the unwillingness by the individual member states to transfer authority to the EU, I can only hope for the best.


William Timberman 10.04.11 at 4:14 pm

John Quiggin and I have more to say on what we would like to see…

I hope you’ll put some of it here on CT. When I look at the current situation in Europe, and eavesdrop on what Europeans are saying about it, I’m reminded of some of our past economic history here in the U.S., but not the bits that people usually talk about.

What haunts me when I hear the public exchange of insults about Greece, Ireland and Germany are the long-simmering economic aspects of our own North/South culture wars. New England’s textile mills and furniture factories departing for North Carolina, new auto plants which once would have been built in Michigan winding up in Tennessee. Later on, of course, many of these enterprises were transplanted to Mexico, and then to China, but by that time we’d forgotten what birthright it was, exactly, that we’d traded for a mess of pottage.

The right-to-work disease was always emblematic of more than simple economics, and it strikes me that much of what’s driving the financial-crisis-as-morality-play in Europe has analogous roots. Not exactly a brilliant insight, I realize, but it is often overlooked when U.S. economists say things like why, oh why, don’t those short-sighted Eurocrats get it?


otto 10.04.11 at 4:40 pm

I hope you will flesh it out with some specificity in your piece, because phrases like “ECB oversight” certainly cover much options which would involve much less than changing-the-banks-mandate-against-the-will-of-ECB-staff-and-German-government and it’s that sort of result, I think, which is relevant to e.g. democratization of possible solutions to the crisis.


bert 10.04.11 at 8:14 pm

Ah. And I see that I commented on that thread too.
In the time between then and now, during which he has been pushing the hardest of hard lines, I’d completely forgotten that he’d used that term. I shouldn’t have done: it’s quite a thing for a man in his position to have said. Of course, there’s always a question regarding which signal to which audience offers the key to a politician’s authentic purpose. Always assuming said politician has an authentic purpose in the first place.
But I see now where you’re coming from, thanks Henry.


Neel Krishnaswami 10.05.11 at 6:51 am


The right-to-work disease was always emblematic of more than simple economics […]

No, it’s not. The libertarian (and also, Marxist) explanation of right-to-work is both complete, and accurate: business owners like the idea of restricting the right of contract in order to make it harder for workers to bargain for higher wages, and they will try to work the political process to make it happen. As far as I can tell, that sentence leaves nothing further to be explained.


William Timberman 10.05.11 at 7:57 am

With all due respect, NK, you overlook the cultural impact of an irredentist South on American economic policy, which is painfully obvious to anyone who’s lived in the U.S. all his life. Despite what economic theories may have to say, it does exist. Like the air we breathe, it may be invisible to someone who lacks the instruments to perceive it, but its invisibility says nothing instructive about its influence.

I suspect that we’re not speaking the same language, or rather we’re using one language in two very different ways. In any event, I stand by my original statement.


bert 10.05.11 at 10:29 am

Schäuble, also in the FT, more recently.

The final paragraph will be what you’d point me to, no doubt. To my ears though it’s very heavily hedged. The entire rest of the piece is where German reality is: “Hence my unease when some politicians and economists call on the eurozone to take a sudden leap into fiscal union and joint liability.”

So, your point about a federal future as Schäuble’s longterm endpoint stands.
As does mine about the insistence on austerity medicine.
It seems to me that Germans, Schäuble included, are very far from accepting an ongoing case for fiscal transfer inside a currency union.


Ebenezer Scrooge 10.05.11 at 12:01 pm

@ 19:
Your explanation is not complete, because it is solely about the benjamins. But Southern economic development is not solely about maximizing the wealth of the oligarchy. It is also about maximizing their social standing, which is inconsistent with wealth maximization. Wealth maximization implies economic dynamism, which implies a certain degree of meritocracy and social dynamism. The Southern oligarchs prefer to maximize forelock-tugging to wealth.
This is why they take a cargo-cult approach to development, luring in factories whose industrial proletariat won’t disturb their way of life. Right-to-work is central to this. Most Southern states abjure entrepreneurial economies, which might open things up a bit too much. There are exceptions, of course: Atlanta, much of North Carolina, most of Texas.
I was going to go on to talk about the role of Jews in all this, but you see where I’m going and my kid is waking up.


P O'Neill 10.05.11 at 11:27 pm

Eamon Gilmore:

He said Ireland did not favour fundamental reform that would require EU treaty change. “There isn’t a political appetite here or, that I am aware of, in other European capitals. So I don’t think treaty change is on the agenda now or in the foreseeable future,” he said. “Look at what is required for a significant treaty change, changed competences and so on, requirements for an intergovernmental conference or, for example, the holding of a referendum here,” said Mr Gilmore.


Watson Ladd 10.06.11 at 8:32 pm

I think this shows a specific case of the paradox of the EU: being formed by treaties between nations it doesn’t really define the relations between its component parts, which can lead to all sorts of oddities (like the EPO permitting patents that are banned by the European Parliament iirc). A broader democratization is necessary, but that is going to involve national governments giving up sovereignty, which they are loath to do.

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