German and Italian Finances Key to EU Future

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German and Italian Finances Key to EU Future

During a 1968 Cabinet meeting in Paris President Charles De Gaulle asked his renowned Minister of Cultural Affairs Andre Malraux (1901-1976) to summarize the challenges facing France’s two major partners in the newly formed “Common Market”- predecessor to today’s European Union (EU). Combining his well-known wit and wisdom Malraux famously replied “the problems in Germany are serious but not hopeless, while those in Italy are hopeless but not serious”.

A half-century later if French President Emmanuel Macron were to ask the same question posed by his illustrious predecessor the answer would be exactly the same.  Now as then circumstances in Germany and Italy will be decisive in shaping the future of the EU.

While EU leaders- e.g. Jean-Claude Juncker, Mario Draghi- are relentlessly upbeat in their assessments of EU prospects, their public optimism masks an ominous shifting of the tectonic plates undergirding the political and economic structure of the European Union.  Central to this altered reality are the disturbing and unexpected results of the most recent national elections in both Germany and Italy.

On the surface the most shocking of these two results was that in Italy, which as I noted in a March article (European Union: The Gathering Storm) saw “69% of voters endorsing radical anti-establishment parties espousing improbable and contradictory policy solutions but making clear popular fury at the political class that has ruled the country for generations”.

Many observers hopefully assumed the highly disparate constituencies of the populist parties would preclude any workable coalition among them.  Hence the great surprise when the two largest of these parties- the 5-Star Movement and the Northern League- announced tentative agreement on a left-right populist coalition that could command a legislative majority.

Beyond a dramatic but unfunded increase in welfare payments to poor Italians, and reversal of the hard won pension reforms of the previous government, the two parties are making demands that if granted would up-end the very foundation of EU financial rules, most notably their insistence on exemption from the 3% cap on national budget deficits and cancellation of the 250 billion euro debt owed to the European Central Bank.  Both parties are also threatening to hold a referendum on leaving the EU if Brussels is unresponsive to Italian demands.  Add to this the two parties commitment to lifting all sanctions on Russia and the growing alarm in Brussels is quite understandable.   The “New Italy” is potentially a threat to the entire EU.

The problems in Germany are less obvious and somewhat obscured by that country’s long- standing reputation for financial strength and rectitude.  They derive from the singular weakness of the governing coalition Angela Merkel put together after six months fruitless attempts to build stronger combinations.  They also reflect the growing tension between Merkel’s Christian Democratic Union (CDU) and its Bavarian sister party the Christian Social Union (CSU).

In order to entice the reluctant Socialists (SPD) to join her government Merkel had to promise them large increases in social welfare spending.  Yet to placate the more conservative CSU she had to agree to sharp reductions in overall spending.  Reconciling these conflicting impulses has led to cancelling much needed infrastructure investment and most ominously further weakening an already depleted defense budget.

The long term decimation of the once formidable German military was highlighted by a recent expose in the highly influential weekly Der Spiegel which revealed that only four of the Luftwaffe’s 128 premier Typhoon fighter jets are combat ready, none of Germany’s six submarine’s can put to sea, all eight attack helicopters are unfit to fly, and only 95 of Germany’s 244 battle tanks are operational.

The resulting scandal had the further effect of infuriating American military authorities that have long been critical of an affluent Germany’s failure to meet its NATO obligation of spending 2% of GDP on defense.

Clearly if Germans are unwilling to increase spending on their own defense they will be even less willing to increase spending on the EU so Italians can retire earlier.

Behind all these circumstances lies a truth too long ignored, namely that national histories, character, politics, and elections remain the dynamic forces in European affairs, not the Treaty of Maastricht, the European Parliament, or the ambitions of Brussels to expand its authority at the expense of national sovereignty and despite the widespread opposition of ordinary citizens.

If the EU is to have a viable future it might usefully harken back to its successful origins as a collaboration promoting economic prosperity not an instrument seeking political dominance.

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William Moloney’s columns have appeared in the Wall St. Journal, USA Today, Washington Post, Washington Times, Philadelphia Inquirer, Baltimore Sun, Denver Post and Human Events.

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